Money isn’t what most economists think it is—
and that changes everything.
A classical-inspired, market-oriented framework showing how competitive forces, not just central banks, shape our monetary system—and why it matters for the future of money.
New to this? Start with the 5-minute overview.
By John McCallie, PhD•Economist specializing in monetary theory•Learn more
The Core Insight
Base money is the anchor. Everything else? Derivatives.
Think of it like a casino: Chips are useful for playing games, but their value depends entirely on the house’s credible promise to exchange them for real dollars. Bank deposits work the same way.
This framework—the Market of Concurrent Trading (MCT)—explains how base money serves as the anchor for the entire monetary system, with money substitutes (deposits, tokens, etc.) deriving their value through credible convertibility to base money.
The MCT model shows why market forces constrain money creation, how financial innovation works (and fails), and why decentralized monetary systems are possible.
What Makes This Framework Different
Three core insights that challenge conventional monetary theory
Market Discipline Over Central Control
Money substitutes only thrive when they maintain credible convertibility to base money. Arbitrage and competitive pressures provide market-based checks on monetary expansion—limits that exist regardless of Fed policy.
The “House Money” Concept
Banks create money substitutes (deposits) like casinos create chips—valuable only insofar as they can be redeemed for the underlying asset. This clarifies why deposits, while useful, are fundamentally different from base money.
Implications for Decentralization
Monetary systems can coordinate through competitive markets rather than centralized authority. This supports the possibility of sound, market-oriented money that reduces reliance on centralized control.