Money as debt? Money as claims!

Idea 27 September, text


The well-known video Money as Debt, made by Paul Grignon, was my inspiration for writing this series of articles, already in 2007. It lasted until June 2012 before I actually started writing – after further and ongoing study of the subject.

As I wrote, I learnt a lot and got to understand things much better than I already thought I understood them before.

Two sides to anything

The title “Money as debt” you could also interpret as ‘money IS debt’. In a way, that is true. Any granting of credit inevitably causes money creation, and clearly credit is connected to debt.

In double bookkeeping, everything has two sides. Within any balance sheet, the total of all debits must equal the total of all credits.

Likewise, a financial liability in one party’s balance sheet, corresponds to an asset in somebody else’s. So any debt is also a claim, albeit for a different party.

For that reason alone, instead of saying ‘money is debt’, you could also say ‘money is claims’.

What is money?

And this in fact nicely corresponds to widely accepted descriptions of what money actually is. Note that we are talking about money in the monetary sense here, which isn’t always the same as money in the everyday sense.

In that article no. 16 I just linked to, I already quoted some money definitions by central banks in the US and the eurozone.

From these definitions, we can see that the essential point about money is ‘claim’. By having money, you can claim some other form of money. You can buy goods and services, in other words, money enables you to claim obtaining these.

Money can be:

Although technically equivalent, saying that money is claims, conveys a totally different feel, a different suggestion, than saying money is debt.

Money as debt

‘Money as debt’ conveys the messages:

Money as claims

‘Money as claims’ conveys the message:


Would Paul Grignon have chosen his title “Money as Debt” deliberately, to suggest things, to deceive and mislead? Or inadvertently, out of an insufficient understanding of the subject at hand?

I assume the latter. I believe in good intentions, unless and until there is evidence to the contrary.

Point of view

(Addition 23 October 2012)

Balance sheets are always important and clarifying. And then again we see that the statement ‘money is debt’ is correct – but for the bank, not the public.

From the point of view of the central bank, outstanding banknotes are a liability. Therefore they are present on the right side (credit side) of the balance sheet. In other words: banknotes in circulation to the central bank are debt.

To the persons and companies that hold those banknotes, they are not debt, but claims, assets. Therefore they appear on the asset side, debit side, left side of their balance sheets.

Likewise, deposits in a non-central bank, that is, credit balances in bank accounts held by the public, are debt (liability) for the bank, and not debt for the account holder. For the account holder, they are assets, claims, financial belongings.

So now we see more clearly, that the title of Paul Grignon’s video is indeed misleading: it suggests that evil bankers, in order to allow people to have money, create debt for the people, in order to make them indebted to the bank, even to enslave them.

In reality, it is exactly the opposite: money entails that the bank is indebted to the people. The people have the money, which means claims and purchasing power.

Addition 29 October 2012

After criticism in Dutch-language discussions here and here and here, I changed the wording somewhat, to make it explicitly clear when I mean banknotes that the central brought into circulation, and not banknotes that are (still or again) in the central bank itself.

Addition 14 November 2012

In a comment on 23 October 2012, Douwe wrote (here quoted in my English translation; I do quote it in the original Dutch here):

This is an enormous strawman you are giving to Money as Debt here, by depicting it as if they say: You can only obtain money by borrowing it from a bank.

That is incorrect, that’s not what they’re saying, they say that all the money in circulation has once been created as debt, that’s a different thing entirely.

And Douwe is right about this. That is, the creation of any kind of money (except coins with a metal value that matches their nominal value) involves the creation of debt. So ‘money as debt’ is correct in meaning ‘money originates from the creation of debt’. But still, ‘money IS debt’ is incorrect, because money is claim, which is the opposite of debt.

So what I wrote above, is indeed a strawman, and I admit I should have been more careful about this. What I suggested the video “Money as Debt” suggests, it does not in fact state.

However, if that misinterpretation came up in my mind, other people can get that false impression too. So it is good to stress what is actual fact:

Any money in the form of a banknote or a credit balance on a bank account, at some point in the past originated from the creation of debt. However, from then on, that money, which is claim, was passed on from person to person or company, and from company or person to other persons or companies. So it is quite possible to obtain money without having to borrow it.

Note: the same suggestion is in my article 15. But it is probably less unjustified there, because the article that that article refers to, is about fixed mathematical relationships between amounts. Food for thought.

Addition 15 april 2016

See also this concise comparison, which clearly shows why a bank cannot ever pay anything with money they themselves created. Simply the wrong side of the balance sheet!!

Copyright © 2012 R. Harmsen. All rights reserved.