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Renée Menéndez's avatar

"So what happens when your ego is ... dissolved?

You are "lifted up out of the delusion of individuality"."

There is a very interesting parallel from the theory of monetary economics. Usually, interest is considered as a source of income, which is designed to increase the wealth of those who have enough money anyway. Vast quantities of investment advisers and other figures are engaged in convincing people to "invest" their earned money in any investments, so that those who have brokered the conclusion can henceforth earn a low-performing income. So here the ego of one is abused in order to feed the ego of the other. Whether it is unfair or not, it should be stated here that the decisive factor here is that money is used as a means of individual business activity, i.e. the ego defines the idea that exists about money, which then also determines the treatment and use of money. The results that a desolidarized society (the consequence of the ego) produces can now be viewed in a well-known country.

Now, of course, there is also a different point of view. "The practice of charging interest was vehemently opposed by Jesus and forbidden by the church all the way up until the time of the Renaissance." Now Jesus was not a money theorist, but was probably more oriented to the practice of the jubilee years, which were necessary to avoid the over-indebtedness of entire sections of the population. So it's easy to get the idea to ban the cause of it completely right away. This may have been correct against the background of the monetary system of the time, but that should not be of further interest here.

Rather, it is crucial that today the monetary system is linked to debt relationships, which ideally have a social character. This character arose with the Industrial Revolution and the associated need to finance labor (where capital ist nothing more than labor done in advance). The basic figure is that the financing of labor requires the sale of the product in order to recoup the costs of the product - plus an unfunded entrepreneur's wage. In a FIAT money system, all you need for financing is banks, because they can finance any project with the support of the Central Bank - if necessary also with the help of a consortium. It is important to understand that it is the debts incurred that lead entrepreneurs to sell produced goods for a practically worthless money - the legend that money is a right to goods has never been true.

Now banks find their justification for existence in the fact that they, as lenders, enable the investment volume that keeps an economy running. Since banks operate in a money economy environment, they - like all other companies - have to keep an eye on covering the costs with the current income. However, the depreciation from failed loans has the same effect as costs, as they reduce the annual profit in the income statement as well as personnel and material costs. The risk premium is therefore equivalent to an insurance premium that works analogously to the known risk insurances. With car insurance as the most well-known risk insurance, it is the case that the amount of the damage amount per year determines the amount of the premiums: if the damages increase, the premiums increase, the damages decrease, the premiums decrease. This pattern can be found in the banking industry, where the pattern looks like that in the case of positive expectations for the future (= low depreciation losses), interest rates have a tendency to decrease, while in economically difficult times (= high depreciation losses), bank interest rates have a tendency to increase, although from an economic theory point of view, just the opposite - namely, interest rate cuts - is considered necessary to "boost" the economy again.

Since banks now operate with the money issued by the Central Bank, there is no justification in itself for the fact that they receive an interest as an income element for money, but can only claim a risk premium that compensates for the default of loans. Then, for example, it is no longer justifiable for banks to charge a market interest rate for real estate financing, because the risk of loss default is largely eliminated by the collateral provided by the property and thus, from a risk point of view, a market interest rate is not justified. Perhaps one of the reasons for the broad-based campaign to declare banks as the "creators of money" is that it could turn out that charging a market interest rate will result in a non-performing income and their position as "benefactors" of society could be questioned. If people would understand that it is the central Bank from which the money comes, the popular reference to the "investors", who would have to be compensated for it, would also disappear. With money from the Central Bank, these claims are no more than lukewarm air.

All this means that money, understood as a medium of the social organization of production, is not a means to individually achieve a low-performing income, but to contribute to the sustainability of the provision of social services to ensure the survival of society over time. Once people have understood this, interest is a means to remove credit claims that are no longer faced by a productive project from the overall context of the debt relationships. By the way, the sole function of interest as risk compensation also prevents the accumulation of monetary assets, the disastrous effect of which was already clear to our ancestors thousands of years ago.

Money does not exist to service individual fortune but to secure the continuation of society over time. Unfortunately, this knowledge has been lost, but there is always the possibility to exhume it again.

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John Merryman's avatar

Hi Nathan. I tried posting a response to your comment on the Webb article, but it didn't go through. Worried they connected my two addresses.

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