Back in the early days of commerce, barter and exchange were the mainstay of trade. If you were happy to give me 2 chickens for a pair of shoes, we were both satisfied.
Unfortunately, I would probably have eaten my chickens before you needed a new pair of shoes, so barter had its limits, even among a large group of people with a variety of skills and products.
Consequently, a common currency became very useful. If we can put a value on chickens, shoes and even haircuts, then we can tie that value to something non-perishable, like gold (as opposed to, say, chocolate).
So for a long time, we could exchange our gold for goods and services, and vice-versa. The problem, however, was if we accumulated a lot of the stuff, a) it became heavy and a nuisance to carry around everywhere with us, and b) we became easy targets for thieves.
The idea, then, of having a safe place to put our gold and to carry a promissory note around with us, representing it instead, seemed to make sense. Paper money was now the way to go.
In fact, paper became so successful, no one ever needed to see their gold. If everyone believes the paper IS the wealth, rather than just a representation of it, then the existence of the gold is irrelevant, so long as everyone believes it is there. If a gold eating bug crept into Fort Knox and ate all the gold, life would carry on, so long as no one opened the door and looked to see if the gold was still there. The assumption would be enough.
But now we live in electronic times, where we have numbers punched into a computer to represent the paper, which represents the gold, which represents the barter ideal.
More than that, we also live in an age of credit, which means we are borrowing money we don’t have, with a promise to pay it back (plus extra) at a later date. So we are, in fact, taking from a future that doesn’t yet exist.
Because in an age of credit, belief is everything.
If you believe you will have plenty of money tomorrow, you will spend tomorrow’s money today. If you don’t believe you will have money tomorrow, you will cling on to what you have today and not let it out of your sight.
And if you don’t spend your money and your credit, then people providing goods and services won’t get their turn to use it and spend it, so jobs will be lost.
The entire economy of the Western World is run on trying to convince the public to believe money is real, and spending it will make them happy.
Watch the news, and listen to the language: the recession will pass once they’ve hushed up the story of the little boy who said the Emperor was naked, disposed of his body, and everybody returns to believing The Emperor really does have a fine set of new clothes.