In the year 1700, there have been £1'616'839 notes in circulation. At that time, government debt alone was more than 3 million.
At the time physical silver was traded and considered to be money, not those notes.
In 1700 there was:
- a) Some amount of physical coinage in circulation, likely less than 1M pounds, this is money
- b) 1,616,839 government issued notes in circulation
- c) debt issued to the tune of 3 million pounds
The physical metal in circulation is money. Money cannot be defaulted on, it physically exists. This is also Bitcoin btw.
The government notes in circulation are currency. Currency may maintain its value if managed honestly, but every government in history hits the printer eventually and devalues the currency, sometimes slowly, sometimes rapidly. Currency is not money.
The debt issued represents future promises on either money (physical metal) or currency (government notes). If the debt is issued against money, in times of stress governments always reneg and issue currency to fulfill the promise, this is what FDR did btw.
A monetary system cannot have too much leverage in it, if there is too much leverage then at some point there is a run out of currency (banks, notes, etc) and towards physical base money, which depletes the reserves until the system breaks.
And this is how it worked for 5000 years, if too much leverage was introduced it broke the system. This was how currency and debt was kept reasonable and honest, usually more than a 1-to-2 ratio caused issues.
The invention of central banking changed this.
With central banking governments removed the concept of money and made currency the base supply. Now they could create all the leverage they wanted, because the mechanism which would stop leverage were removed. Now if there was too much leverage and the monetary system couldn't pay out (because lets say goldman sacks is leverage 50-to-1) the central bank could print currency to stop a run.
This printing to stop a run is what as prevented normal mechanisms from keeping currency and leverage in check, and allowed both to run wild. (BTW if you are leverage you are forced to go bankrupt, while governments and banks get bailed out)
The vision of bitcoin I signed up for fixed that. LN would not.