Re: Why Isn't Socialism Dead?
Quadibloc
> "If there is only $10 in existence, and you lend it to someone
> under the condition that he repay $11, and if he agrees to this, he
> has agreed to the impossible."
Is that really how the banking system works?
Or is that just a caricature of it, designed to mislead and confuse
people?
When the banking system first came into being, there was still another
kind of money besides the kind created through debt. There was gold
and silver coin.
Gold and silver have their uses, for jewellery, cutlery, mirrors,
photography, and electrical contacts. They are a compact store of
value.
But it was found that if their being the exclusive medium of exchange
led to their value becoming increased greatly, because they were too
scarce to match the value of currency normally required for use,
various ill effects resulted.
One possible ill effect is that people from a country well supplied
with gold could come to your country, buy up its wealth, and then you
would end up with gold which was not really, from its usefulness,
worth all that was bought with it. This, though, is merely a
theoretical problem, seldom encountered in real life.
The other ill effect is well known from experience - and even the
banking system did not completely banish the problem. A want of the
medium of exchange could bring idleness to a land because those who
could labor to produce what others might find useful... cannot
profitably do so, because those others lack the currency to pay them
with.
Banking came about as a way of allowing more money to exist than
simply what could be stamped out from precious metal.
A government could print paper money by decree, and claim that it is
as good as gold. This rests upon force alone, however, and the result
generally is that the asserted value for the currency is never taken
seriously enough that the currency can buy what it is intended to, and
thus a constant inflation ensues.
How could paper money be printed, to add to the supply of money in
circulation, so that each dollar so printed would rest upon real value
as solidly as if it were stamped from silver or gold?
The banking system is the solution to that, although an imperfect
solution.
Banks, unlike other institutions of lending, indeed are allowed to
lend more money than they have in their direct possession. In exchange
for this privilege, they are required to demand _collateral_ for every
loan they make.
The bank itself is responsible for the money it creates, so it is not
counterfeiting. It engages in a sort of supervised check-kiting. But
collateral means that what it is really doing is "coining" forms of
wealth other than gold or silver. A mortage on farmland "coins" the
farmland, a mortgage on a factory "coins" the building and equipment
in it.
Thus, forms of wealth that are not so portable as to lend themselves
to barter are allowed to be used for barter, in effect, potentially
enlarging the pool of currency from gold and silver to all things of
value.
What of interest?
Obviously, a conventional lender that is not a bank would charge
interest. There is always some risk of a loan not being repaid. Even
when it is repaid, obviously having money now for use when one wants
is preferable to having to wait for it to return.
The sum total of wealth is not the sum total of money. Wealth is
produced by labor, and each passing day sees the creation of new
wealth by the exertions of humanity.
Those who labor and are paid for it are not by that reason in debt.
Paper money, because it is issued by a central bank, is not affected
by the failure of an individual bank. The money banks create when they
make loans is an augmentation of the money supply, which permits the
creation of large business enterprises. These produce the airplanes
and battleships on which our peace and safety depends.
Interest charges, like lighting, heating fuel, and property taxes come
out of the margin of the businesses that had to borrow money to exist,
and businesses usually do manage to turn a profit. The banking system
is not the problem.
John Savard