Ban compound interest to save the planet

Compound interest has been with us so long that we take it for granted. We borrow money and accept that we must pay interest to compensate the lender.

But look what happens. If we pay 3% on £100 then at the end of the first year we should pay back £103. If we fail to repay that then we must also pay 3% on the £103. This seems innocuous but the debt increases exponentially. A debt left unpaid, at 3%, doubles every 24 years. At 6% it doubles in 12 years.

Developing countries know all about this. "All that we borrowed up to 1985 or 1986 was about $5bn," said Nigeria's president in 2000. "So far we have paid back about $16bn. Yet we're being told that we still owe about $28bn. If you ask me what is the worst thing in the world, I would say it is compound interest."

The governments of rich nations, as Colin Tudge wrote recently in Resurgence magazine, have declared a war on poverty while presiding over an economic system in which the rich are bound to grow inexorably richer while the poor grow poorer.

You might ask: What has this to do with the environment? A great deal - because in order to repay debts businesses and whole economies must grow, and that usually involves consuming ever greater quantities of non-renewable resources. If a moneylender at the time of Christ had lent an ounce of gold at 5% it would today require an amount of bullion weighing several planet Earths in repayment.

Is there another way? There certainly is. Until relatively recently, the charging of interest was called usury - it was a sin. (If that word makes you feel uncomfortable, remember that it only means something that most people considered deeply wrong.)

And doing without money that was lent at interest didn't stop our predecessors trading, or building incredible monuments, from Westminster Abbey to the colleges of Oxford and Cambridge.

Even now, Muslims are taught that lending at interest is wrong. "There is no such thing as a 'usurious' rate of interest," writes the Islamic financier Tarek El Diwany in the same issue of Resurgence, "because all rates of interest are usurious." He describes alternatives to interest-bearing loans, such as the sharing of profit and loss, and points out that the universities, hospitals, welfare systems and infrastructure of great civilisations in Iraq, Spain and the Ottoman empire were all built without interest-bearing loans. "Interest-based finance is not a pre-requisite for society's sustainable advancement," he writes. (For more detail, see his site, The Problem with Interest.)

We'd do well to give it up. As the great Richard Douthwaite puts it in The Ecology of Money, "if we wish to live more ecologically, it would make sense to adopt monetary systems that make it easier for us to do so." But how?

POSTSCRIPT (Monday 28 July): The debate continues. See new post, comprising a dialogue with Douthwaite, "Is interest-free lending inevitable?"

Comments

[Anders Kouru]

"Fake money" grows much more rapidly than anything in our real world.

Some of the critics seem to lack the will to understand this as a real problem.

[Dominiq]

Wow the level of ignorance of nearly every single commentator on this post is woeful, not to mention some of the xenophobic tangenital statements about muslims and their system of finance not to mention culture, but I've come to expect it.

Dealing with the issue of ignornace, some of the less well informed have argued that compound interest is necessary to deal with the devaluation on the return of monies lent by the lender (inflation), yet it is the ever increasing money supply through amongst other things (such as money creation by banks, due to our current financial system being based on fiat money) compound interest that requires money creation which creates inflation which devalues a currency further and so requires even more money creation. Nevertheless compound interest does not of itself cause rampant growth, increasing production and consumption, but a global population that increases exponetially does, things like compound interest (or any artefice that unnaturally creates money simply 'compounds' the problem).

For those of you that like to base your opinion on facts and whose view of the world is not skewed by self interest, perhaps you'd like to have a gander at any graph that measures population growth, extraction and consuption of oil, creation of money supply, extraction and consuption of raw materials, production of carbon dioxide, extinction of wroldwide species, etc etc over the last 200 years and where you can find them 400 years, will notice a really quite worrying bell curve.

I think the artcile raised an interesting point that seems to be regularly over looked by the mainstream media albeit indirectly, namely the current financial system does not work and hasn't for well over a century now, it may increase growth but does it really increase prosperity when taking into account both boom and bust cycles. The reason the system is kept is because it is favourable to those richest amongst us who have the power to influence government policy, but also because it has an allure to the middle classes in that it offers the possibility of opportunity that they too might strike it rich if they can adapt to market conditions quickly enough (I should think there are plenty of people that can achieve this during a boom, but how many do when the bust comes). It seems the 20th century mantra that pervades the 21st: " survival of the fittest" will continue to blind "entrepeneurs" to the fact that the financial systems are stacked in one social groups favour.

By the way I have 2 degrees and am proud enough of them to sing that fact from the roof tops if I wish.

[Basil, London]

This is one of the most ignorant articles I ever read! The rate of inflation is compounded as well. That's why houses that used to cost 5,000 pounds in the seventies cost 500,000 now. If I was an investor and knew my return wouldn't be compounded, I wouldn't lend to anyone for more than 1 year!!

[Sabine K McNeill]

Well written, dear Thinking and Reading Author!!!

May I ask the various commentators to consider lending at different levels and over different time frames?

The fact that Governments borrow and that interest payments are in every annual budget must be contributed to flawed thinking or poor institutionalisation. See Debt Management Office.

Who generates the interest required for any governmental, private or corporate loan?

Let's think 'money supply' as the fuel for an economy! Credit is not the only 'money tap'. In fact, it's the worst!

That's what we're trying to get across with our Public Credit Petition targeted at the Treasury Select Committee.

Maybe you feel like clicking on http://tinyurl.com/666rwd ?

With 'globally warm' regards,
Sabine
Organiser, Forum for Stable Currencies

[Brian Davey]

To Dennis Smith - you are quite right I should not have mentioned my two degrees. It was wrong to do so - in mitigation I was getting worn down emotionally by the continual insult that the point of view I put arose in ignorance. Paragraph break To David: It seems to me that your conclusion arises out of the viewpoint expressed in this comment: "but I'm not sure I can afford to be very high-minded when I'm making a decision that could readily turn out badly for me, compared with choosing b)." Paragraph break Ethical judgements are of that type - they do involve some personal inconvenience because they involve looking at it from the other person's point of view. In fact, your decision not to be high minded means that you foist all the risk on him or her. Paragraph break Now in conditions typical of predatory lending - where the power relations are heavily in favour of the lender (he is the money lender and trader in a village and others are landless labourers faced with little work and rising food prices so in desperate need of cash) such contracts are made and the borrowers have to put up with them - but they get into worse and worse bondage to a moneylender as a result. Or again, in more developed economies, predatory lending typically arises our of information asymmetry - a power imbalance in available information and the ability to understand the terms of the loan. In these conditions loans lead to shift of more and more economic power to lenders in a socially corrosive fashion. Secondly a key part of the context is that I am assuming that the future is an economy in energy descent - one that can no longer grow. So investment will be, if anything, riskier than now. In those conditions lenders will be unwilling to risk taking out loans for productive investments unless the risk is shared - although in difficult times there may be a lot of predatory lending by unscrupulous people because a lot of people are desperate for cash. Paragraph break How the financial system will work when growth no longer occurs is again dealt with in the latest piece by JPF which takes the form of an interview with Richard Douthwaite of Feasta. Paragraph break Finally, I should add that these are matters that causes much misery. The financial and debt system appears to be highly dysfunctional from a mental health point of view. http://strategyforlosers.blogspot.com/2008/04/mental-health-and-financial-market.html Among other things it is now well documented in academic studies that self reported anxiety increases with the ratio of credit card debt to personal income; that the onset of mortgage debt has a negative impact on mental health on males; that, of people receiving debt advice, a high proportion (62% in a UK study) reported that their debt led to stress, anxiety and depression - which they are likely to consult their doctor about; that there is a relationship between debt and post natal depression; that debt is the strongest predictor of depression; that difficulties in repaying debts are strongly connected with suicidal ideation and self harm; that debt is associated with feelings of shame, social embarrassment, a sense of personal failure, negative self identities and is implicated in isolation, social exclusion and strained relationships. (Chris Fitch, Robert Chaplin, Colin Trend, Sharon Collard, " Debt and mental health: the role of psychiatrists" Advances in Psychiatric Treatment (2007), vol. 13, 194–202 See also) Paragraph break What's more its not even as if they people who lend are happier - Drugs and alcohol are commonplace on Wall Street. A 2001 study of brokers by Florida's Nova Southeastern University found that 23% were clinically depressed, compared with 7% overall among American men..... Paragraph break New York newspapers have revelled in stories over the past year of stressed-out traders reaching breaking point. One broker, Christopher Carter, has been charged with assault for throwing a hedge fund manager, complete with an exercise bike, at a wall in an upper east side gym. The hedgie's offence? He grunted and shouted, "you go, girl!" too loudly during a spin class. Paragraph break In London, a hedge fund manager, Bertrand des Pallières, made news last summer because he was so busy shorting stocks that he didn't notice for three months that his £80,000 Maserati had been towed away. Paragraph break Jim Cramer, a hedge fund manager turned television stockpicker, told the New York Times that drugs tended to reinforce traders' inability to spot a looming downturn: "Prozac and all those other drugs banish the 'this is the end of the world' thoughts. Which means you are not as anxious as you should be about an obvious downside.” http://www.guardian.co.uk/business/2008/jan/05/useconomy.usa

[david of fox lake]

Brian Davey:
You definitely have a worldview that is different from my own, as witness your postings, which are no doubt perfectly clear to you, but seem convoluted to me. ¶ Your reasoning seems (to me) akin to that found in Zeno's Paradox: it sounds reasonable enough, and the conclusions seem inescapable. But, Zeno's Paradox is a paradox, precisely because its seemingly inescapable conclusion does not, in fact, align with reality. ¶ The problem posed by JPF really comes down to this: If I have managed to save some amount of legal tender, and I want to do something with it, I have several options that have nothing to do with any banking system. Let's consider four of the options: a) I can donate it to charity, which provides me with a good feeling and possibly reduces my tax liability for this year; b) I can put it in a safe deposit box, which assures me that the numerical value of my stash neither grows nor declines. Given the universal presence of some level of inflation, we know its real value will decline, but at least it's "safe"; c) I can loan it to someone with a contract to repay, at a negotiated rate of return. That rate of return can be negative or zero, if I'm inclined to charity, or it can be some positive value, agreed to by the lendee and myself; or d) I can purchase some equipment, or perhaps an animal, with which--adding some operating funds and 'sweat equity'--I can generate some income. ¶ Now, I'm only really interested, in the context of this discussion, with its topic set by the article we've all read, in choosing between options b), c), and d). As the possessor of the legal tender, and responsible for myself and my own future, with no external coercion, my choice will be to use the legal tender in the way that provides me with the best balance of return on investment (ROI) and risk. If the question comes down to making a loan to a goatherd to enlarge his flock, or to buy a goat to care for myself, the loan would be the better choice for me. As an engineer with no animal husbandry experience, the risk for me to care for a goat would be high, and the return on a single goat would not offset the losses due to my reduced time for engineering. Speaking personally, while I have ruled out d), in this example, I am disinclined to choose c) over b), unless there is some clear advantage to me for doing so. Simply "sharing the risk and return" with the goatherd, on a 'best efforts' basis, may seem high-minded, but I'm not sure I can afford to be very high-minded when I'm making a decision that could readily turn out badly for me, compared with choosing b). So, I'm likely to propose a positive rate of return on my investment, with some form of security. ¶ Hmm. It appears we have arrived back at our dear friends, interest and collateral. By substituting "any reasonable person" for "me" in the discussion, we have a rudimentary proof. Having gotten here, it is rather simple to extend the "proof" to compound interest. ¶ I leave the balance of the proof to the student. ¶ While I prefer--cruel streak in me, I suppose--to use a reductio ad absurdum proof, I figure Point A to Point B is still a proof: and the author's suggestion is still absurd, by definition. And I still don't know what to make of your prose. Mea culpa, no doubt.
Peace to all.

[Dennis Smith]

Thanks to John-Paul Flintoff for a sensible, insightful, intelligent and well written article. I won't start boasting about how many degrees I have. As has been well proven in the comments above, any such claims are no guarantee of anything. As for all the rest, it is not worthy of comment.

[c-may]

GREAT parody piece! You must be loving all these comments taking it seriously!

[Stephen]

Mr Davey,

I find what is common about the supporters of this article, is the style of reasoning they employ.

1. "The president of Nigeria says interest is bad, and he should know, he owes billions"
2. Some guy named Colin Tudge says X, (where X is paraphrased in a vague and content-free way).
3. Tarik El Widani says 'X'.
4. The "great" Richard Douthwaite says (I have no idea if he is great or not. Is this great like Alexander, or some other great)
5. I have real world experience that you can Google for, if you bother to do it.

The only debatable claim made is:

1. Certain historical monuments and civilizations were built with use of interest paying loans, and therefore we should do this too.

The content of 1 and 2 have been refuted numerous times, from several different approaches. How about rebutting any of the points made, such as:

1. no-usury societies used legal fictions equivalent to charging interest
2. the historical data demonstrates to the contrary that the mentioned historical data do NOT demonstrate effective investment of capital
3. the practical benefits to the concept of "interest" greatly outweigh the disadvantages

But, you choose not to do that. Your comments seems to be:

1. I'm offended because I'm illiterate
2. The laws of thermodynamics limit the growth of the economy.
3. The backlash is a knee-jerk reaction to a non mainstream point of view.
4. Professor Daly says "garbled paraphrase of whatever he said, that he would probably be embarrassed to have attributed to him"
5. Again, Professor Daly says that it is impossible for realy money to grow without limit. So what, everybody knows this, it is irrelevant to the discussion at hand. As the ultimate philosopher of our times, the tremendous intellect, the wise beyond normal human means, the awesome, the truly huge beyond words Douglas Adams once proposed, one can pay their restaurant bill at the end of the universe with a penny deposited today.
6. People are being exposed to ideas they haven't been exposed to before, and they are having a knee jerk reaction. Personally, my knee jerk reaction was to give the author more credit than he deserved. Just read previous comments.
7. I have two degrees in economics.
8. Something about "social networks" and "group-think" that makes me too nauseous to think about seriously.

I accuse you of deliberately obfuscating the discussion with irrelevancies that you think will intimidate people. As it stands, I challange you to:

1. Post a NUMBER quantifying the solar flux on the surface of the earth. And the "lunar energy inputs" too, since you seem to think it's important. Then, compare with our usage and tell me what you think about that.
2. I know all about thermodynamics. I can calculate the efficiencies of steam engines, refridgerators, the entropy contained in an ideal gas, and if you call now, you get a ginzu knife for free. Please, specifically explain how ANY thermodynamic principle applies in this case, and the chain of logic you use to apply it. Tell me if you think that chain of logic is anny different from grade school common sense, that nearly everyone has, and whether or not you should puff it up under the label of "thermodynamics".

Finally, please. Describe the simplest model you can imagine. One good, one currency, any relationship you choose between production, capital, and labor and describe what you think the equitable time value of money is. Then we'll have something to talk about.

[Liz]

Civilizations that "thrived" without usury had either slaves, satellite colonies with slaves, and/or caste systems identical to slavery. Perhaps there's a reason for that?

[Brian Davey]

Jason, Gosh! Please try not to bang the door on your way out!

[Jason Van Steenwyk]

No, John. You are getting absolutely nothing right. Nothing at all.

The reason there isn't a point-by-point refutation of your reason is that your column is so stupid it defies all reason. Life is too short, as Anderson writes at Opinio Juris, to deal with ignorance as deep as that on display in your column.

You're the economics equivalent of a flat-earther or a UFO-worshipper. Just not worth engaging on the issues.

I don't have a lot of time to waste on 7th-grade level economics reasoning either.

I guess you don't have to be very smart to write for the Times these days.

This is the dumbest economics column I have EVER read.

[Brian Davey]

What is particularly offensive about this entire debate is the way in which those who agree with Jean Paul Flintoff are accused of being ignorant and illiterate. Truth adheres in the ideas of conventional economics it is claimed and not in those of ecological economics. Paragraph break Actually the word ignorance is constituted like this ignor - ance. And what all of the people who are denouncing JPF as ignorant are themselves ignoring is that an economic system, being embedded in the real world, is subject to the laws of physics, to the laws of thermodynamics. What JPF has written is an intellectually respectable point of view that starts from a different set of assumptions and considerations from the economic mainstream. Paragraph break On my bookshelf I have a textbook called "Ecological Economics" by Herman Daly and Joshua Farley. Daly is Professor of Economics at the University of Maryland and worked as a senior economist at the Environment Department of the World Bank. Among other things that Herman Daly does not ignore is the distinction between use value and exchange value. Use value adheres in real things which obey the laws of thermodynamics (they require energy to produce and deliver them and are subject to decay) while exchange value, and particularly money, is a symbolic unit of account which can be created out of nothing and destroyed into nothing. There is a physical limit to the accumulation of use values because the planet has a fixed size and the solar and lunar energy inputs are limited. There are ecological capacity limits to what the planet can provide. There is however no obvious limit to the accumulation of exchange values as money. It is this contradiction to which the article is drawing attention. This contradiction is being ignored by all the critics in this debate. Paragraph break As Daly and Farley conclude in their chapter on Money: "In summary it would appear that the illusion that money can grow without physical limits results from three things. First, as long as production of real goods and services increases, more money is required to pursue them, so growth in money is justified. But growth cannot, of course, continue forever on a finite planet. Second, as the number or price of financial assets grows, such as speculative bubbles, then the demand for money grows as well, and supply can increase to meet this demand. The fact is however that financial bubbles inevitably burst. Third holders of financial capital see their capital grow because speculation can transfer resources from those who produce to those who speculate. Such transfers of wealth has limits, though the limits are obscured by economic growth. Thus the appearance that money is exempt from the laws of thermodynamics is an illusion that can be maintained while scale is increasing, or the financial sector is expanding relative to the real sector. It remains impossible for real money to grow without limit" (Herman Daly and Joshua Farley, Ecological Economics: Principles and Applications, Island Press, 2004.) Paragraph break What is interesting about this discussion is that people are clearly being exposed to ideas that they have not come across before and they are not only outraged they assume that the holders of another view of the world MUST BE WRONG. Instead of trying to understand that different world view they shout abuse at it and assume that this alternative viewpoint must be because those who hold it must fail the benefits of the education that they have had. As it happens I have two degrees in Economics and in 1970 got the best first in Economics that they had had since World War Two. Having worked in the mental health services since then I know an emotional response when I see it and notice that the overwhelming number of points that I have made, and that JPF made, have been ignored. This does not surprise as clearly there is a powerful element of cognitive dissonance going on here. I know from working in mental health that if you question core beliefs and values then people react emotionally and sometimes violently - this is because you are challenging people's ways of making sense of the world - an orientation that they share with their social and work networks. That isn't an easy thing to do because if people begin to change their orientation to core parts of their world (like attitudes to money) they fear disorientation, they fear not being able to make sense of things. If you live and work in a network where money functions as a collective addiction (in the sense that everything else takes second place to it) then to try to point to the limits of money and to limitations on the rights of money holders, is to risk not only disorientation but ostracisation from social networks. So you stay in with the crowd and assume that the group-think, the ideas that you got from university and that all your colleagues share, must be right. Then you feel that those people less enlightened and less educated than yourself deserve a good old pummelling with abuse for drawing attention to another viewpoint.

[Brock Sampson]

A man bereft of a moral guidance feels that he must explain what a "sin" is. The concept of right and wrong may make the author and his core audience "uncomfortable", but it is the empty promise of moral relativism that is the cause of my discomfort.

[Kenneth Anderson]

Over at Opinio Juris, the international law blog, I've posted up a discussion of this column, interspersed with some other related topics, such as the history of sovereign debt in Europe. We are admirably polite and civil in our posts and comments at Opinio Juris. Still, civility does not prevent the conclusion that this unfortunate column would likely take the prize for most economically illiterate article in the mainstream press of the year.

[Steve Dutch]

Almost all the critical remarks on this thread have been well informed and restrained. The editorial is on an intellectual par with scientific creationism. Saying so is not "abuse." The few defenders of the editorial are the ones dishing out the abuse.

That said, the editorial has one point right that nobody seems to have commented on. If you had taken a minuscule loan out in 1 AD at even tiny interest, there wouldn't be enough gold in the world today to pay the accrued interest. Nothing can grow exponentially in a finite world indefinitely. That's a point that many "conservatives" conveniently ignore when it comes to dealing with population growth, energy use, and even bull stock markets. When it comes to physical growth, there are physical limits that will come into play (We can support 11, 15, 20 billion people on this planet, you say? Great. What then?). When it comes to economic growth, compound interest is offset by mechanisms like inflation, default, or war. This is a point economic theorists realized decades ago.

Compound interest works well when the real growth in the economy is roughly exponential, as it has been since the Renaissance. From the late 1800's to about 1973, we imposed a bit of pseudo-growth in the U.S. in the form of modest inflation ("easy money" it was called by 19th century critics of the Gold Standard) - enough to make debts easier to repay over time, and convince people their incomes were growing, but not so severe that rising prices pinched. That was rudely interrupted with the double digit inflation of the mid-1970's.

The bubbles of the last few years have been wholly fictitious episodes of growth based on nothing - private enterprise equivalents of 1923 Germany cranking up the printing presses. They were economic games of hot potato, with investors buying worthless instruments and hoping to unload them before the crash. The cure is Darwinian - let the institutions fail, but never, ever, let their officers off the hook for repaying their debts. So that means some banker will be working 16 hours a day until he's 106? Cry me a river.

Much of the Moslem world (and other regions as well) operates on a mind-set the sociologists call "absolute scarcity." To absolute scarcity believers, the world is a zero sum game, a win for you is a loss for me. Your wealth is a result of somebody else's poverty. The freedom and prosperity of the West is largely the result of realizing the world doesn't have to be zero sum, that you can get rich even as I get richer myself. I don't know if we can sustain such a world view indefinitely, but I seriously doubt freedom can long endure in a zero sum world.

[JB]

"He describes alternatives to interest-bearing loans, such as the sharing of profit and loss..."

Among the many jaw droppers in this column is the quote above. John-Paul, do you suggest that such an alternative method of finance is innovative? I would point out that a robust market in such participations exists - it is called "the stock market."

One who requires capital is free to offer risk sharing participation through the sale of equity - or to preserve the upside for themselves by offering preferential returns to a lender. The choice of risk profile is their's.

One with capital to employ is free to choose the higher risk profile of shares profit and loss (equity) in exchange for a higher return, or to offer instead obligations (debt) with interest and with lower returns and lower risk to his capital.

This isn't a field in which suggestions such as those of Tarek al Diwany's for "new alternatives" are likely to be innovative. Innovative details and twists are invented by financiers all the time, but the concepts of risk and return that they repackage are essentially part of the natural order and quite old.

[Dodgy geezer]

"Until relatively recently, the charging of interest was called usury - it was a sin..

And doing without money that was lent at interest didn't stop our predecessors trading, or building incredible monuments.."

Umm... Yes it would have. This inept piece is obviously not researched. Mediaeval kings tolerated the Jews entirely because they operated the loan system which allowed trading, the building of monuments, castles and armies. You can run a feudal system dedicated to conquest and enslavement without a proper debt system, like the Mongols did, but none of the European Renaissance would have been possible without the Jewish and Venetian bankers.

Perhaps Mr. Flintoff wants to return to the nomadic hunter/gatherer existence? I understand this is the idyllic state that Green politics aspires to?

[Richard C]

This is perhaps the most extraordinarily ignorant article ever posted on a major newspaper's website. If I lend money for a year, with interest payable quarterly, is that ethically different to lending for three years with interest rolled up, compounded and payable at maturity? If interest is not payable on unpaid interest how can a lender fund a loan? This article displays a degree of such utter ignorance and stupidity that one despairs it is published in a serious journal.

[lucklucky]

GreenCentral: Inteligent Insights you can Trust....?!

In what part this text is Inteligent...!? Interest is one of the wonderful marvels that make possible that i have my money getting interest and other persons in some continent is using it to build their House or any project they have.
It is the fact that you have compound rate that makes available so much funds to billions of projects in the world.

If i lend my money i might well ask for it what i want, if not i can put it under my bed, why would i risk it? The other part accepts or not. What is necessary is that the agreement is clear.

Please stop attach idioticy to the Green word.

[Brian Davey]

First of all on paragraphs - I try to put them in but somehow the Times Online takes them out - that may be because I used a linux based operating system - anyway it is not for want of trying. Paragraph break The latest crop of abuse: moronic; stupid x 2; arbitrary nonesense; astounding ignorance. Paragraph break A propos " the conflict going on between collectivists, on the one hand, and supporters of individual liberty on the other. I have never been able to uncover a rational logical thinking process in the collectivist approach, just arbitrary nonsense." Then perhaps you should try harder - we live as individuals in society and have a personal interest and an interest in how society as a whole, the collective, operates. In the first we are in the role of consumers and perhaps entrepreneurs in the second we are in the role of citizens. In the first we look after our personal interest and in the second we have to think of the whole. The two have to be held in some proportionate balance - it is not an either or. Paragraph break Public policy in recent years has collapsed the concept of public policy choices that require us to think of the good of the whole into personal consumption decisions and our private interest. In this way of thinking we choose between public policy goals based upon our personal preferences much as we would choose between beans and spagetti hoops on a supermarket shelf. In fact there are lots of situations where if we pursue only a private interest, we get a sub optimal allocation of resources. Because of the free rider effect some goods would never be provided at all if there was not a tax system to pay for them. Other common resources get over-used in the absence of ways of preventing that imposed on all of us - e.g. the earth's atmosphere overused as a greenhouse gas dump. For these we need collective decisions to impose (ecologicalky based) capacity limits for which we need people discussing the issues in a calm way. (Instead of abusing people who happen to disagree). Paragraph break Policy over the rate of interest is also legitimate area for public decision making. This is especially the case as the consequences of too much or too little credit creation have a knock on effect in the wider society - and throughout history predatory lending (the exploitation of information assymetry and social and economic power between borrowers and lends can have powerful corrosive and damaging effect on the social structure - undermining social cohesion. This is even more the case when one notes that whereas ordinary citizens are not allowed to create money bankers do this when they give loans - a privilege with enormous consequences. As a result of this 95% of the money supply is in the form of bank deposits. Paragraph break That means that something we all need, our collective means for making transactions, has been privatised. As a result the banks cannot be allowed to go bust because the results would be so far reaching - this makes it a profoundly important matter of public policy. It also enables bankers to operate with the secure knowledge that they will get bailed out - thus privatising interest gains and socialising losses. Paragraph break This is perhaps the reason for the findings of a study by a Professor of Organisational Ethics at the Cass Business School, Roger Steare. He undertook integrity tests on more than 700 financial services executives in several major firms and came to the conclusion that "There is a systemic deficit in ethical values within the banking industry. This will not change by hanging a few people out to dry," says Professor Steare. The results of these tests indicate that as a group, they score lower than average in honesty, loyalty and self-discipline, he said. He compared traders to "mercenary hired guns", who regularly switch firms to maximise earnings. http://news.bbc.co.uk/1/hi/business/7207563.stm Paragraph break So the core of the recent British "prosperity" appears to have something not quite right about it - yet another reason why it is a matter of legitimate collective concern.

[anonymous]

I am below the poverty level but thanks to compound interest I have saved nearly $10,000 in a savings account towards purchasing a home. But people like the OP don't save money, they blow it on nweed.

[Howard]

"You might ask: What has this to do with the environment? A great deal - because in order to repay debts businesses and whole economies must grow, and that usually involves consuming ever greater quantities of non-renewable resources."

What a moronic statement. The idea that businesses wouldn't be growing if there wasn't debt is stupid to begin with. Also, what if these new businesses were producing solar panels or some other "green" technology?

You might as well advocate genocide as a solution to climate change. Fewer people means fewer non-renewable resources being used, no? It would even be more effective than your stupid suggestion.

[anonymous]

here is scary idea. If you can't pay it back DON'T BORROW IT! And if you can pay it back PAY YOUR DAMN BILLS!

I don't have a brand new HDTV, or a new car. I live in a trailer and have no debt. Why? Cause I don't borrow money I can't repay. Cut up your credit cards and live like you can afford to, save money and maybe when you are old you will BE rich and can afford the lifestyle you are "paying" for with credit cards.

[Raquel Baranow (666isMONEY)]

The principle plank of the National Socialist Party Program (and Adolph Hitler) was to abolish the "Thralldom" ($lavery) of interest.

Me? I (along with many others including Jesus & Karl Marx) believe in abolishing money.

Barter is unnecessary when there's an abundance . . . modern machinery helps too. Very few people today are actually producing anything. Most workers in industrialized society are paper or material pushers. (Bankers, accountants, sales, cashiers etc.)