Who owns money?

Question

Bishop Nicole Oresme (1320-1382), in the first monetary treatise, wrote:

CHAPTER VI: Who owns the Money? (Cuius sit ipsa moneta?)

Although it is the duty of the prince to put his stamp on the money for the common good, he is not the lord or owner of the money current in his principality (non tamen ipse est dominus seu proprietarius monete currentis in suo principatu). […] money belongs to the community and to individuals (pecunia communitatis et singularium personarum)

Is this view, that "money belongs to the community and to individuals," common among economists? Or do some think only the State or only individuals own currency?

Answer 1

Well first of all I don't know why someone is going around downvoting legitimate economics questions and answers to the point everything recent on this site is negative. Naturally in the Covid19 crisis people are starting to take an interest in the economy, so we're getting questions that don't quite fit the mould, just as we did during the 2007/8 financial crisis. And those questions turned out to be very helpful because new questions developed new economic perspectives. Besides, this site should be 'be nice'.

Anyway, to answer your question, it's like this: Today the word 'money' is no longer interpreted by economists as being a homogeneous thing. You have M1 M4 etc. There are fundamentally different types of money.

Most money in circulation today is electronic money created under license by commercial banks.

The system in place licenses banks to create money in a framework sometimes called 'fractional reserve banking'. The way this works is as follows:

1. A customer approaches a bank for a loan. The customer already has a deposit account at the bank.
2. The bank creates an asset on its books for the amount of the loan, X, which according to the laws of the state the customer must repay under contract.
3. The bank creates a liability on its books by credting the customer's deposit account for amount X, which the customer can 'withdraw' at any time by issuing an electronic payment, or by converting into cash at an ATM, for example.
4. The amount X is created ex nihilio under license by the bank. Until recently in the West the fraction of reserves the bank was required to maintain compared to X was actually usually 0%. In other words the bank was typically authorized to create commercial loans without legal limit. More recently, fractional reserves and capital controls were somewhat tightened in response to 2008.
5. However, the customer typically uses the loan to pay for something, typically automotive or construction, and makes an electronic payment to a supplier. That supplier receives the money into their bank deposit account, and we will assume it is a different bank, and that money is credited as an asset to the bank's reserves (and a liability to the deposit account), while the liability to the supplier is reduced through bank fees, loan interest repayments and so on.
6. The bank uses those deposits to meet the fractional reserve banking limit requirements to issue yet further loans. In this feedback loop involving multiple banks (at least 2) the money created ex nihilo by one bank contributes to reserves of the next, developing a situation where perpetual 'growth' is required to maintain an ever expanding bubble of credit.

In summary, most money is actually somebody else's loan created from nothing at a commercial bank, and the laws governing those liabilities between banks and to you as a deposit holder make up the legal framework for that kind of money.

In theory anyone could replicate this model. For example, if I created an "IOU" for '50 Euros' (or 10 apples, or whatever), to you, and if you trusted me and you knew people who trusted me, you could easily trade that IOU with your friends. Eventually trust would grow and if I did a good job of maintaining it then pretty soon lots of people would be using "Frank IOUs" and calling it 'money'. The difference is that banks today are literally allowed to create "IOU"s (you owe me's) on request and then enforce that you repay them in any legal tender possible for that nominal amount, and those IOUs (you owe me's) are sold. The fact that most people repay them with IOUs from other or the same bank is in my opinion hilarious, but that's what people religiously tout as capitalism and freedom these days (and even go to war for it!)

Cash on the other hand is an example of a different type of money and is not governed by those laws. Cash validity depends a lot on methods of avoiding counterfeiting and does not require a trust pyramid. Ultimately it is also just a virtual IOU but it IS issued by the state, and in so far as people believe the state exists as a real thing, the money is real too. Surprisingly, many people think that when they 'put money in a bank' they are actually putting cash in a big safe somewhere. In fact what they are doing is converting government controlled currency into a commercial debt between a private bank and you, while the bank takes your hard cash, says 'thank you' and expects you to take their IOU in return. It fascinates me that even today the modern person goes about their daily life talking about political concepts like 'capitalism' with zero clue about how things actually work or who even controls a payment terminal (oh...that wasn't directed at you or anyone in particular, just an observation)

Answer 2

It depends on the laws of the state.

The key is the degree to which the sovereign domain protects the individual's right to private property. Most jurisdictions consider money to be property. That's why the right to ownership of private property is so key to the functioning of a free market economy. Without the right to own private property, as exists in many socialist dictatorships, there can be no free market economy.

“Government has three primary functions. It should provide for military defense of the nation. It should enforce contracts between individuals. It should protect citizens from crimes against themselves or their property. When government-- in pursuit of good intentions tries to rearrange the economy, legislate morality, or help special interests, the cost come in inefficiency, lack of motivation, and loss of freedom. Government should be a referee, not an active player.” ― Milton Friedman [1]

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"Both free speech rights and property rights belong legally to individuals, but their real function is social, to benefit vast numbers of people who do not themselves exercise these rights." — Thomas Sowell [2]