The analysis is totally different if we aren’t trying to make a foreseeable monetary profit, so let’s put that aside to focus on for-profit business lending.
Let’s say Bob wants to open a restaurant. He’s short $100 to buy the oven. Alice has $100 (for whatever reason), but totally lacks the skills to run a restaurant. Assuming Alice does not operate as a charity, she expects repayment if she gives the money to Bob.
You seem to suggest there is a moral difference between Alice saying “I’ll give Bob $100, and 1) I want Bob to give in back, plus $20 in one year vs. 2) I want Bob to give my $10 a month for the next year.
What’s the moral difference between those positions? (Yes, I know the annual percentage rate of interest is slightly different—not important for this example, but I’m pretty sure (1) is a better deal for Bob)
And the only reason Alice has $100 is that she promised Charlie that she’d pay him $10 if he let her hold it, no questions asked, for one year. Fractional reserve is the inevitable consequence if Alice also promises that she’ll give all or part of the money back to Charlie whenever he asks. (To make this work, Alice will need to find other Charlies).
If you ban this arrangement between Alice and Charlie, then Alice will not have money to give to Bob, and Bob’s restaurant simply will never happen. I think that’s a worse world than the one we live in.
To put it slightly differently, the way Alice adds value is by being good at finding Bobs and telling the difference between Bob and Billy Bankrupt-er. Holding Charlie’s money is a cost to Alice, not a benefit. And none of this has anything to do with credit default swaps, which I agree are much less defensible.
Regarding the public savings accounts, your statement translates to “I’ll need less money-from-nowhere than you originally thought.” That’s not reassuring. What exactly do you think I should be doing with the part of my money that I’m not using to buy something right this instant?
Fractional reserve is the inevitable consequence if Alice also promises that she’ll give all or part of the money back to Charlie whenever he asks.
Under this scheme, fractional reserve banking is effectively unlimited. Yet many states do manage to put a limit (by making you guarantee part of your loans by money you actually own). They could, in principle, forbid it altogether without really affecting individual liberties.
To put it slightly differently, the way Alice adds value is by being good at finding Bobs and telling the difference between Bob and Billy Bankrupt-er.
Agree. That value must be tapped.
Holding Charlie’s money is a cost to Alice, not a benefit.
Nitpick: Initial cost. She can have a net benefit if we account for the leverage the extra money give her. Though she does have to have the skills to exploit it. And it is a way to tap her value (though possibly not the only one).
And none of this has anything to do with credit default swaps, which I agree are much less defensible.
Of course. I merely talked about CDS because they are a way to create money.
If you ban this arrangement between Alice and Charlie, then Alice will not have money to give to Bob, and Bob’s restaurant simply will never happen.
That is, assuming there aren’t other ways to have or create money. We need to create money, but private money creation isn’t the only way. States could print money, lend it to private banks, which would then lend it further (possibly with higher interests rates). (I’m not sure how this is different from fractional reserve banking. Maybe the state would have greater regulation power?) Or they could lend it directly (but then they need a way to find Alice). Or something.
Overall, I’m not sure usury is an unconditionally bad thing, or even a net bad thing. You made it quite clear it can do good. The key point I don’t like about the whole system is the fact that most western states basically gave up control over money. Letting private banks create money is one step, and the last straw is to (mostly) forbid itself to print money. When a state borrows money, the money is created anyway. Why pay interest when your central bank’s money is free? That’s not in the interest of the people. That’s in the interest of a few very rich people and corporations. Unless somehow their concentrating so much wealth is more beneficial to society. I don’t trust states as effective charities, but right now I trust banks even less.
The analysis is totally different if we aren’t trying to make a foreseeable monetary profit, so let’s put that aside to focus on for-profit business lending.
Let’s say Bob wants to open a restaurant. He’s short $100 to buy the oven. Alice has $100 (for whatever reason), but totally lacks the skills to run a restaurant. Assuming Alice does not operate as a charity, she expects repayment if she gives the money to Bob.
You seem to suggest there is a moral difference between Alice saying “I’ll give Bob $100, and
1) I want Bob to give in back, plus $20 in one year
vs.
2) I want Bob to give my $10 a month for the next year.
What’s the moral difference between those positions? (Yes, I know the annual percentage rate of interest is slightly different—not important for this example, but I’m pretty sure (1) is a better deal for Bob)
And the only reason Alice has $100 is that she promised Charlie that she’d pay him $10 if he let her hold it, no questions asked, for one year. Fractional reserve is the inevitable consequence if Alice also promises that she’ll give all or part of the money back to Charlie whenever he asks. (To make this work, Alice will need to find other Charlies).
If you ban this arrangement between Alice and Charlie, then Alice will not have money to give to Bob, and Bob’s restaurant simply will never happen. I think that’s a worse world than the one we live in.
To put it slightly differently, the way Alice adds value is by being good at finding Bobs and telling the difference between Bob and Billy Bankrupt-er. Holding Charlie’s money is a cost to Alice, not a benefit. And none of this has anything to do with credit default swaps, which I agree are much less defensible.
Regarding the public savings accounts, your statement translates to “I’ll need less money-from-nowhere than you originally thought.” That’s not reassuring. What exactly do you think I should be doing with the part of my money that I’m not using to buy something right this instant?
Under this scheme, fractional reserve banking is effectively unlimited. Yet many states do manage to put a limit (by making you guarantee part of your loans by money you actually own). They could, in principle, forbid it altogether without really affecting individual liberties.
Agree. That value must be tapped.
Nitpick: Initial cost. She can have a net benefit if we account for the leverage the extra money give her. Though she does have to have the skills to exploit it. And it is a way to tap her value (though possibly not the only one).
Of course. I merely talked about CDS because they are a way to create money.
That is, assuming there aren’t other ways to have or create money. We need to create money, but private money creation isn’t the only way. States could print money, lend it to private banks, which would then lend it further (possibly with higher interests rates). (I’m not sure how this is different from fractional reserve banking. Maybe the state would have greater regulation power?) Or they could lend it directly (but then they need a way to find Alice). Or something.
Overall, I’m not sure usury is an unconditionally bad thing, or even a net bad thing. You made it quite clear it can do good. The key point I don’t like about the whole system is the fact that most western states basically gave up control over money. Letting private banks create money is one step, and the last straw is to (mostly) forbid itself to print money. When a state borrows money, the money is created anyway. Why pay interest when your central bank’s money is free? That’s not in the interest of the people. That’s in the interest of a few very rich people and corporations. Unless somehow their concentrating so much wealth is more beneficial to society. I don’t trust states as effective charities, but right now I trust banks even less.
More importantly, it forces constant, exponential economic growth. Jormungard has to grow faster than he eats himself, or the world collapses.