“On a long enough timeline, the survival rate for everyone drops to zero.” – Fight Club
Amber lost the lawsuit to Johnny Depp to the tune of $15 million. I guess she’s now deep in Depp.
One thing that I like to do is test ideas. Sometimes, like PEZ® and velvet Elvis posters, the idea is a classic of Western Civilization. Other times, like communism, communism, and communism, the idea is horrible. Others? Others are a kludge that we’ve made work. Or the idea is just the system that we have.
This post will test an idea that just might be the most dangerous one I’ve ever shared.
An idea that has been with us for most of recorded history is the concept of interest rates. The idea is simple – I borrow $10 today, and next year I give back $11. The extra dollar is the fee I pay for borrowing the money. There are records that compound interest was charged by the Sumerians back even before your momma was born, back in 2,400 B.C. They even had the math to accurately calculate it. Area of a circle?
Nah.
How much you owe me? That’s easy as pie. But not as easy as a nearly 22/7 pies, I guess.
Sorry, that joke was irrational.
Regardless, interest rates have been with us a very, very long time. And they have been vexing us for just as long. The good properties of interest are that it allows for people who don’t have money to get it, which they like. It allows people with “excess” money to get something for having the money, which they like.
There are some pretty significant downsides. Let’s take a simple example: There are several people on an island after a three-hour tour. A three-hour tour.
There are 10 ounces of gold on the island. I need to borrow them because, well, I have no idea. Assume it involves me trying to get to Mary Ann’s coconuts. Whatever.
A year later, the person who lent me the 10 ounces of gold wants 11 back. But there aren’t 11. I default. I default because there is a limit on the currency. This simple example shows that, in a society where interest exists, eventually there must be either a default, or there must be an inflation of the money supply.
I guess there’s a reason The Mrs. buys coconut shampoo?
This leads, inevitably, to a series of booms and busts. It also leads to, over time, a greater and greater concentration of money (or cash) in the hands of those who actually do nothing more than have the cash. In our society, these people often just print the cash, unbacked by anything, like it’s some amazing Sumerian money magic.
I hear the ladies love a man in cuneiform.
Thus, the financial sector, through the use of interest, both (over time) gains control over society through the concentration of capital. The golden rule? He who has the gold, makes the rules. In this case, the Federal Reserve® (which is not federal, and doesn’t have reserves) is actually owned by the member banks. So, the banks own the Fed™. Which makes the rules.
As I said in a previous post, there has been a concentrated effort to remove the political from the economic, and the economic from the political. Sure, Congress passes $1.7 trillion spending bills so we can send lots more money to the Ukraine, but who finances all of these shenanigans?
The Fed®. Look in your wallet, and pull out some cash – it says “Federal Reserve Note®” – not United States Dollar. A difference. Congress doesn’t print the cash – the Fed™ does. And the Fed© has to print more of it each year, because people keep getting charged interest.
This leads to cyclic bouts of inflation and/or currency default due to the accumulated debt. The Great Recession of 2008 was brought about because of a debt-fueled housing spending spree that collapsed.
What car does the Chairman of the Fed® drive? A Fiat™.
So, what happens if . . . we don’t allow interest to be charged?
It’s a big thought. And the world has had interest rates for a long time. In Imperial Rome, they varied from 5% to 25% depending on the time and on what was being invested in, and there are records of just the same sorts of credit crunches as we see today. And also the need for the Romans to take their silver coin, the denarius, and turn it into a mainly base-metal coin by the end of the Empire.
But I’m not alone in speculating about what would happen if we stopped charging interest. Aristotle himself (and not the Aristotle who makes the gyros at the fair during the local harvest festival in Modern Mayberry) had the idea that it shouldn’t exist because, heck, I’ll let him tell you:
“The most hated sort, and with the greatest reason, is usury, which makes a gain out of money itself, and not from the natural object of it. For money was intended to be used in exchange, but not to increase at interest. And this term interest, which means the birth of money from money, is applied to the breeding of money because the offspring resembles the parent. Wherefore of all modes of getting wealth this is the most unnatural.”
I’m not sure if Aristotle was upside down on a used goat that he bought, but what I think he’s trying to say is this: the act of lending money creates no value. If I buy a building and build a PEZ® factory, the PEZ™ factory either makes a profit or makes a loss. If it makes a profit, that’s one signal that it has created value for society. It has employed people to make a wholesome product that, when consumed in moderation, is harmless. If I can make a profit doing that, I’ve created value in society.
If I lend money? Not so much. My singular objective is only the profit from making money.
It takes an infinite amount of Zenos to screw in a light bulb.
How would such a world work? Perhaps people combine to lend money to businesses based on the idea that they might create value (and thus a profit) and take the gain in their money from that value created through the business? People combine to finance a business for a purpose, and thus gain.
No interest required.
How about a house? Why would I loan money, absent interest, on a house? Perhaps the payment could be based on the assessed value (thus making the loan an investment, rather than a loan). If the value goes up, the payment goes up. Down? Payment goes down.
This would put skin in the game for the banks, and they would have a vested interest (pardon) in making sure that the investment was good. No incentive for the housing crisis. Payments linked to . . . value created.
Car lending? Yeah, that’s harder, since that is a declining-value asset. I’m sure that it could be figured out, since I’ve already solved tons of loan issues with the two solutions above. I’ll leave solving the car loan problem to the class. Oh, and the student loan problem, too.
I hear that $221 million in student loans were canceled. Those lucky seven people!
It can be done. It has been done. Oddly, I think it would result in a freer world where, rather than focusing on ways to, uhm, view people as assets to extract value from, people would be forced to seek to provide value for their fellow man. Making happy customers.
Think of it as a thought experiment. A dangerous one that would change who has power in this world.
See, I told you this was my most dangerous post.
