From: Message 21967545
A debt-based monetary system has a lifespan-limiting Achilles heel: as debt is created through loan origination, an obligation above and beyond this sum is also created in the form of interest. As a result, there can never be enough money to repay principal and pay interest unless debt is continually expanded.
When this writer says, “there can never be enough money to repay…” what does that really mean? Our definition of money from post #1 is “money is anything that serves as a medium of exchange, a store of value, a unit of account, and a standard of deferred payment”, and clearly any amount of money can represent any amount of resources (with an appropriate price change) therefore, taken literally, what this author asserts is false. What the author means to say is that a debt based system is a ponzi scheme, in that the amount of resources promised to be repaid is always above the amount that can be repaid. But that is false as well.
Apparently the writer is unaware that through innovation, knowledge creation, and risk taking, the amount of resources has relentlessly increased throughout human history. We might be able to deduce from his writing that he has never been the principle agent of a profitable enterprise. This increase (“yield”) in future resources from the input of current resources is known as the rate of profit and there can be no doubt that the existence of such a rate of profit on investments is the main source of the demand for resources. Further, there can also be little doubt that the existence of such a rate of profit is at least one of the reasons why people who might themselves employ the resources profitably, will not be willing to lend it without special remuneration, and that therefore the rate of profit will also affect the supply of loanable resources. We would expect that the net rate of interest (special remuneration) would tend to stand in a definite relation to the net rate of profit, and therefore there is always an expectation that there will be enough resources to go around to pay both principle and interest.
As an aside, the author isn’t clear on what he means by a debt based monetary system, does he mean one based upon a fiat monetary base, or simply one with fractional reserve banking? My comments apply to both a fiat and commodity based system employing fractional reserve banking – since fundamentally there is no difference. |
