Question

Why is money considered to be debt?

Answer 1

lets think of Barter System(society without the money).There is a farmer,Milk producer,Tailor,Carpenter and so on.

Suppose you are a farmer and you need milk.So you go to the Milk producer.You have food to give in exchange but the milk producer does not want the food at the moment.So you write him a note,that you owe him so much food and takes milk from him.Now,he can use that note in the future to get food from you.

But before he needed food he realise that he wants a cloth,so he goes to the tailor to get a cloth.He has milk to offer but the tailor does not need milk at the moment.So he has the option to write him a debt note.But it also comes up that the tailor needs some food at that time.So the milk producer can offer him the note given by you which he can later redeem with you.So the milk producer uses that note to buy a cloth.

That note is the raw form of money and even in its raw form,it is based on debt.Money is just a record of debt,So it has to be based on debt.

The note issued by the farmer would get redeemed with the farmer in a few transactions and would disappear.Instead of this they can simply use debt instrument(like Token) to get what they want from other and the other can use it to get what he wants from another and it can circulate.

They decided to use something which is rare and not easily reproducible(like metal) and which can also serve the purpose.

Now,we just use the notes issued by a body formed by the society(normally called Central Bank).It is based on acceptance.You accept that currency becuase you know that someone else would accept it from you.

Thus Money is Debt.