If It Doesn't Grow on Trees, Where Does Money Come From?

The Cogs Blog is not directed to making you richer, just wiser. But if you are inclined to investing, you may learn some things here that your financial adviser will never talk about.

So money goes where money is, and that’s why the rich get richer and the poor get poorer. Eventually, you can see, if nothing intervenes to offset the law of money, you get only two classes of people, one very small, with all the money, and one very large, with no money. 

Only four things can obstruct the law of money. But you will have to read four or five more posts before you are ready to find out what they are.

To understand why the law of money rules, the first question you need to answer is, where does our money come from?

The examples are going to be mostly Canadian / American because that’s what I know most about. But the general picture extends to the whole world economy.

Where does our money come from?

Most people, when asked, say “The government prints it.” Now that is true of only a very small fraction of all the money which supports the world economy - perhaps less than 3%. It is the kind of money you carry in your wallet. We generally call it “cash”. You know, bills and coins.

If you doubt me, ask yourself, how much of the average citizen’s financial transactions are carried out with cash?. Take your own monthly income. How much of it do you receive in cash? How much by pay check, or by direct deposit to your bank account? Most of it? And if you want to pay a bill - let’s say your income tax assessment - do you pay it to your government in cash? Just try it.

You don’t do that, do you? Clearly there must be some other kind of American or Canadian money out there - and it is not created by the government as cash.

It is created by the chartered banks. And rented to us. That provides the other 97% of the money supply. Note, I say “rented”.

Check this blog next week to find out the best way you can get some of this bank money without paying the rent - and without stealing it.


Which, of course, you would not want to do, would you?