In one of those rare moments of clarity, I realized that there exists a giant hole in my knowledge about the world. I’m sure anyone with a reasonable economics degree can answer this for me… but this question completely flummoxes me. (I’ve always wanted to find a use for the word flummox, btw. Sorry about that.)
Where does new money come from?
I mean, I see economies expanding and all, but as I look through the whole cycle, I just don’t see where new money comes from – and I don’t mean new bills.
I can look at the water cycle, and see that new water is not created or lost, it just changes forms… and, as far as I can tell, money is the same way.
When you mine something from the ground, you sell it, but the money people pay you to buy it already exists in their account – it just transfers money from one owner to the next. When the banks charge you interest, they just expect you to get it from your account, which came from selling a product or a service… it just goes on and on…
If a government prints more money, the general theory is that it just devalues the rest of the money through inflation.
Even money that is lost in the stock market isn’t really lost – you’ve just given it to someone else for a share of a company or commodity, which may have more or less value when someone else tries to buy it from you. Again, no money is created or destroyed – although it tends to accumulate into the hands of those who know how to exploit the system, but that’s a different story.
So, where in the money cycle does money come from?
I apparently have some reading to do.
Edit: thanks to Ryan’s comment, the solution is below in the comments.