Banks

In the beginning were kings that issued gold pieces as money. Then came entrepreneurs that managed money of kings and showed that controlling money gave them great powers and riches. Some people realized that by controlling money of people gave them great prestige and power. Many money stores opened and printed notes called money that was backed by gold. When they cheated and printed more money than they had gold, they became bankrupt. The most powerful and biggest banks formed a group called the central bank to protect people effected by bankrupt banks. When the central bank became bankrupt, they decided that backing their money with gold was not such a good idea and created money out of "thin air" called fiat money. 

The role of the central bank was to ensure that there was always enough money to fulfill the requirements of the commercial banks to make loans and have money flow in the economy. The commercial banks made money by lending out money to people to provide a product or service which would attract more money and ensure that the money would be paid back with interest. The commercial bank returned the money to the central bank and kept the interest as profit. If too many people were not able to repay their loans, the commercial  bank could not repay the central bank and would become bankrupt. 

The central bank also set interest rates to regulate how much money the commercial banks lent out. The lower the interest rates were, the more people applied for loans. The more collateral a person had, the more likely he was to get the loan. Loans for houses are easier to get than loans for small businesses, despite that small businesses generated more productivity. Issuing money to productive sectors caused money to flow so that there is too much money and demand chasing the supply and causing prices to increase as seen in inflation. Issuing money to non productive sectors slows the flow of money so that too little money chase too many product causing prices to fall as seen in recessions.