Why is money not a debt? Because you can’t smoke it.

Money is not a cigarette: the definition of money, and why it matters

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About The Author

Eric Lonergan is a macro fund manager, economist, and writer. His most recent book is Money (2nd ed) published by Routledge. He is also a supporter of Big Issue Invest (BII), the investment arm of The Big Issue, and is one of the initial limited partners in BII’s Social Enterprise Investment Fund LP. In a personal capacity, he makes direct investments in social enterprises. He also supports and advises The Empathy Museum.

3 Responses

  1. Alex

    Mr. Lonergan,

    Just starting to fall down the rabbit hole of trying to understand the nature of money for the sake of an up-coming dissertation. Would be very grateful if you could help me understand why you don’t see money as a debt/credit.

    1. You seem to oppose Innes’ credit theory of money by saying that debt can be used as money, but money doesn’t have to be a debt. Whether coins, cigarettes (in prison), or explicit IOUs, if they can be used to claim goods and services from others in that society shouldn’t they all be seen as a token of a debt owed to you, the holder, by other members of society (including government)?

    2. You said that after the fall of the gold standard that cash should no longer really be considered a debt of the government as the government no longer owed you anything physical for it. I’m probably regurgitating an MMT view without realizing, but doesn’t it still represent a government debt as it is one they can cancel by future tax claims on you?

    3. Does debt have to be defined as an obligation with interest attached and a maturity date? Can’t base money, which has neither of those things, still be considered a debt (of the government) as they represent the ability to fulfill later obligations you have towards the government. There is no need for a maturity date as the relationship is (supposedly) permanent.

    3. You said that QE should not be considered to add to national debt considerations as it is essentially the government purchasing it’s own debt with new money that then goes to the banking sector. I agree with that. Had the QE caused inflation then I guess it should just be considered an indiscriminate tax on holders of ££s to pay for the cost of the government injecting liquidity to the financial sector. The fact that significant inflation didn’t seem be the result (yet) is perhaps more a symptom of how the financial sector uses such injections, how inflation is measured, the globally interconnected nature of the industry, and other such factors. Nevertheless, I’m not sure how that refutes the debt nature of the government money outstanding as raised in question 2?

    Any help/insight in clarifying these questions would be gratefully received.


    • Eric Lonergan

      Hi Alex, the fact that I can sell my goods for money does not make money my debt. That is a semantic error – money is something people voluntarily accept as payment. A debt is an obligation to make a payment. Those are distinct phenomena. If you want to be clearer, write a list of the properties of a corporate bond, and a list of the properties of a £20 note. They have different functions & characteristics. You might also want to read “Sitting on cathedral steps”. Your point 3 involves the ‘Randall Wray Fallacy’: giving one word two different meanings and inferring an identity. You will see a lot of people doing this. Re QE: just imagine you could create £20 notes with a machine, and you repaid all your student loan (assuming you have one!) – would you still be indebted.

  2. George Fimbres

    MONEY is a denominated symbol of the value of an asset, while DEBT is the loaning of such assets or of their value. They are two different concepts.


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