In this way, money as a store of value and money as a means of exchange become increasingly entangled with one another. And it’s this problem that helps to explain the ups and downs of the business cycle and the inability of governments to respond to a monetary crisis in any meaningful way. The economy abounds with factories, raw materials and skilled labour, but often there’s no money to lubricate it. So either policy makers must issue more money and go further into debt (the stimulus approach), or try to pay back the debt and choke off the economy in consequence.
Either way, the banks win. More debt means more interest-income for them, and a choked-up economy means that they can acquire troubled assets cheaply. So what’s the solution?
The way out of this paradox is to use different instruments for different functions, as has been the case during a great deal of monetary history (though this is often unacknowledged). Modern legal tender is a descendant of store-of-value money. On the other hand, ‘common tender’ describes the plethora of non-valuable monies that have often circulated on a local basis.
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