Cash Is Debt

If you have cash, you are a lender.

Maybe you already know that, but let me unpack that a little.

Imagine a world without cash. In this world, Mr. Freeman does some work for a guy that we’ll call Sam.

Once the work is done, it turns out that Sam doesn’t have anything to pay Mr. Freeman.

But all is not lost. Sam writes Mr. Freeman an IOU and says, “Don’t worry, I’m good for it.”

An IOU is a promise to pay, sometimes called a promissory note.

According to that note, Sam is now in debt to Mr. Freeman. Mr. Freeman is the lender and Sam is the borrower.

Mr. Freeman decides to take the note to the store and offers it in exchange for some food and says, “This is a promissory note from Sam. Don’t worry, he’s good for it.”

The store owner knows Sam and agrees that Sam is good for it, so she accepts the note.

Sam is still the borrower, but now the store owner is the lender.

This note can move around the neighborhood over and over as long as everyone believes that Sam is still good for it.

Take a look at a dollar bill. Across the top you’ll see the words “Federal Reserve Note”.

Paper money is a note. It’s a promise to pay. An IOU.

Sam is Uncle Sam.

We pass around Uncle Sam’s IOUs over and over, because don’t worry, Uncle Sam is good for it.

What do you think?
Joseph