We are all in service to a money system based on simple injustice. It floods rich people with money taken from the poor. Money is created out of nothing for those who already have lots, and who know how to make more.

The system is not only unjust, it is also extremely bad for our world. It favours the insatiable and those with no sense of morality. Inequality becomes massive. Citizens who chase money without any consideration of the harm their activities do are given power. The outcome is our world today.

The longer we put up with this injustice, the shorter will be our time as a species on Earth.

For centuries people have known this. Opponents of the system are those who know and refuse to take advantage from it; but most of those who know do take advantage of the opportunities the system presents.

The facts of the system are known and described by critics from ancient times to the present day but they are not widely disseminated, for reasons that are obvious. The most obvious of these reasons is that if the system is to remain profitable, they must not be widely talked about.

The facts can be described in simple or in complex terms. Here I try to describe them as simply as possible.

Today, money creation is not complex. Gone are the days when money was gold or silver: today, a government or a bank creates debt from nothing, and the debt becomes money.

Laws authorise this debt being passed from person to person. If I have money, a bank owes me the amount. As the debt changes hands, so money passes from one person to another.

The money is an entirely theoretical debt from the government or the bank to the owner of the money—often in huge amounts. The process is profitable to borrower and lender.

The unjust laws that make this possible favour the rich, and also those who want to become rich.

If you borrow money from a bank or a government, you are NOT borrowing money deposited earlier by someone else (as we are taught at school); you are getting newly created money.

Poor people, on the other hand, borrow to stay alive—and their debts increase. As more and more of the world's money gets owned by the world's billionaires, it gets harder and harder for poor people to pay off their debts.

This is destructive for many reasons. Huge power goes into the wrong hands—ownership by people who are ruthlessly greedy. This gives rich people more money and makes poor people poorer.

This way of creating money has been used for centuries on-and-off and it has always resulted in huge and ever-growing inequality.

Recently, it has been adopted to concentrate power in the hands of those who are already powerful.

In the past, remedies were used to reduce the inequality, but today the inequality is carefully managed, and maintained as a power-source for the ruthless (or thoughtless) and greedy. The system creates oligarchies throughout the world.

Economists tend to skirt round these facts out of simple human self-interest, because economists are mostly employed by the powerful.

Of course, some economists are honest and straightforward; for instance, Michael Hudson writes:

The Cantillon Effect describes a simple but powerful reality: newly created money does not reach everyone at the same time. Try our Cantillon Simulator

Those closest to the source of money creation receive and spend it before prices rise, while those further away face higher costs before their incomes adjust.

Named after eighteenth-century economist Richard Cantillon, the concept challenges the common assumption that money creation affects all participants in the economy equally.

Instead, the path that new money takes determines who benefits and who bears the costs.

Newly created money does not arrive everywhere at once. Those who receive it first spend it before prices have fully adjusted, while later recipients experience the effects of rising prices.

In modern economies, new money is typically introduced through central banks, commercial banks, government spending, and financial markets.

The first recipients—large financial institutions, governments, major corporations, and asset holders—gain access to additional purchasing power before inflation spreads throughout the economy.

They can buy stocks, real estate, businesses, and goods at yesterday's prices.

As this new money circulates, demand increases and prices begin to rise.

By the time the effects reach wage earners, retirees, and savers, the purchasing power of their existing income and savings has often declined.

While they eventually receive higher wages or benefits, these increases frequently lag behind rising living costs.

The result is a redistribution of wealth. Those closest to money creation enjoy the greatest advantage, those connected to them benefit next, and those furthest away bear the burden through higher prices and reduced purchasing power.

Modern monetary policy enables the Cantillon Effect, which many economists argue helps explain rising asset prices, growing wealth inequality, and the widening gap between financial markets and the everyday economy.

Understanding the Cantillon Effect encourages us to look beyond headline inflation figures and ask a deeper question: who receives newly created money first, and how does that influence the economy?

The Cantillon Effect suggests that the path newly created money takes can influence wealth, prices, and opportunity throughout the economy.

Consider how the sequence of money creation might affect different groups in society, then compare your conclusions with those of other members in the discussion forum.

In everyday conversation, "money" and "currency" are often used interchangeably. But conflating the two is not just a harmless semantic slip—it is a conceptual trap that has profound consequences for how we think about wealth, savings, and even freedom.

Currency is, at its core, a tool of exchange. It is what we hand over at the grocery store, tap on a phone to pay for coffee, or swipe at an online checkout.

Currency satisfies essential functions: it is portable, divisible, durable, and fungible. In other words, it is convenient, replaceable, and can be broken into smaller units without losing value. It also serves as a unit of account, giving us a common standard for pricing goods and services.

Yet, as practical as currency is, it fails at the most critical test of money: being a reliable store of value over time.

A $100 bill today might buy only a fraction of what it could purchase a decade ago. Currency, particularly fiat currency, is subject to inflation, policy shifts, and political whims. It is fleeting by design—here today, diminished tomorrow.

True money, historically, is different. It carries all the functional traits of currency but adds a crucial element: value retention across generations.

Gold is the archetype. It is portable, divisible, fungible, durable, and serves as a unit of account—but unlike paper currency, gold has historically maintained purchasing power over centuries.

This durability transforms money into something more than a transactional tool. It becomes a temporal anchor for wealth, a hedge against uncertainty, and a quiet rebellion against the impermanence imposed by governments or banks.

The distinction is not trivial. Treating currency as money is a conceptual error that encourages short-term thinking and false security.

It lulls people into believing that a ledger entry in a bank or a digit on a screen is as enduring as the gold coins that once crossed oceans in merchants' pockets.

In reality, currency is a medium of convenience—not a medium of preservation.

We are living in a world where most of what we call "money" is actually currency designed to erode in value over time.

This isn't merely an academic debate—it is a challenge to rethink our relationship with wealth.

Understanding this difference isn't just financial literacy—it is intellectual emancipation. Recognizing that currency is ephemeral while money is enduring changes how we save, invest, and even perceive freedom.

Those who grasp this distinction gain not only a clearer view of economics but also a sharper lens for navigating the politics and psychology of value itself.

Take a bill of currency we use in the United States out of your wallet and look closely at it.

It says dollar or dollars on it, but under the historical definitions of a dollar, what you are holding is not really a dollar in the traditional sense.

It is also not what this course defines as money. It is a bill of credit used as currency.

The currency in your hand is also not issued as a United States Treasury Note.

If it were a Treasury Note, those words would appear somewhere on the bill. Instead, look at the words printed across the top:

Those words identify the issuer. Federal Reserve Notes are issued through the Federal Reserve System rather than directly as Treasury Notes.

The regional Federal Reserve Banks are privately structured institutions whose member banks hold stock. Congress granted the Federal Reserve System its sole monopoly in issuing the nation's paper currency.

Our current monetary system is a debt-based monetary system.

In simple terms, debt is deeply connected to our currency, and our currency is deeply connected to debt.

Dollars enter the system through lending and credit creation. Commercial banks create new deposit currency when they issue loans, while central-bank operations also operate through credit and debt instruments.

In that sense, we routinely pay our bills using currency that entered circulation alongside debt.

If all bank loans were repaid, the deposit currency created by those loans would be extinguished along with them.

These loans must also be paid back with interest.

When the loan is created, the principal is created as new deposit currency. The additional interest owed on the loan is not created as part of that same loan.

This means borrowers must obtain the currency needed to pay interest from money already circulating in the economy, from income, or through additional borrowing.

As new debt is created, it produces new principal and creates new interest obligations of its own.

This can create a near-continuous cycle in which increasing amounts of debt are needed to sustain an economy built around credit.

The cycle cannot expand without limit. At some point, debt growth can become difficult to sustain, which can lead to defaults, contraction, or a broader financial crisis.

The Federal Reserve System is nothing more or less than a banking cartel.

When the Chairman of the Federal Reserve appears before congressional committees to explain monetary policy—whether raising interest rates to combat inflation or lowering them to stimulate the economy—the stated rationale is always the same:

In truth, a cartel exists for one purpose only: to advance the interests of its members. The public is not the beneficiary.

Once you understand this fundamental reality, much of recent economic history and the trajectory ahead suddenly comes into sharp focus.

The Federal Reserve creates money out of nothing.

In one recent week alone, it generated trillions of dollars—money that did not exist before and came from nowhere.

Where does it go?

Primarily to banks, either directly to strengthen their balance sheets or indirectly to entities that owe the banks money, ensuring continued interest payments.

This is not about stimulating the broader economy, creating jobs, or helping homeowners.

It is about preventing the member banks from failing.

Banks can make enormous risky loans to corporations or foreign governments that have little chance of repayment.

When those loans sour, the banks turn to their partners in Congress, warning that failure would collapse the economy, lead to mass unemployment, or invite foreign threats.

The result?

More money created out of thin air to bail them out—all justified as being "for the people."

The Federal Reserve and the modern monetary system did not emerge overnight. The following milestones illustrate how the United States gradually moved away from commodity-backed money toward today's fiat monetary system.

The system is built on an accounting sleight of hand that becomes obvious once stripped of banker jargon.

Private banks create money from nothing, lend it to governments, corporations, and individuals, and then collect interest on it.

Imagine the audacity: profiting from funds that never existed until the moment they were typed into existence.

This arrangement was formalized in 1913 with the Federal Reserve Act.

What began as a cartel agreement among competing banks on Jekyll Island was rebranded as official law.

Congress provided the government seal of approval and the enforcement power of the state.

Suddenly, a private banking cartel's rules became binding on the entire nation, backed by the threat of imprisonment for those who defy them.

Many Americans mistakenly believe the Federal Reserve is a government agency because only governments can enforce such rules—but in this case, the government has been co-opted as a partner.

The flood of new money into the economy produces inflation.

When the supply of money grows faster than the supply of goods and services, prices rise—not because goods are becoming more expensive, but because the dollar is losing value.

This is a hidden tax, perhaps the most effective one ever devised, because most people do not recognize it as taxation.

Since the Fed's creation in 1913, the U.S. dollar has lost approximately 97% of its purchasing power.

That wealth has been transferred to the government and its banking partners.

If Americans had been forced to pay this amount through direct, visible taxes, revolution would have erupted long ago.

Instead, the slow erosion of purchasing power is tolerated because it is gradual and poorly understood.

This system includes a built-in "golden parachute" for failing banks: the ability to pass inevitable losses onto taxpayers under the guise of saving the economy.

Bailouts are not new.

They began in earnest decades ago—Penn Central Railroad (1970), Lockheed (1970), New York City (1975), Continental Illinois (1982), and countless others, including loans to third-world nations.

By 2008–2009, the process accelerated dramatically, with hundreds of billions and then trillions created in short order.

These are not rescue packages or economic stimulus.

They are, according to critics of the system, a mechanism for transferring financial losses to the public while preserving the institutions responsible for those losses.

Every monetary system creates incentives. Consider who gains the greatest advantages from today's system and whether those incentives align with long-term economic prosperity.

Have you heard someone refer to "sound money?" If so, do you know what it is and what differentiates it from the currency we use today?

Sound money is money that is not prone to sudden appreciation or depreciation in purchasing power over the long term, aided by self-correcting mechanisms inherent in a free-market system.

Simply put, sound money is a monetary system that preserves purchasing power over time and prevents governments from manipulating currency for political convenience.

Classical liberal economists have long warned that unstable currency undermines both economic prosperity and individual liberty.

Inflation operates as a hidden tax that quietly erodes the value of wages, savings, and retirement accounts without a single vote being cast.

From this perspective, preserving the purchasing power of money is not merely an economic concern—it is a safeguard for personal freedom and long-term planning.

Central banks across the world manipulate money ostensibly to grow, stabilize, or otherwise achieve desired economic goals.

Critics argue that large swings in purchasing power, such as those experienced under modern fiat systems, often result from the same monetary interventions intended to solve economic instability.

A commonly cited consequence of central bank control is the disconnect between the money supply and the demand for money.

Economic downturns can emerge when changes in demand for money are not matched by corresponding adjustments in supply.

In the United States, advocates of sound money argue that the current monetary system is fundamentally incompatible with sound money principles.

Money and its supply are largely managed by unelected institutions operating within a government-backed banking system.

The currency itself is debt-based and expands primarily through lending and credit creation.

Gold served as a cornerstone of the United States monetary system for much of the nation's history.

In 1971, the United States severed its final link to gold. Since then, monetary policy has operated under a fiat currency system.

Modern currency derives its value not from redemption into a commodity, but from legal tender laws and public confidence in its continued acceptance.

For a deeper explanation of modern monetary policy, see our recommended video resource.

At its core, honest money is money that cannot be created without sacrifice, effort, or the expenditure of real resources.

Just as individuals must dedicate their time, labor, skills, and productivity to earn money, honest money itself should require a comparable investment of work to bring into existence.

Throughout history, gold and silver possessed value not only because people desired them, but because they were costly to obtain.

Discovering deposits, extracting ore, refining metals, and minting coins required labor, capital, energy, and time.

The difficulty of creating new units helped preserve the value of those already in circulation.

Supporters of honest money argue that a monetary system remains fair only when the creation of new money is constrained by real-world costs and limitations.

Under this view, no institution or privileged group should be able to create purchasing power from nothing while others must work to acquire it.

The principle behind honest money is rooted in economic reciprocity.

If a worker spends hours building a product, a farmer spends months growing a crop, or an entrepreneur spends years developing a business, the money they receive should represent a claim on real value created elsewhere in the economy.

In this sense, money becomes a store of human labor, production, and time.

Monetary literacy isn't about memorizing facts—it's about asking better questions. Before moving on, take a moment to reflect on what you've learned and consider the question below.

There isn't much value in simply accepting someone else's conclusions. Think critically, examine the evidence, and compare different viewpoints.

Imagine hiring a mechanic who has never studied how an engine works.

They may know where to pour the oil, how to replace a battery, and perhaps even how to get the vehicle running again.

But without understanding the engine's design, they are working from incomplete knowledge.

The same principle applies throughout technical fields.

An HVAC technician learns refrigeration cycles before troubleshooting an air conditioner. An electrician studies electrical theory before wiring a home. A physician studies anatomy before treating disease.

In each case, understanding the underlying system comes before attempting to operate intelligently within it.

Money should be approached the same way.

Financial literacy primarily teaches people how to operate within the existing monetary and financial system.

It asks practical questions.

Monetary literacy asks a different set of questions.

Monetary literacy asks what money is, how currency is created, why interest rates change, what central banks do, why purchasing power changes, and how credit conditions influence markets and economic activity.

These questions examine the operating system beneath personal finance.

Imagine teaching someone to drive but never explaining road signs, weather conditions, traffic laws, or how the road itself can change.

They may know how to press the accelerator and brake. They may know how to steer. They may even reach their destination.

But they will have difficulty understanding why traffic suddenly slows, why a detour appears, why conditions become dangerous, or why a route that worked yesterday may not be the best route today.

One helps you manage the vehicle. The other helps you understand the environment through which that vehicle must travel.

Both matter.

But understanding the road can change how you choose to drive.

One reason monetary literacy matters is that financial advice does not exist in a vacuum.

The usefulness and risk of a financial strategy can change when monetary conditions change.

This is why advice that appears reasonable in one monetary environment may need to be reconsidered when the environment changes.

Financial problems are often discussed entirely at the individual level.

Someone cannot afford a home. Retirement appears increasingly difficult. College costs rise. Healthcare consumes a larger portion of income.

The response is often some version of:

Personal responsibility matters.

But monetary literacy encourages us to widen the analysis and ask whether larger economic conditions are also influencing the outcome.

Individuals can make responsible financial choices while still operating within an environment affected by changing currency values, credit conditions, interest rates, and asset prices.

Financial literacy naturally focuses inward.

Monetary literacy expands the view outward.

It asks how money enters the economy, how monetary institutions operate, why business cycles occur, how policy affects borrowing and markets, and why purchasing power changes across generations.

The purpose is not to predict every economic event. It is to understand enough of the underlying system to interpret events more intelligently.

There is an important difference between memorizing financial rules and understanding why those rules exist.

One person learns instructions. Another learns principles.

Financial literacy often provides techniques: how to budget, save, invest, insure against risk, and prepare for retirement.

Monetary literacy adds another layer—the ability to evaluate whether those techniques continue to make sense when the surrounding monetary environment changes.

This is the difference between depending entirely upon instructions and developing independent judgment.

A skyscraper is not built beginning with the twentieth floor. The foundation comes first because everything above it depends upon what lies beneath.

The same principle applies to financial education.

There's an old truth we forget at our peril: when money loses its integrity, freedom soon follows.

Throughout history, the erosion of honest currency has often marched alongside the erosion of civil liberties.

Many advocates of sound money argue that this relationship is not merely coincidental. Because money is more than a medium of exchange—it is the lifeblood of voluntary action. When its integrity is compromised, personal agency, self-reliance, and ultimately freedom itself begin to weaken.

In a truly free society, individuals make decisions based on trust.

They trust that the fruits of their labor will retain value over time. They trust that savings will serve as a store of wealth rather than steadily lose purchasing power. They trust that investments will respond primarily to economic fundamentals rather than continual monetary intervention.

Advocates argue that a manipulated monetary system gradually erodes this trust.

Critics of modern monetary policy argue that prolonged periods of artificially low interest rates, continual monetary expansion, and large-scale purchases of government debt create distortions throughout the economy.

Prices no longer accurately reflect underlying economic conditions. Debt becomes increasingly attractive, while saving becomes progressively more difficult.

Those who attempt to build wealth through patience, productivity, and long-term planning may find themselves disadvantaged relative to those benefiting from newly created credit.

Inflation is often described as a hidden tax because it reduces purchasing power without requiring explicit legislation or direct taxation.

As prices rise, wages and savings lose value. Individuals are often compelled to assume greater investment risk simply to preserve their standard of living.

Supporters of sound money contend that inflation affects more than financial well-being—it can also reduce independence by making households increasingly dependent upon debt, financial institutions, or government assistance.

Throughout history, periods of severe monetary instability have frequently been accompanied by political instability and expanding government authority.

The hyperinflation of Weimar Germany and the monetary collapse of modern Venezuela are frequently cited as examples where currency deterioration coincided with profound social and political upheaval.

Advocates of sound money view these examples as reminders that monetary integrity and civil stability are often closely connected.

Gold and silver have served as money for thousands of years because they are scarce, durable, verifiable, and difficult to create.

Supporters argue that these characteristics make precious metals resistant to political manipulation and therefore better suited to preserving purchasing power across generations.

Whether one agrees with that conclusion or not, the central question remains the same: should money derive its value from market forces or from continual management by monetary authorities?

Throughout this lesson you've explored the relationship between money, trust, and freedom.

Consider the question carefully before continuing. Discuss it with other members, compare viewpoints, and examine the historical evidence.

Learning about money will not get you an immediate raise or guarantee greater investment returns. For many people, finance becomes interesting only when it promises more wealth, while economics is dismissed as dry, technical, or irrelevant.

You might reasonably think:

But that question contains an important assumption: that the thing we call money—and the system that produces and manages it—is already well understood.

What if that understanding is incomplete?

Most people spend much of their lives working, paying taxes, saving, borrowing, and covering everyday expenses without ever asking one of the most fundamental questions in economics.

Many people assume money is simply what we use to buy goods and services, or perhaps the pieces of paper in a wallet and the numbers displayed in a bank account.

Yet the monetary system reaches much further. It influences purchasing power, interest rates, credit conditions, asset prices, savings, wages, debt, and many of the incentives that shape economic behavior.

Understanding money and inflation can help you better evaluate the value of your earnings, recognize economic incentives, and make more informed financial decisions throughout your life.

Financial literacy remains extremely valuable. But it can be strengthened by first understanding the monetary environment in which financial decisions take place.

Before deciding how to save, invest, borrow, or build wealth, it helps to understand the properties of the monetary unit itself and the institutions that influence it.

Once those underlying mechanisms become visible, many economic events that once seemed unrelated begin to connect.

The Academy begins with the foundations and gradually builds toward the institutions and mechanisms that shape the modern monetary system.