We, especially Americans, need to revisit the nature and purpose of our money. I've found that the common narrative surrounding the origin and our sources of money is severely lacking and is rife with myths and falsehoods.
The best theory I've found is put forward by many economists who subscribe to MMT (Modern Money Theory). It is basically chartalism, or the unit of measure demanded by the state in payment of taxes and settlement of the state's obligations. Acceptance of this currency is driven by the need to pay taxes to the state in its own currency, allowing the state to provision itself without a separate revenue stram.
One can barter for goods or trade in seashells, but when the taxman shows up with his hand out and the full force of the government behind him it is best to have the currency he demands in payment. This, however only works if the state also provides the means to obtain that currency or everyone becomes unemployed in terms of that currency and subject to imprisonment and land seizures. This is the stuff revolutions are made from.
Governments avoid this condition by spending in "deficit", (spending more than is demanded in taxation) sufficient to allow the people to accumulate enough currency to assure them of a resonable level of security in their earnings and satisfying their desire to save for their future needs.
A government that only spends to satisfy its needs, clawing back all payments to the private sector with taxation (balanced budget), essentially steals the resources and labor it demands of the private sector. If one conflates the spending of the currency-issuing government with a household, or any entity not able to issue currency, such practices appear "responsible", but the effect causes the people to incur private bank debt to finance the resources and labor their government demands.
Since bank debt is less than zero-sum, this creates a fragile economy subject to booms and busts and in constant decline to satisfy interest payments. The closer to acheiving a balance of payments to collections the government gets, the worse the economy gets until even a slight downturn in the business cycle can topple it into recession or depression.
The most common remedy for recessions is massive government spending, which then rectifies the lack of currency in the economy and sets it up for recovery. This cycle serves to concentrate wealth and make labor subservient to capital, which always has a guaranteed income from the legal requirement of government to issue bonds to match deficits.
If the people never figure out that their own budgeting process is not remotely similar to that of a currency issuer and demand forced austerity from their government (deficit hawks) this cycle of boom and bust will continue and the economy will eventually fall into a deep recession/depression that will force them to accept the concept of state issued money and the necessity of government sector deficits. It is, after all, the only source of currency and net savings they have.
