There are eternal principles about money and they are very simple and logical, but few people seem to think about them.

The first principle is that money is a means of exchanging wealth. Money is not wealth. Wealth is ideas, goods, and services. The purpose of money is to make it easy for buyers and sellers to exchange their ideas, goods, and services. If we keep this basic truth about money in mind, it can eliminate confusion about money. The exchangers of wealth are called producers and consumers of wealth, or labor and consumers. Actually, the producers and consumers and buyers and sellers are the same people. We can change from one role to another more than once per day. For example, when we use the telephone to create business we are consuming telephone services and producing income at the same time.

Mervyn King and Martin Wolf know it and the word is spreading about the bank's dirty secret - their power to create credit out of nothing and mix it up with our savings...

"The essence of the contemporary monetary system is creation of money, out of nothing, by private banks often foolish lending." These are the words, not of a monetary crank, but of The Financial Times' Chief Economics Commentator, a member of the national Independent Commission on Banking (ICB), and probably the most decorated and prestigious economics journalist in the country. Martin Wolf wrote them in an article last week defending the Federal Reserve's right to embark on a second round of Quantitative Easing. He went on to say: "Why is privatisation of a public function right and proper, but action by the central bank, to meet pressing public need, a road to catastrophe?"