Can you expand on why? If I want to borrow money to build a house, why cannot this be based on actual debt from people who want to lend to me?
Discussion
I was thinking that when I lend you good money, I receive a promise from you to pay me back. I can then use that promise as a form of currency to make my own purchases. This means that two types of currency will begin to circulate: sound money (good money) and negotiable promissory notes (bad money). Unfortunately, as per Gresham's Law, bad money tends to displace good money from circulation.
Understood. Yes, unfortunately it seems to me that the 2008 collapse largely arose because we had promises built upon promises built upon promises, which all collapsed when the original debts (e.g. subprime mortgages) couldn't be repaid.