In Lebanon, amid an economic recession, the value of the national currency collapsed and became worthless. People rushed to banks in search of usable funds, but the banks claimed they could not return deposits. Some individuals even resorted to robbery to reclaim their savings. This situation raises a fundamental question: how can it make sense that banks refuse to give people their own money? This is not a problem unique to Lebanon. To varying degrees, the value of money is steadily decreasing worldwide. In the distant future, it may even appear as if money could approach zero in value. Yet, we continue to believe that the funds held by banks represent the rightful reward of our labor, and that their value is guaranteed by the central bank. However, this does not mean that money has any intrinsic substance. Historically, money existed as objects with inherent value, such as gold coins. For convenience, English goldsmiths began holding people’s gold and issuing certificates of deposit, which soon functioned as currency. Goldsmiths eventually discovered a lucrative opportunity: they lent deposited gold to others at interest. They also issued certificates exceeding their actual gold reserves, relying on the low probability that all depositors would demand their gold simultaneously. This seemingly miraculous creation of value tempted not only goldsmiths but also monarchs. The British monarchy, seeking war funds, collaborated with goldsmiths to issue certificates. Centuries later, the United States issued large amounts of dollars to finance the Vietnam War, ultimately abandoning its promise to exchange dollars for gold. Consequently, money became a purely social construct, unbacked by any tangible material. (Gill and Nagle, 2022)
The Nature of Money in Modern Capitalism
In modern capitalist economies, money is simply a product of printing machines, and its value is guaranteed only by banks. Trust in money today does not mean believing in the physical bills or the numbers printed on them. It means faith in the system that produces and circulates currency, and in the community that uses it. Issues surrounding money are therefore fundamentally issues of trust. If money could be printed at will, why did Lebanese banks refuse withdrawals? Consider a thought experiment: suppose the Lebanese central bank added a zero to everyone’s account balance. Initially, everyone might feel wealthier. For example, someone with one hundred million won could now appear able to buy a one billion won house. However, it would quickly become clear that multiplying everyone’s money by ten does not change reality. Supplies of rare jewels or luxury apartments remain the same. Compared with tangible goods, money without intrinsic substance loses value and trust, leaving individual purchasing power unchanged. In practice, the value of currency would decline even further as international credit is lost and foreign capital exits rapidly. Economist Milton Friedman therefore argued that inflation is always and everywhere a monetary phenomenon. (Sheppard, 2019)
Credit Creation and the Expansion of the Money Supply
Newly created money can expand beyond actual production through credit creation. When commercial banks lend, it appears as if available funds increase. For example, Bank A lends nine hundred thousand won to Ji-sik from the one million won issued by the central bank. Ji-sik spends it at Cheol-sun’s store. Cheol-sun deposits nine hundred thousand won in Bank B. Bank B then lends ninety percent of that, or eight hundred ten thousand won, to Young. Although the central bank issued only one million won, Bank A holds one million won in assets (cash plus claims), Young holds eight hundred ten thousand won in cash, and Cheol-sun has nine hundred thousand won in deposits. Economically, it operates as if 2.71 million won exists. This cycle can repeat indefinitely. As long as depositors do not simultaneously demand their funds, inflation is inevitable. (Mejia, 2023)
Money, Inequality, and the Imperatives of Capitalist Growth
Inflation does not affect everyone equally. Early access to newly created money is limited to governments, banks, or those with strong credit or information. By the time the general public receives the money, inflation has already increased prices. Wage increases may partially offset this, but real purchasing power changes little. Inflation acts as a hidden tax, disproportionately affecting the less wealthy. Moreover, money is inherently debt. Interest accompanies both bank loans and central bank-issued currency. Even if all money held by individuals were collected, it would still be insufficient to cover both principal and interest. Thus, new money must continually be created, and this debt-based system perpetuates itself. All entities must grow to survive: companies must produce and sell more, while banks must expand lending. Capital inevitably seeks new outlets. When domestic markets are insufficient, it flows into unexploited regions. Credit expansion encourages borrowing even among those with limited repayment capacity. This dynamic fueled housing bubbles and culminated in the subprime mortgage crisis. While some profited, the costs were borne collectively. (Gill and Nagle, 2022)
Conclusion
The capitalist system requires constant money creation, and capital must always seek growth. Currency continues to increase, but individual wealth does not necessarily follow. Paradoxically, as money floods the economy, many become poorer. In this world, what strategies can we employ to survive? The true force shaping society is not villains or natural disasters but money itself. How does money appear to you—and do you truly trust it? (Gill and Nagle, 2022)
References
Gill, I. and Nagle, P., 2022. Inflation could wreak vengeance on the world’s poor. [online] Brookings. Available at: https://www.brookings.edu/articles/inflation-could-wreak-vengeance-on-the-worlds-poor/?utm_source=chatgpt.com [Accessed 19 August 2025].
Mejia, J., 2023. Inflation’s Compounding Impact on the Poor – FREOPP. [online] FREOPP. Available at: https://freopp.org/whitepapers/inflations-compounding-impact-on-the-poor/?utm_source=chatgpt.com [Accessed 18 August 2025].
Sheppard, P., 2019. Why Inflation Hits Poor Americans Hardest. [online] The Heritage Foundation. Available at: https://www.heritage.org/markets-and-finance/commentary/why-inflation-hits-poor-americans-hardest?utm_source=chatgpt.com [Accessed 19 August 2025].
