Sign Kansas Banking IOU Fast

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so let's suppose that you and I are the only people in the world okay and that you are making something I want and I'm making something you want but that these wants and and productions aren't lined up in time so we have a problem I need to get your stuff without having anything to give you you need to get my stuff without me having anything to give you so so barter is not going to work here okay so one way we could arrange our our lives okay is to have money you can sell me some goods so I'm writing - goods so you had goods on your balance sheet and now we're subtracting them from your balance sheet and sell them to me plus goods okay and I send you some token okay in the other direction okay so - a chant there's a change in my holding of money Delta M okay and here plus not so complicated we're gonna start simple okay that is money that's money but suppose there is no money in this economy yet or we haven't agreed on it or something let's now think of another another mechanism we could do this entire thing not with money but with credit with pure credit just by keeping track of accounts so I get the goods from you and I say thanks for those goods and let me just write a little note to you indicating that I owe you I owe you and that's a liability it's a debt I owe you and that is a I'm gonna put Delta as changes in IOUs because we may already have our use out there as well and there's just more IO use now okay I owe you more because I have these goods here so this is this workhorse requires us to trust each other and things like that that these are these are IOUs and some might be the sort of thing you use with friends right like I'll pay for lunch today you'll pay for lunch tomorrow that's sort of that sort of thing you're familiar with that but if we don't trust each other so that's that's the pure credit kind of system one thing I want to note about this pure credit kind of system which we'll come back to it's kind of important later on notice that the quantity of outstanding IOUs increases when we make a transaction you know we're writing a new piece of paper that says I owe you whereas when we did it with money we're just exchanging existing pieces of paper back and forth the money supply isn't changing when we when we move a piece of paper from my pocket to your pocket okay but the credit supply is changing the outstanding quantity of credit is changing when I write an IOU so there's an expansion of credit in this this mechanism so it's a little different but now suppose that you know we don't trust each other we don't know each other well enough we are not sure we're gonna see each other again or something like that so now but we trust some third party that's why I left that room in between these two okay and that third party is willing to step in between the two of us okay accepting my IOU and issuing its own iru which you accept I'm gonna call this third party a bank okay now I've used em even though this is a liability of the bank and it comes from nowhere it's it's an expansion of the balance sheet so just like in the pure credit economy there's an expansion of the money supply there's an expansion of credit in order to facilitate this transaction okay there's more money because money is a form of credit actually in this world it's a liability of the bank so that's why it expands and and contracts as balanced as the patterns of trade move all right all baby stuff okay but some deep and puzzling economics under underneath that this of course isn't is much more like the modern economy okay the moderate the modern economy economy works okay in in a very stripped-down simplified way