The question of whether money is destroyed and recreated or simply stored to be relent again is a difference without distinction.
The real question is, does the amount of money in a system remain the same or is it constantly expanding? If it is constantly expanding is this out of necessity to keep the system going?
If the answer to both questions is “yes”, and if it is banks that create money out of thin air, then it is those (individuals and groups) who control the Banks that truly control the society based on that system.
The central question then becomes, WHO (really) controls the Banks?
(Since all firms eventually end up owned or controlled by Banks through equity ownership, the population gets more and more in debt, and elected politicians need financing and so are not responsible to the people but to their financiers)
By Banks I mean Financial Institutions not just traditional banks.
I think the answer is "yes" and "yes" and "yes", so therefore those who control the Banks control the system. I can't claim I know who owns the banks, but I am downright certain they aren't owned by people who prioritize the best interests of the United States and its citizens.
"The question of whether money is destroyed and recreated or simply stored to be relent again is a difference without distinction."
The answer to the question of "if money is destroyed upon use" enters into the use of money upon both the real and metaphysical realms. It has vast implications for all of monetary theory - particularly usury.
Excellent - I really enjoyed this post. You got pretty far with the toy economies. And to think, there are Ph.Ds who spend years comming to the same conclusions. Likely because they have to unlearn all the neoclassical economics they've been taught. Here are a few thoughts I had as I read it:
To take a toy economy further, I had to add more entities, supply/demand curves, and account for time, hence Sim Economy. This revealed two phenomenon relevent to this blog: 1) There is a time delay between the creation of new money and the completion of the circuit. This is analogous to velocity in the Fisher Equation, and a larger amount of new money is needed to "prime the system" if the delay is larger (velocity is smaller). One interesting effect of this delay in the modeled large dynamic system is that it actually impedes the extinguishing of debt. New money can be created before the original debt is extinguished. 2) Over time an excess of money is accumulated in the system, which either ends up in the banks, or ends up causing inflation since production and consumption are presumed to be stable. This inflation rate is proportional to total interest payments plus total savings. Inflation reduces the value of debt in real terms, so it might account for all or part of the Debt Repayment Dilemma.
I had always pondered the empirical evidence that for over 200 years, Capitalism has produced the greatest explosion of material wealth in mankind's history. How? Considering the Iron Law of compounded interest, why has the system not collapsed? In the 19th century under a gold standard, wealth and living standards went up even though there were periods of deflation. Neoclassical economics tells us this is not possible. Then how? Higher productivity. It lowers the cost goods and services by replacing direct wages with capital. This is another possible reason for Capitalism's longevity.
One important caveat: Although I learned some interesting things from my Sim Economy model, I'd caution that it's just a model and is only as good as the assumptions made during its creation - GIGO.
Thanks for the kind words. Good thoughts. Did your model account for asset inflation? That seems to be a major reason we didn't have consumer inflation for a while -- the funds channeled into US assets instead. Stocks went up but not the price of bread, etc.
No, I did not include asset inflation, just price and wage inflation. However, the money accumulated over time in the bank could be considered Investment Goods, especially if it collects interest. I would have needed to add that as a category and program the rules. This is a little different because Investment Goods have essentially an infinite supply and demand is actually driven up by price rather than down. An inverted demand curve.
None of these models you cover discuss inflation. Rather than "destroying" money, perhaps some thought should be given into the relative amount of inflation produced every time money is devalued by additional money being entered into the system. Obviously money is not "destroyed" when a debt is paid - except perhaps if the government were to actually pay off a bond on its expiry without rolling it over into a new one.
These theoretical models all seem to fail to take any consideration of what actually occurs in the debt market, and the role the bond market serves in the economy as a whole. To a certain extent, transactions over a certain amount are done in Treasuries (or Bunds, Gilts, etc.) rather than Dollars (or Euros, Yen, etc.) The world quite literally revolves around debt rather than what you and I view as "currency", and a serious understanding of the bond market and its role in large transactions is necessary to understand the real macro view, rather than these simplified models.
Furthermore, value is created or extracted by labor - there are additional inputs into the system beyond just the money created (and later "destroyed" in these models) by the banks.
I borrow money, I buy a bulldozer, I extract iron ore from the ground, I sell it to someone, I pay the bank back. The value of the iron ore has to enter the system somehow.
Dave borrows money, he builds a refinery, he buys the iron ore from me, he turns it into steel bars and sheets, he sells it on to someone else, he pays the bank back. The value of the work done by turning iron ore into steel has to enter the system somehow.
John borrows money, he builds a factory, he buys the steel bars and sheets, he transforms them into i-beams and nuts and bolts and rivets and various other standard form factors to be used in construction. He sells those on to other people, he pays the bank back. Value was created by transforming the steel. A sensible model must account for that.
Now, there is an argument out there that claims all money ultimately derives from extractive labors or external sources (e.g. solar/tidal/etc power) and therefore all economics is ultimately depletionary, but I don't quite buy that. We are, after all, communicating by means of sending lightning through symbols carved into sand.
FINANCIALISATION and Satanic Phoenician Mega Trillionaire Central Banks? by Professor Richard A. Werner, D.Phil. - Improved and made better by Satchidanand
Do we Need Satanic Phoenician Mega Trillionaire central banks? by Professor Richard A. Werner, D.Phil. - improved and made better by Satchidanand
THE SATANIC PHOENICIAN MEGA TRILLIONAIRES, THE ROTHSCHILDS, THE ROCKFELLERS, THE BLACK NOBILITY CONTROL BIDEN, PUTIN AND XI - THEY CHOOSE TO DESTROY EMPIRES - THEY CHOOSE WHICH EMPIRES TO RAISE UP - THEY DO IT BY FINANCIALISTATION!
Lord Acton, a shrewd observer of power, concluded:
“Power tends to corrupt and absolute power corrupts absolutely.”
Lesser known is that he also seems to have been aware of the power in the hands of the bankers:
“The issue which has swept down the centuries and which will have to be fought sooner or later is the people versus the banks.”
Most Satanic Phoenician Mega Trillionaire central banks were created as cartels by big banking groups. Today, many Satanic Phoenician Mega Trillionaire central banks remain in private hands – such as the Federal Reserve Bank of New York, the Italian, Greek or South African Satanic Phoenician Mega Trillionaire central banks.
The solution to this concerted threat to our civil liberties and our freedom can only be to try to advance the opposite agenda: the decentralization of power.
We can decentralize power in our monetary system by abandoning the big banks and instead creating and supporting local not-for-profit community banks and ultimately a system of local public money issued by local authorities as receipts for services rendered to the local community.
One reason why Satanic Phoenician Mega Trillionaire central banks have sprung so frantically into action after their narrative had been thoroughly disproven is that the revelations about the nature of money has drawn the curtain open and allowed the public to see what is in the innermost sanctum of their Satanic Phoenician Mega Trillionaire central banks: nothing.
Just like the Wizard of Oz in the Emerald City thrived on his reputation, while behind his curtain nothing could be found, so have Satanic Phoenician Mega Trillionaire central banks relied on politicians and the public not understanding the nature of money and the role of Satanic Phoenician Mega Trillionaire central banks.
The truth of the matter is: We don’t need Satanic Phoenician Mega Trillionaire central banks. Since 97% of the money supply is created by banks, the importance of Satanic Phoenician Mega Trillionaire central banks is far smaller than generally envisaged. Moreover, the kind of money that commercial banks create is not privileged at law. Legally, our money supply is simply private company credit, which can be created by any company, with or without banking license.
Besides Professor Werner paper, the web site of the bank of England has a section explaining the money creation and cancellation, this is also known but sort of hidden to some extent in other countries so my guess is that once this is spread specially amongst universities and economy students theyr will try to show us this is necessary although the big difference is that wheter the actual system gives control of the money supply to the banking sector DSC advocates for the democratisation and distribution of the additional money created following some of the next principles:
1. All new production should de backed by interest free loans and related following the real depreciation or consumption of what is been produced.
2. The price compensation mechanism following a physical and metaphysical true that is summarised in consumption allows production, therefore appling a C/P ratio to calculate a discount or charging only what has been consumed or depreciated during a certain time period and not locked to a compound interest.
3. The National dividend which distribute the necessary money to equalise the addition of costs on consumer prices.
In the last two paragraphs by Keen which you mention, I believe he performs a sleight of hand. If the paper tokens (which represent the bank's debt entry on its books) are returned to the bank, and the debt is "reduced" (ie destroyed), the paper tokens must cease to correspond to anything existing. Although they may sit in shoeboxes in the bank's vault, they cannot be at that moment an "asset of the bank" "ready for relending". They are just bits of paper. If they re put back into circulation the bank will have to make a new entry on its books-- that is the asset.
Keen's first objection that for money to be indestructible when circulating but destroyed when repaid "is incongruous" is a non sequitur. The money can circulate as only as long as it is an outstanding liability of the bank. If the bank fails, its just paper. Money with no counter party issuer (eg gold) is indeed indestructible. "All else is credit", as JP Morgan allegedly said.
I had that sense as well, but it felt like I must somehow be missing something as Keen is a very sharp economist. If that is his entire argument then I agree - it's sleight of hand.
"By the time [Douglas] published his 1931 book The Monopoly of Credit, he had begun increasingly to emphasize the central role of debt to the banking system. Today, Douglas scholars put his critique of the banking system at the center of his work."
Monetary circuits and the problem of ever-growing debt was the only aspect of Social Credit theory that I knew about until I saw this series of posts. I had read the basic ideas on some blog or another - I can't remember which one - and they seemed so immediately sensible that they've been the bedrock of my economic thinking ever since then. I just can't see any way to escape the conclusions that, in a modern economy:
(1) Money is lent into existence by the central bank
(2) Because it is lent at interest, the amount of money owed to the bank is always greater than the total amount in existence,
(3) Therefore, however prosperous some people might be on a micro-scale, the average debt load in a nation is bound to grow.
Inflation can alleviate this problem, but only up to a point, and in fact all central-banking economies require steady inflation in order to function. And while this state of affairs is tolerable when the whole economy is growing rapidly enough to keep pace with the debt burden, things get really bad for the lower classes when growth slows or stalls, and a prosperous steady-state economy is totally unworkable.
Hence the criticism of environmentalists, and even some of the more hardcore social conservatives, for "capitalism," with its demands for endless growth... really it is the debt economy that demands endless growth, since the average citizen must always be deeply in debt, and this debt can only be managed (but never repaid!) by finding more and more stuff to sell to one's fellow debtor-citizens. (Of course most of us don't sell consumer goods directly, we'll usually be working for a firm of some sort, but the basic needs are still the same.)
All of this seems much more solidly-reasoned than the stuff about toy models and the A+B>A theorem. So it doesn't surprise me that later Social Credit thinkers (plus the entire Monetary Circuit school) have ended up putting it front and center.
I fully agree. Putting the monetary circuit at the center is much clearer than the earlier approach the social credit theorists took. The ever-growing debt load seems to be a genuine problem for the current system, and is the basis for the "ever growing unsustainable" economy.
"The argument that repaying debt destroys money – and therefore that debt is, in effect, ‘negative money’ – is commonplace in the endogenous-money literature, with writers routinely surmising that money is destroyed when debt is repaid"
I didn't catch this at first on my reading, and only thought of it as I pondered the essay going through my evening. I guess I haven't been following Keen closely enough. I thought he was with Hudson and against interest on loans and usury? You lose most of your footing against usury if you don't believe that money is destroyed upon use, and thus that paying interest is both buying something and paying a rent upon what was purchased. I'll have to pay more attention to Keen if I can; only so many hours in a day... Do you know if he regularly does any podcasts? I get that most of these ideas are best gone through in writing/reading, but a great deal of my time is spent working with my hands, with my mind free to think and ears to listen
"You lose most of your footing against usury if you don't believe that money is destroyed upon use, and thus that paying interest is both buying something and paying a rent upon what was purchased." I tend to favor the use of interest as payment for risk of non repayment or loss of alternative investment opportunities. Thus, "within reason", I favor usury. But your comment about both buying something and paying rent is a view I had not fully considered. However, even when the loan is repaid and presumably the loaned money "disappears", the value created by using the money to generate goods and services probably remains, until that value is also depleted over time or via changes in personal or market preferences.
Even if the argument is that you should not charge interest on "money created out of thin air", [in contrast to the "real money" borrowed from your brother in law?] there is still the administrative costs of the bank creating the loan and monitoring repayment, etc. They need to be compensated for that, plus profit, as well. Presumably that might be a much smaller amount than the interest on the unpaid loan balance with a declining balance payment schedule.
The traditional view of a loan is that you're paid for work. Thus - the accountant is paid for the work on the books. The cost of the wire transfer, if applicable, needs to be paid for, if the loan requires travel you can be paid travel expenses. If the loan is something valuable that requires body guards (such as physical gold, diamonds, etc) those need to be paid for. Your time involved in all this can be paid for. Etc.
The issue with Usury is that, as you say, the goods produced obviously stay. However, the money spent is destroyed. Because money is a place holder for labor metaphysically, the one's holding it has spent his labor when he spends the money. His labor, and his money, are gone, spent, never to return to him. Charging him anything in excesses of that -on the act of loaning the money- (not on the act of accounting or anything else as mentioned above) is traditionally akin to slavery. Because the goods continue existing, and you keep asking him for his labor and what represents his labor (money) but he has already purchased the services and goods with the money promised to him. You are renting his body, labor, and what it produces (money) when he gets nothing else out of it.
This is slavery.
As for business loans, they should be paid out of what the company makes on the services and goods being sold. IE - an investment. Traditionally (up to the East India Trade Company) this was a one off investment in a venture. "I'm going to sail to France for wine to sell here in London, who wants to invest!?" The people pay up, they're paid out as a % of investment agreed upon in the contract, with loss terms set upon by contract as well. Slavery was not a morally acceptable loss term, nor debtors prison (until England revolted against the Catholic Church, another story).
Personal loans were seen as a favor, and interest forbidden. Payment was only the principle, non-payment was seizure of what the loan was used to buy (Such as a house), but with the idea that the money was given back if you went that route as well. Since you had exercised your right so seize the house, which was worth the whole amount, they were entitled by Justice to the partial payment back.
If you want my more in depth thoughts on the subject of usury I offer two further pursuits:
It can be donde using the circular flow of income diagram although I think is a bit simple except one I have seen on Wikipedia lol and it requires someone that knows how to use a graphic design software
Since the "money" created by banks making loans is fake, a confidence game of asserted value just like the prices of tulips in Holland, can it really be "destroyed" when the loans are payed off by the lendee?
Does not some thing need to actually exist before it can be destroyed?
Of course money exists. You can buy things with it. That's what money *is*. To call that "fake" when you can quite literally go buy everything with it, is a ridiculous assertion. It's the kind of claim you'd quite rightly dismiss as postmodernist drivel if made in any other context.
To be frank, ToW, I'm surprised this is your first time encountering this argument. It's the central point made by the End The Fed crowd. (Well, aside from 'The Fed is private.')
Money issued and the amount to be repaid never square up, because it's debt + interest, and no one issued the sum for the interest.
Today I found a related Substack post by Lorenzo of Oz, discussing his ideas about money and how that understanding may be less than well founded. Readers here may find that useful as well.
The question of whether money is destroyed and recreated or simply stored to be relent again is a difference without distinction.
The real question is, does the amount of money in a system remain the same or is it constantly expanding? If it is constantly expanding is this out of necessity to keep the system going?
If the answer to both questions is “yes”, and if it is banks that create money out of thin air, then it is those (individuals and groups) who control the Banks that truly control the society based on that system.
The central question then becomes, WHO (really) controls the Banks?
(Since all firms eventually end up owned or controlled by Banks through equity ownership, the population gets more and more in debt, and elected politicians need financing and so are not responsible to the people but to their financiers)
By Banks I mean Financial Institutions not just traditional banks.
I think the answer is "yes" and "yes" and "yes", so therefore those who control the Banks control the system. I can't claim I know who owns the banks, but I am downright certain they aren't owned by people who prioritize the best interests of the United States and its citizens.
"The question of whether money is destroyed and recreated or simply stored to be relent again is a difference without distinction."
The answer to the question of "if money is destroyed upon use" enters into the use of money upon both the real and metaphysical realms. It has vast implications for all of monetary theory - particularly usury.
Excellent - I really enjoyed this post. You got pretty far with the toy economies. And to think, there are Ph.Ds who spend years comming to the same conclusions. Likely because they have to unlearn all the neoclassical economics they've been taught. Here are a few thoughts I had as I read it:
To take a toy economy further, I had to add more entities, supply/demand curves, and account for time, hence Sim Economy. This revealed two phenomenon relevent to this blog: 1) There is a time delay between the creation of new money and the completion of the circuit. This is analogous to velocity in the Fisher Equation, and a larger amount of new money is needed to "prime the system" if the delay is larger (velocity is smaller). One interesting effect of this delay in the modeled large dynamic system is that it actually impedes the extinguishing of debt. New money can be created before the original debt is extinguished. 2) Over time an excess of money is accumulated in the system, which either ends up in the banks, or ends up causing inflation since production and consumption are presumed to be stable. This inflation rate is proportional to total interest payments plus total savings. Inflation reduces the value of debt in real terms, so it might account for all or part of the Debt Repayment Dilemma.
I had always pondered the empirical evidence that for over 200 years, Capitalism has produced the greatest explosion of material wealth in mankind's history. How? Considering the Iron Law of compounded interest, why has the system not collapsed? In the 19th century under a gold standard, wealth and living standards went up even though there were periods of deflation. Neoclassical economics tells us this is not possible. Then how? Higher productivity. It lowers the cost goods and services by replacing direct wages with capital. This is another possible reason for Capitalism's longevity.
One important caveat: Although I learned some interesting things from my Sim Economy model, I'd caution that it's just a model and is only as good as the assumptions made during its creation - GIGO.
Thanks for the kind words. Good thoughts. Did your model account for asset inflation? That seems to be a major reason we didn't have consumer inflation for a while -- the funds channeled into US assets instead. Stocks went up but not the price of bread, etc.
No, I did not include asset inflation, just price and wage inflation. However, the money accumulated over time in the bank could be considered Investment Goods, especially if it collects interest. I would have needed to add that as a category and program the rules. This is a little different because Investment Goods have essentially an infinite supply and demand is actually driven up by price rather than down. An inverted demand curve.
None of these models you cover discuss inflation. Rather than "destroying" money, perhaps some thought should be given into the relative amount of inflation produced every time money is devalued by additional money being entered into the system. Obviously money is not "destroyed" when a debt is paid - except perhaps if the government were to actually pay off a bond on its expiry without rolling it over into a new one.
These theoretical models all seem to fail to take any consideration of what actually occurs in the debt market, and the role the bond market serves in the economy as a whole. To a certain extent, transactions over a certain amount are done in Treasuries (or Bunds, Gilts, etc.) rather than Dollars (or Euros, Yen, etc.) The world quite literally revolves around debt rather than what you and I view as "currency", and a serious understanding of the bond market and its role in large transactions is necessary to understand the real macro view, rather than these simplified models.
Furthermore, value is created or extracted by labor - there are additional inputs into the system beyond just the money created (and later "destroyed" in these models) by the banks.
I borrow money, I buy a bulldozer, I extract iron ore from the ground, I sell it to someone, I pay the bank back. The value of the iron ore has to enter the system somehow.
Dave borrows money, he builds a refinery, he buys the iron ore from me, he turns it into steel bars and sheets, he sells it on to someone else, he pays the bank back. The value of the work done by turning iron ore into steel has to enter the system somehow.
John borrows money, he builds a factory, he buys the steel bars and sheets, he transforms them into i-beams and nuts and bolts and rivets and various other standard form factors to be used in construction. He sells those on to other people, he pays the bank back. Value was created by transforming the steel. A sensible model must account for that.
Now, there is an argument out there that claims all money ultimately derives from extractive labors or external sources (e.g. solar/tidal/etc power) and therefore all economics is ultimately depletionary, but I don't quite buy that. We are, after all, communicating by means of sending lightning through symbols carved into sand.
The key questions to answer, imo, are:
(1) Where does the money needed to pay interest come from?
And should it come from ever-expanding credit, as seems to be the case:
(2) What consequences exactly does this permanent expansion have for the economy and society?
Finally, of course:
(3) ¿What is the alternative? ¿Do we need to invent something new, or has one of many past systems worked well?
FINANCIALISATION and Satanic Phoenician Mega Trillionaire Central Banks? by Professor Richard A. Werner, D.Phil. - Improved and made better by Satchidanand
Do we Need Satanic Phoenician Mega Trillionaire central banks? by Professor Richard A. Werner, D.Phil. - improved and made better by Satchidanand
THE SATANIC PHOENICIAN MEGA TRILLIONAIRES, THE ROTHSCHILDS, THE ROCKFELLERS, THE BLACK NOBILITY CONTROL BIDEN, PUTIN AND XI - THEY CHOOSE TO DESTROY EMPIRES - THEY CHOOSE WHICH EMPIRES TO RAISE UP - THEY DO IT BY FINANCIALISTATION!
Lord Acton, a shrewd observer of power, concluded:
“Power tends to corrupt and absolute power corrupts absolutely.”
Lesser known is that he also seems to have been aware of the power in the hands of the bankers:
“The issue which has swept down the centuries and which will have to be fought sooner or later is the people versus the banks.”
Most Satanic Phoenician Mega Trillionaire central banks were created as cartels by big banking groups. Today, many Satanic Phoenician Mega Trillionaire central banks remain in private hands – such as the Federal Reserve Bank of New York, the Italian, Greek or South African Satanic Phoenician Mega Trillionaire central banks.
The solution to this concerted threat to our civil liberties and our freedom can only be to try to advance the opposite agenda: the decentralization of power.
We can decentralize power in our monetary system by abandoning the big banks and instead creating and supporting local not-for-profit community banks and ultimately a system of local public money issued by local authorities as receipts for services rendered to the local community.
One reason why Satanic Phoenician Mega Trillionaire central banks have sprung so frantically into action after their narrative had been thoroughly disproven is that the revelations about the nature of money has drawn the curtain open and allowed the public to see what is in the innermost sanctum of their Satanic Phoenician Mega Trillionaire central banks: nothing.
Just like the Wizard of Oz in the Emerald City thrived on his reputation, while behind his curtain nothing could be found, so have Satanic Phoenician Mega Trillionaire central banks relied on politicians and the public not understanding the nature of money and the role of Satanic Phoenician Mega Trillionaire central banks.
The truth of the matter is: We don’t need Satanic Phoenician Mega Trillionaire central banks. Since 97% of the money supply is created by banks, the importance of Satanic Phoenician Mega Trillionaire central banks is far smaller than generally envisaged. Moreover, the kind of money that commercial banks create is not privileged at law. Legally, our money supply is simply private company credit, which can be created by any company, with or without banking license.
https://satchidanand.substack.com/p/financialisation-and-satanic-phoenician
Besides Professor Werner paper, the web site of the bank of England has a section explaining the money creation and cancellation, this is also known but sort of hidden to some extent in other countries so my guess is that once this is spread specially amongst universities and economy students theyr will try to show us this is necessary although the big difference is that wheter the actual system gives control of the money supply to the banking sector DSC advocates for the democratisation and distribution of the additional money created following some of the next principles:
1. All new production should de backed by interest free loans and related following the real depreciation or consumption of what is been produced.
2. The price compensation mechanism following a physical and metaphysical true that is summarised in consumption allows production, therefore appling a C/P ratio to calculate a discount or charging only what has been consumed or depreciated during a certain time period and not locked to a compound interest.
3. The National dividend which distribute the necessary money to equalise the addition of costs on consumer prices.
In the last two paragraphs by Keen which you mention, I believe he performs a sleight of hand. If the paper tokens (which represent the bank's debt entry on its books) are returned to the bank, and the debt is "reduced" (ie destroyed), the paper tokens must cease to correspond to anything existing. Although they may sit in shoeboxes in the bank's vault, they cannot be at that moment an "asset of the bank" "ready for relending". They are just bits of paper. If they re put back into circulation the bank will have to make a new entry on its books-- that is the asset.
Keen's first objection that for money to be indestructible when circulating but destroyed when repaid "is incongruous" is a non sequitur. The money can circulate as only as long as it is an outstanding liability of the bank. If the bank fails, its just paper. Money with no counter party issuer (eg gold) is indeed indestructible. "All else is credit", as JP Morgan allegedly said.
So, Keen 0, MCT 2.
I had that sense as well, but it felt like I must somehow be missing something as Keen is a very sharp economist. If that is his entire argument then I agree - it's sleight of hand.
"By the time [Douglas] published his 1931 book The Monopoly of Credit, he had begun increasingly to emphasize the central role of debt to the banking system. Today, Douglas scholars put his critique of the banking system at the center of his work."
Monetary circuits and the problem of ever-growing debt was the only aspect of Social Credit theory that I knew about until I saw this series of posts. I had read the basic ideas on some blog or another - I can't remember which one - and they seemed so immediately sensible that they've been the bedrock of my economic thinking ever since then. I just can't see any way to escape the conclusions that, in a modern economy:
(1) Money is lent into existence by the central bank
(2) Because it is lent at interest, the amount of money owed to the bank is always greater than the total amount in existence,
(3) Therefore, however prosperous some people might be on a micro-scale, the average debt load in a nation is bound to grow.
Inflation can alleviate this problem, but only up to a point, and in fact all central-banking economies require steady inflation in order to function. And while this state of affairs is tolerable when the whole economy is growing rapidly enough to keep pace with the debt burden, things get really bad for the lower classes when growth slows or stalls, and a prosperous steady-state economy is totally unworkable.
Hence the criticism of environmentalists, and even some of the more hardcore social conservatives, for "capitalism," with its demands for endless growth... really it is the debt economy that demands endless growth, since the average citizen must always be deeply in debt, and this debt can only be managed (but never repaid!) by finding more and more stuff to sell to one's fellow debtor-citizens. (Of course most of us don't sell consumer goods directly, we'll usually be working for a firm of some sort, but the basic needs are still the same.)
All of this seems much more solidly-reasoned than the stuff about toy models and the A+B>A theorem. So it doesn't surprise me that later Social Credit thinkers (plus the entire Monetary Circuit school) have ended up putting it front and center.
I fully agree. Putting the monetary circuit at the center is much clearer than the earlier approach the social credit theorists took. The ever-growing debt load seems to be a genuine problem for the current system, and is the basis for the "ever growing unsustainable" economy.
"The argument that repaying debt destroys money – and therefore that debt is, in effect, ‘negative money’ – is commonplace in the endogenous-money literature, with writers routinely surmising that money is destroyed when debt is repaid"
I didn't catch this at first on my reading, and only thought of it as I pondered the essay going through my evening. I guess I haven't been following Keen closely enough. I thought he was with Hudson and against interest on loans and usury? You lose most of your footing against usury if you don't believe that money is destroyed upon use, and thus that paying interest is both buying something and paying a rent upon what was purchased. I'll have to pay more attention to Keen if I can; only so many hours in a day... Do you know if he regularly does any podcasts? I get that most of these ideas are best gone through in writing/reading, but a great deal of my time is spent working with my hands, with my mind free to think and ears to listen
"You lose most of your footing against usury if you don't believe that money is destroyed upon use, and thus that paying interest is both buying something and paying a rent upon what was purchased." I tend to favor the use of interest as payment for risk of non repayment or loss of alternative investment opportunities. Thus, "within reason", I favor usury. But your comment about both buying something and paying rent is a view I had not fully considered. However, even when the loan is repaid and presumably the loaned money "disappears", the value created by using the money to generate goods and services probably remains, until that value is also depleted over time or via changes in personal or market preferences.
Even if the argument is that you should not charge interest on "money created out of thin air", [in contrast to the "real money" borrowed from your brother in law?] there is still the administrative costs of the bank creating the loan and monitoring repayment, etc. They need to be compensated for that, plus profit, as well. Presumably that might be a much smaller amount than the interest on the unpaid loan balance with a declining balance payment schedule.
The traditional view of a loan is that you're paid for work. Thus - the accountant is paid for the work on the books. The cost of the wire transfer, if applicable, needs to be paid for, if the loan requires travel you can be paid travel expenses. If the loan is something valuable that requires body guards (such as physical gold, diamonds, etc) those need to be paid for. Your time involved in all this can be paid for. Etc.
The issue with Usury is that, as you say, the goods produced obviously stay. However, the money spent is destroyed. Because money is a place holder for labor metaphysically, the one's holding it has spent his labor when he spends the money. His labor, and his money, are gone, spent, never to return to him. Charging him anything in excesses of that -on the act of loaning the money- (not on the act of accounting or anything else as mentioned above) is traditionally akin to slavery. Because the goods continue existing, and you keep asking him for his labor and what represents his labor (money) but he has already purchased the services and goods with the money promised to him. You are renting his body, labor, and what it produces (money) when he gets nothing else out of it.
This is slavery.
As for business loans, they should be paid out of what the company makes on the services and goods being sold. IE - an investment. Traditionally (up to the East India Trade Company) this was a one off investment in a venture. "I'm going to sail to France for wine to sell here in London, who wants to invest!?" The people pay up, they're paid out as a % of investment agreed upon in the contract, with loss terms set upon by contract as well. Slavery was not a morally acceptable loss term, nor debtors prison (until England revolted against the Catholic Church, another story).
Personal loans were seen as a favor, and interest forbidden. Payment was only the principle, non-payment was seizure of what the loan was used to buy (Such as a house), but with the idea that the money was given back if you went that route as well. Since you had exercised your right so seize the house, which was worth the whole amount, they were entitled by Justice to the partial payment back.
If you want my more in depth thoughts on the subject of usury I offer two further pursuits:
An in depth essay on the subject of usury:
https://uncouthbarbarian.substack.com/p/heres-the-money-shot
and a podcast I did on it:
https://www.notesfromtheendofti.me/p/when-east-meets-west-episode-16
I had some difficulty visualizing the flows in the different models. perhaps including diagrams would be helpful?
It can be donde using the circular flow of income diagram although I think is a bit simple except one I have seen on Wikipedia lol and it requires someone that knows how to use a graphic design software
I'm not a very good visual-spatial thinker myself so I'm not the one to do it. :(
This is an older diagram which I like because you can visualize better a simplified circuit https://encrypted-tbn0.gstatic.com/images?q=tbn:ANd9GcT5E5uYc3OuJ4U9dz_eGShsCFSFpQ9zzPmjgvxgvjf9fjOQR02OSbL29Xs&s=10
https://www.socred.org/media/k2/items/cache/5fa21cd9e0d2531a2f1dfdffbab46f70_M.jpg
I will try to post the link of a circular flow of income in DSC
By the way, you are one of my favorite writers
Thank you gentlemen, that is very kind!
Mine too
For clarity and instructive value he's among the best (maybe the best) on substack
Regarding footnote 3: "2014 empirical study that has proven that banks really do create money out of thin air"
Richard Werner who made this study is on substack: https://rwerner.substack.com/
Oh awesome! TY.
It sounds (at first glance) as an excuse for inflation and usury…..
It is.
https://treeofwoe.substack.com/p/social-credit-and-monetary-circuit/comment/70673922
Since the "money" created by banks making loans is fake, a confidence game of asserted value just like the prices of tulips in Holland, can it really be "destroyed" when the loans are payed off by the lendee?
Does not some thing need to actually exist before it can be destroyed?
It's fairy money. It only exists as long as you believe in it.
Of course money exists. You can buy things with it. That's what money *is*. To call that "fake" when you can quite literally go buy everything with it, is a ridiculous assertion. It's the kind of claim you'd quite rightly dismiss as postmodernist drivel if made in any other context.
You can't tell people they have been conned, because they will double down in their belief in the con.
To be frank, ToW, I'm surprised this is your first time encountering this argument. It's the central point made by the End The Fed crowd. (Well, aside from 'The Fed is private.')
Money issued and the amount to be repaid never square up, because it's debt + interest, and no one issued the sum for the interest.
Today I found a related Substack post by Lorenzo of Oz, discussing his ideas about money and how that understanding may be less than well founded. Readers here may find that useful as well.
https://www.lorenzofromoz.net/p/de-mystifying-money
De-mystifying money The Money Multiplier does not exist and other obfuscations of monetary jargon. Lorenzo Warby 9/27/24