No 5  The Growth Imperative

So almost all money is created as loans, large and small, made by banks. And, you might say, the rent is called interest.

The problem is, banks do not create the money to pay the rent. They create the credit money they lend, but not the interest, which must be paid.

So will some wizard explain, please. where the rent is expected to come from,

It cannot be from the cash supply created by government. There is less and less of that, and banks have long had a dream (nearly accomplished) of a “cashless society”. In a cashless society, every transaction will be made with credit/debit cards, checks, bank-to-bank transfers, and other credit-money devices, all bearing interest (and other charges). 

OK, OK, so get on with it. Tell us: where does the interest money come from?

First here’s a question: what would happen if every borrower in a country, or the whole world, paid off their loans? That sounds like a great revolutionary idea. But it’s really a trick question. They could not do it, no matter how much they wanted to - because there is not nearly enough money to do it. and what money there, is mostly in the hands of the lenders already.

We are mortgaged well into the future.

The future, however, is where conventional monetary theory finds the solution. To pay the rent on our borrowed money supply, we must in the future create more wealth. 

Okay. How do we create more wealth? Let’s first define wealth.

Real wealth is land and properties, railways and farm tractors, and oil and lumber, it is manufactured goods, it is food, it is automobiles and yachts. It is also the infrastructure and machinery necessary to build more properties, extract and refine more oil, harvest more lumber, manufacture more goods, grow more food.

Creating more of that wealth, it is said, will pay the rent on our borrowed money supply.

You hear about it all the time. To maintain/return to prosperity, we are told, we must “grow the economy”. All stripes of conventional economists report and comment extensively on the percentage of GDP* growth this month, or this quarter. They cheer when the index goes up, frown when it goes down. Growth, they say, growth is the magic bullet.  (*Gross Domestic Product)

Maybe they just do not want to face the alternative. Maybe they are unable to conceive of an alternative.

Think of interest as a tax on the whole economy levied not by governments but by the banking system - a tax which can only be paid with economic growth in the form of newly created items of wealth.

I call that the growth imperative. In the next post, I will try to give an example.