The Foundational Principles of Money and Wealth

I want to explore some foundational principles of money and wealth—specifically, what money is and what it is not. Money is not wealth. Money is a tool that society uses to direct wealth where it should go.

Wealth is the result of human labor applied to natural resources, producing useful goods or services. From a Christian theological perspective, all such wealth ultimately comes from God. God created humans and gave them the capacity to work, think, and use their bodies. God also created the natural resources we draw from the earth. In that sense, humans are not owners of wealth so much as stewards of it.

When it comes to fiat currency issued by governments, that type of money is essentially created “out of thin air.” When a government decides to print money—or digitally create it—it simply declares that this new money exists. That declaration is what gives the currency its legitimacy.

There is also a second way money enters the economy: through bank lending. When a bank issues a loan, it creates new money. In this way, banks function as sub‑licensees of the government, empowered to create money within the financial system. One fascinating aspect of this process is that when a loan is repaid, the money is effectively destroyed or removed from circulation.

Only after money has been created—either by the government or by a bank—can the government require citizens to return some of it in the form of taxes. An individual citizen cannot create their own money; if they tried, it would not be accepted as legal currency. You cannot pay your taxes with your own homemade money.

This brings me back to the idea that money is a tool society uses to tell wealth where to go.

I remember hearing about the first NFL stadium projected to cost over a billion dollars. Through countless individual, business, and government decisions, society collectively determined that the best use of that billion dollars’ worth of wealth was to build a football stadium. We could have directed that wealth toward food, housing, clothing, military spending, or a soccer stadium instead. The point is that we had a billion dollars’ worth of wealth, and we chose to send it toward a football stadium.

Another important idea is that all money represents a debt, except possibly the very first moment when the government creates new money. If you take out a loan for a car or a house, the bank creates that money, and it represents a debt you owe. But even in everyday transactions, money functions as the settling of debts.

If you receive a paycheck every two weeks, your employer owes you a debt equal to the value of your labor. When they pay you, that money is the settlement of that debt. Likewise, when you buy groceries, you owe the store the dollar amount of the items in your cart. When you pay, the store becomes the holder of the money that settled that debt.

In this sense, all money is either a future debt or a past debt. It is always tied to an obligation—either one that is being created or one that is being fulfilled.

Footnotes:

The AI that helped me polish up my thoughts on this noted that one critique about my “wealth is human labor applied to natural resources” statement. Some economic perspectives emphasize subjective value and individual choice as the determining factor of wealth. This also goes along with the ‘gains from trade’ concept in economics. To clarify my point, I’m specifically talking about the actual creation of the original good or service. That is where I believe my argument still holds true. After the good or service is created, the market value may fluctuate. If the product is traded the gains from trade are real, but no new products were created.

Regarding the idea that the government creates money out of thin air, this is an attempt to describe the way the system actually works in practice. Some theories argue that this is a bad way to run an economy. They may prefer a gold standard or even favor crypto currency. I am generally of the opinion that a government-created fiat currency is a useful and effective tool. It’s up to us and our government to manage fiat currency correctly. This goes along with the idea of budgets as moral documents.

Regarding the idea that all money represents a future or past debt, this is my observation of the matter, and it seems to hold true in a variety of situations, but I’m still exploring this concept and I’m open to other perspectives.