Money Creation Systems: From Reality to Fantasy

Before diving into the fascinating world of monetary systems, it's worth noting that how money is created and used varies dramatically across both real and fictional worlds. This report explores the mechanics of money creation based on economic needs, social wants, and fantasy worldbuilding, revealing how these systems reflect fundamental truths about society, power, and human nature.

The Reality of Money Creation

Banking and Modern Money Creation

In our contemporary world, money creation operates quite differently from what many people believe. Contrary to popular misconception, modern banks don't simply act as intermediaries lending out deposits that savers place with them. Instead, the majority of money in modern economies is created by commercial banks making loans^[1]. When a bank issues a loan, it effectively creates new money by crediting the borrower's account without necessarily taking that money from elsewhere^[1].

This process differs significantly from the traditional "loanable funds" model taught in many economics courses. As Steve Keen points out, "Selgin does not deny that banks create money when they lend, but he asserts that banks still need to borrow in order to lend"^[2]. This understanding challenges conventional beliefs that banks can only lend what they've previously collected from savers.

Modern Monetary Theory (MMT) takes this understanding even further, suggesting that sovereign governments can create money to fund public services without necessarily having to tax first^[3]. However, critics argue that this view glosses over real economic constraints: "The government is not constrained by its ability to obtain dollars, but the economy is constrained by real limits on productive capacity"^[3].

The Power Dynamics of Money Creation

At its core, money creation is fundamentally tied to power structures. As one source explains, "Money isn't a thing. It's an idea. It's an agreement to tie our social relations to a unit of account"^[4]. The ability to create money represents significant social power:

"The creation of money is inseparable from the accumulation of power. [...] Like the king, governments can in principle create as much money as they want. But in practice they don't, because there are limits to their power"^[4].

This insight reveals why money creation is typically tightly regulated and controlled by powerful institutions. The authority to create money is jealously guarded precisely because it represents such profound social power.

Fantasy Economics and Money Systems

Worldbuilding Through Currency

Creating a believable monetary system is essential for fantasy worldbuilding. Unfortunately, many authors default to generic "gold pieces" and "silver pieces" without deeper consideration^[5]. Thoughtful currency design can add depth and authenticity to fictional settings.

The first step is establishing a basic unit of currency, similar to how the dollar functions in many real-world economies^[5]. From there, writers can create multiplications and divisions of this basic unit, reflecting the society's values and resources^[5]. A well-designed monetary system reveals much about a fantasy culture's history, values, and technological capabilities.

Fantasy currencies can take many forms beyond precious metals. Examples from fiction include:

• Gems with different values in Sanderson's Stormlight Archive, where "dun spheres" (gems that have lost their magical charge) are valued less^[6]
• Rothfuss's complex monetary system in The Kingkiller Chronicle featuring multiple types of currency^[6]
• Disease cubes in Garth Nix's Keys to the Kingdom series, where "high quality condensed rashes and coughs" function as valuable commodities^[6]

The Problem of Magical Counterfeiting

Fantasy settings with magic pose unique economic challenges. As one economics professor asked: "If there is magic in your world, how would you combat players from using magic to create money? This would create hyperinflation for your economy"^[7].

Fantasy writers have developed several solutions to this conundrum:

• Making currency from materials that resist magical duplication: "What if these metals are used as currency EXACTLY because transmutation cannot create them?"^[7]
• Creating detection methods: "Magically generated monies would be detectable as magic"^[7]
• Imposing severe penalties: "State imposes only two laws on alchemy. Don't make people and don't make money"^[7]
• Establishing magical laws of equivalent exchange: "A magic cannot permanently create anything worth more than its components"^[7]

These solutions reflect real-world concerns about counterfeiting and inflation, translated into magical contexts.

Alternative Economic Systems

Moneyless Economies

While money seems essential to modern life, various societies have functioned without it. In small communities, favor-based economies can work effectively: "Everyone basically did favors for everyone else. If you say needed a chair, the furniture maker would make you one with the understanding that when he needed your services, whatever they were, you would 'owe him one'"^[8].

Some fictional settings like Star Trek envision post-scarcity societies where money becomes obsolete. Gene Roddenberry, Star Trek's creator, "stipulated before he died that there was to be no money in the Federation" because he believed "that by the 23rd century, mankind would have evolved past the need for money"^[9].

However, critics argue that true post-scarcity is implausible: "A robot factory/replicator system that can give everyone everything we currently enjoy is plausible, but what if someone wants a palace? Or to make Antarctica Bloom? Or to send out Interstellar Colony Ships? [...] People's capacity for wanting stuff is infinite"^[8].

Fantasy Economic Structures

Fantasy settings offer opportunities to imagine radically different economic systems. These might include:

• Clan-based economies where "all work was organized within the clan structure, and so was the access to resources"^[8]
• Credit systems based on personal relationships rather than institutions^[8]
• Economies organized around magical resources or capabilities^[10]

Victor Salinas suggests that fantasy economies should still reflect basic economic principles: "With a solid understanding of basic economy theory, a writer can build fantasy economies that are real, convincing, and dynamic"^[10].

Building Better Money Systems

For Worldbuilders

When designing a monetary system for a fictional world, consider:

• The materials used for currency and why they were chosen^[5][11]
• How currency reflects the world's history and power structures^[4]
• The denominations and their relationships^[5]
• How money interacts with other systems (magic, technology, social hierarchies)^[10]
• What prevents counterfeiting or inflation^[7]

Effective worldbuilding doesn't require creating an entire economic treatise, but as Mackenzie Kincaid notes, "a moment's consideration of how money works in your world can help you add the kind of touches that make your world more authentic and tell your readers something about your setting"^[5].

Real-World Implications

Understanding money creation reveals profound truths about our actual economic systems. The fact that "understanding this act of money creation is trivial" yet "many people fundamentally misunderstand money" points to deeper psychological and social factors at work^[4].

Perhaps we resist understanding money creation because accepting its true nature means acknowledging that "our existing social order is arbitrary. Those who create money do so not out of any natural right, but because of power that has been arbitrarily given to them"^[4].

Conclusion

Money creation systems, whether based on need, want, or fantasy, ultimately reflect how societies organize power, resources, and relationships. In reality, money creation is primarily performed by banks through lending, constrained by central bank policies and economic capacity. In fantasy settings, authors can explore alternative systems limited only by imagination and internal consistency.

The most compelling monetary systems, both real and fictional, acknowledge the fundamental truth that money isn't simply a neutral medium of exchange but a powerful social technology that shapes human relationships and distributes power. By understanding how money is actually created, we gain insight into both economic mechanisms and social structures—knowledge that can enrich both our understanding of reality and our creation of convincing fantasy worlds.

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• https://www.bankofengland.co.uk/quarterly-bulletin/2014/q1/money-creation-in-the-modern-economy  
• https://profstevekeen.substack.com/p/selgins-hot-air-on-bank-money-creation 
• https://www.peoplespolicyproject.org/2019/02/24/whats-the-point-of-modern-monetary-theory/  
• http://economicsfromthetopdown.com/2020/07/05/why-isnt-modern-monetary-theory-common-knowledge/     
• https://mackenziekincaid.com/writing/worldbuilding-money/      
• https://www.reddit.com/r/Fantasy/comments/43m843/whats_the_bestmost_original_money_system_youve/   
• https://www.reddit.com/r/DnD/comments/8mj6e8/so_my_economics_professor_asked_me_if_there_is/      
• https://www.reddit.com/r/worldbuilding/comments/2fpqya/have_you_ever_tried_to_create_a_world_without/    
• https://fee.org/articles/the-economic-fantasy-of-star-trek/ 
• https://ryanlanz.com/2021/05/08/how-to-build-a-fantasy-economy/   
• https://michaeltedin.com/worldbuilding-102-fantasy-money-and-banking/