Living Within Limits - Chapter 8

Growth: Real and Spurious

"Compound interest is the eighth wonder of the world"
-one of the Rothchilds (or Albert Einstein)

Money is Sterile...

To truly fathom the power of compound interest, Hardin offers a lustrous illustration:

In Chapter 27 of the book of Matthew we are told that when Judas regretted betraying Jesus for thirty pieces of silver, he brought th emoney ot th echief priests saying, 'I have sinned,' and cast down the pieces of silver as he left the temple.  At that poin thte booty became the priests' problem.  They decided that since the coins were 'the price of blood' they should not be added to the holy treasury... instead, they took counsel, and bought with them the potter's field, to bury strangers in...

But suppose some rambling Rothschild, or other capitalist, had persuaded the priests that they should 'make their money grow'... Had this happened, Matthew 27 might have been written along the following lines:

'Taking counsel with certain wise men called economists, the priests converted the thirty pieces of silver into gold (presumably the equivalent of 2 grams of gold), which they used to open up an account in the People's Perpetual Gold Bank of Jerusalem, saying "Let this wealth purify itself by quietly drawing interest at 5% per year for two thousand years.  Then let both principal and interest be withdrawn from the bank and divided among all the people then living who regret the death of Jesus.'

At 5% compound interest the total sum would, in two thousand years, grow to 4.8E42 grams of gold, roughly 800 trillion earth mass equivalents (Mass of Earth is 5.9E27 grams)

Both Aristotle and Martin Luther agree, that 'money is sterile'.  This is proven simply, by imagining a gold bullion sitting inside a vault in a bank.  Whether after ten years, or 100 years, or 2000 years, the gold will never increase, not one ounce.  What would happen if gold could beget itself?  Why, then everyone would make a deposit with the People's Perpetual Gold Bank of Jerusalem, in the hopes of getting their 'free lunch'.

Debt is not...

What does grow, is debt.  Debt is an abomination that has the power to multiply itself - debt begets more debt.  Today, we have a debt-based society.  Our money is a form of IOU (debt).  All purchases are financed by debt.  Our banks happily lend to all willing to borrow.  Our government's lifeblood comes from the willingness of others to lend to us.

The prosperity of our society was built upon the backbone of debt.  More accurately, the wealth of our society was built upon the belief that debt could be converted into something of value (underlying collateral).  However, the flaw, as Hardin points out eloquently, is that 'the convertibility of immaterial debt into material wealth should never be assumed.'

There are two sorts of wealth-getting: one is a part of household management, the other is retail trade.  The former is necessary and honorable, while that which consists in exchange is justly censored; for it is unnatural, and a mode by which men gain from one another.  The most hated sort, and with the greatest reason, is usury, which makes a gain out of money itself, not from the natural object of it.  For money was intended to be used in exchange, but not to increase at interest.  This term 'interest', which means the birth of money from money, is applied to the breeding of money because the offspring resembles the parent.  Of all modes of getting wealth this is the most unnatural. -Aristotle

It is monstrous and unnatural that an unfruitful thing should breed, that a thing specifically sterile, such as money, should bear fruit and multiply of itself -Oresme

Usury...

The following list of individuals were against usury (interest) - Plato, Aristotle, Cato, Cicero, Seneca, Plutarch, Aquinas, Muhammad, Moses, Philo, Buddha (from wikipedia, citation needed)

From the King James Bible:

[Exodus 22:25] If thou lend money to any of my people that is poor by thee, thou shalt not be to him as an usurer, neither shalt thou lay upon him usury.

[Leviticus 25:36] Take thou no usury of him, or increase: but fear thy God; that thy brother may live with thee.

[Leviticus 25:37] Thou shalt not give him thy money upon usury, nor lend him thy victuals for increase.

[Deuteronomy 23:19] Thou shalt not lend upon usury to thy brother; usury of money, usury of victuals, usury of any thing that is lent upon usury:

[Deuteronomy 23:20] Unto a stranger thou mayest lend upon usury; but unto thy brother thou shalt not lend upon usury: that the LORD thy God may bless thee in all that thou settest thine hand to in the land whither thou goest to possess it. ("and who is my brother")

Historically, there are many well-respected opponents of charging interest.  Biblically speaking, usury is hardly portrayed as commendable... something clearly banned in order to preserve the well-being of one's own community, but accepted when applied to strangers, and those in other tribes.  Certainly, not as bad as murder or adultery (universally condemned), but nevertheless, its the kind of (bad) behavior best saved for those not in one's own immediate family.  (Muslims ban it outright)

How wealth is created...  How resources are made useful to man...

1. Take already existing, but diffusely distributed materials, and bring them together into higher, useful, concentrations (iron, copper, etc.)
2. Energy released from accumulations (coal, oil, etc.)
3. Reducing the amount of human effort required for a certain task (lever)
4. Reducing amount of time spent to perform a task (wheel)

People never create wealth, in the conservation sense (humans have never created a single atom, such tasks are reserved for God alone).  We simply take what is already there, and make it useful to us.  Wealth is the creation of anything, but only making useful what was once useless (to us).

There is one true source of 'wealth' on earth.  Consider, 'there is a daily input of wealth from the outside in the form of radiant energy from the sun.  Some of this energy is captured by the earth, so terrestrial wealth should steadily increase.'

Inflation, the ultimate tamer of usury...

If usury is to be portrayed in a negative light, then inflation is to be thought of as something virtuous.  Hardin gives a general overview, including a historical example of hyperinflation in Rome.  However, the key insight that he offers is this: '(we) have never experienced more than the opening stages of (inflation).  Our limited experience inclunes us to make light of the danger of truly runaway inflation.  The 'normal', slow advance of inflation is dwarfed by rare and explosive outbraks of hyperinflation.' (emphasis added).

Another side of Keynes...

Much has changed since the days of early Christianity.  Today, we regard usury as normal, and could scarcely imagine a world without it.

Though most only appreciate one aspect of his genius nowadays, John Maynard Keynes stands out among economists in his view of interest.  In his essay, 'Economic Possibilities for Our Grandchildren', he believes that some day we may...

...return to some of the most sure and certain principles of religion and traditional virtue - that avarice is a vice, that the exaction of usury is a misdemeanour , and the love of money is detestable... But beware!  The time for all this is not yet.  For at least another hundred years we must pretend to ourselves and to every one that fair is foul and foul is fair;  for foul is useful and fair is not.  Avarice and usury and precaution must be our gods for a little longer still.

Approximately, half of the 'another hundred years' have passed.  Keynes would likely be rolling in his grave, if he knew about his 'intellectual' descendants (forgive me Sir John, that's their names for themselves.  I would never insult you in such a way).