Local currencies favored local transactions, and worked against the interests of large corporations working from far away. In order to secure their own position as well as that of their chartered monopolies, monarchs began to make local currencies illegal, and force locals to instead use “coin of the realm.” These centralized currencies worked the opposite way. They were not earned into existence, they were lent into existence by a central bank. This meant any money issued to a person or business had to be paid back to the central bank, with interest.
What does that do to an economy? It bankrupts it. Think of it this way: A business borrows 1000 dollars from the bank to get started. In ten years, say, it is supposed to pay back 2000 to the bank. Where does the other 1000 come from? Some other business that has borrowed 1000 from the bank. For one business to pay back what it owes, another must go bankrupt. That, or borrow yet another 1000, and so on.
An economy based on an interest-bearing centralized currency must grow to survive, and this means extracting more, producing more and consuming more. Interest-bearing currency favors the redistribution of wealth from the periphery (the people) to the center (the corporations and their owners). Just sitting on money—capital—is the most assured way of increasing wealth. By the very mechanics of the system, the rich get richer on an absolute and relative basis.
The biggest wealth generator of all was banking itself. By lending money at interest to people and businesses who had no other way to conduct transactions or make investments, banks put themselves at the center of the extraction equation. The longer the economy survived, the more money would have to be borrowed, and the more interest earned by the bank.
Does that make sense? Opinions please? Counterarguments?
Although Rushkoff has a substantial Google footprint I was unable to turn up a rebuttal. (This may be symptomatic of how thoroughly we talk past each other these days.)
To me it seemed compelling at first blush, but when I tried to convey it to others I was not altogether convincing. On further consideration, I conclude that it MUST be an oversimplification, because a Ponzi scheme can't work for 400 years, and after all, the system DID succeed in increasing wealth vastly since medieval times.
But there's a real question here for those of us (like me and Rushkoff) interested in economics, skeptical of it, and not especially well-versed. Is growth built in? Because if it is, we have a problem. Given that wealth has environmental impact, given that there is no particular constraint that causes environmental impact per unit wealth to fall as fast as aggregate wealth increases, we eventually hit a brick wall.
There is certainly a case to be made that eventually is now, and accordingly Obama's efforts to reboot the economy are doomed to failure. But that's not what I am trying to address here.
The question I would like to raise is whether unsustainability is built in; whether as Rushkoff suggests we are institutionally incapable of a steady state economy, or whether it might be workable.
The alternative, which I find very intriguing, is the idea that somehow we constrain environmental impact per unit wealth to fall slightly faster than wealth increases. This would be the least disruptive path to sustainability if it were possible. Admittedly this is a vague idea. I got the germ of it from Robert Rohde on a very interesting thread on the globalchange list a couple of years back, when he just calmly asserted that it could naturally emerge that way. Now with all respect to Robert I thought that was a bit, hmm, overoptimistic. But maybe there is a way to make something like that work with some careful design effort.
I don't know of anyone (besides myself) trying to envision how such a thing might be constructed. The concept that sustainability could be constructed as a layer on top of an unsustainable system came to me almost two years ago under the influence of a (mostly very technical) Google talk, but I haven't made much (OK, any) progress with it. I find it hard to communicate these sorts of ideas to the sorts of people who might be able to get a grip on the details. Maybe it's just not feasible, but I'd like someone who knows why to acknowledge what I am saying and then reply with an explanation of why it couldn't be practical.
I have a couple of grounds for skepticism myself.
It seems to me that eventually production is actually negatively correlated to wealth. First of all there is the lawnmower problem.
Then there is the fact that I, for one, measure my own wealth in social and artistic and intellectual experiences. This decreases my net impact but doesn't really promote growth at all. If the society moves to an economic metric that values low impact wealth, that means information will be monetized (DRM and such). Recent trends are not indicative that this will work. What's more, there are strong reasons to believe that they shouldn't. In other words, the attention economy doesn't map very well onto traditional economics.
Most economists treat these as aberrations, but both of them are core features of my experience, which may have something to do with why I regard economics with considerable skepticism. But maybe these things can be worked around too.
Although Rushkoff has a substantial Google footprint I was unable to turn up a rebuttal. (This may be symptomatic of how thoroughly we talk past each other these days.)
To me it seemed compelling at first blush, but when I tried to convey it to others I was not altogether convincing. On further consideration, I conclude that it MUST be an oversimplification, because a Ponzi scheme can't work for 400 years, and after all, the system DID succeed in increasing wealth vastly since medieval times.
But there's a real question here for those of us (like me and Rushkoff) interested in economics, skeptical of it, and not especially well-versed. Is growth built in? Because if it is, we have a problem. Given that wealth has environmental impact, given that there is no particular constraint that causes environmental impact per unit wealth to fall as fast as aggregate wealth increases, we eventually hit a brick wall.
There is certainly a case to be made that eventually is now, and accordingly Obama's efforts to reboot the economy are doomed to failure. But that's not what I am trying to address here.
The question I would like to raise is whether unsustainability is built in; whether as Rushkoff suggests we are institutionally incapable of a steady state economy, or whether it might be workable.
The alternative, which I find very intriguing, is the idea that somehow we constrain environmental impact per unit wealth to fall slightly faster than wealth increases. This would be the least disruptive path to sustainability if it were possible. Admittedly this is a vague idea. I got the germ of it from Robert Rohde on a very interesting thread on the globalchange list a couple of years back, when he just calmly asserted that it could naturally emerge that way. Now with all respect to Robert I thought that was a bit, hmm, overoptimistic. But maybe there is a way to make something like that work with some careful design effort.
Maybe we can have a steady state impact constraint atop a nominally growth-based economy by design.
I don't know of anyone (besides myself) trying to envision how such a thing might be constructed. The concept that sustainability could be constructed as a layer on top of an unsustainable system came to me almost two years ago under the influence of a (mostly very technical) Google talk, but I haven't made much (OK, any) progress with it. I find it hard to communicate these sorts of ideas to the sorts of people who might be able to get a grip on the details. Maybe it's just not feasible, but I'd like someone who knows why to acknowledge what I am saying and then reply with an explanation of why it couldn't be practical.
I have a couple of grounds for skepticism myself.
It seems to me that eventually production is actually negatively correlated to wealth. First of all there is the lawnmower problem.
Then there is the fact that I, for one, measure my own wealth in social and artistic and intellectual experiences. This decreases my net impact but doesn't really promote growth at all. If the society moves to an economic metric that values low impact wealth, that means information will be monetized (DRM and such). Recent trends are not indicative that this will work. What's more, there are strong reasons to believe that they shouldn't. In other words, the attention economy doesn't map very well onto traditional economics.
Most economists treat these as aberrations, but both of them are core features of my experience, which may have something to do with why I regard economics with considerable skepticism. But maybe these things can be worked around too.
25 comments:
I think in a way Rushkoff simplifies things a little in making it seem a dichotomous change (false dichotomies and false determinism being rather par for the course in any discussion of economics).
His analysis would seem to have some merit, but it's more probable that the current system is more a (quite possibly largely parasitical) symbiosis of 'real' money and loaned credit. For instance I would question this premise: "They were not earned into existence, they were lent into existence by a central bank. This meant any money issued to a person or business had to be paid back to the central bank, with interest." Is all money in circulation ultimately traceable back to a bank loan to someone? I wouldn't want to say for sure it isn't, but...
One real problem with any such discussion, especially regarding concepts like 'growth' is that the terms tend to be loaded by the dominant economic system/framing. For instance, is progress growth? When is growth positive, and when negative? In terms of lawnmowers, etc., is growth sometimes a case of less is more?
I.e., how is growth currently defined? Can it be defined differently? Can it be defined better? -- And from there to, what sort of starting/systemic conditions would lead to an economy with a better form of emergent growth. If it's even possible to hack society like that.
Wealth is another term that current economics treats in such a reductionist manner as to completely escape any but the most glancing blows of the reality hammer. Wealth is, as you say, often personally realised in terms other than economic (and most cognitive/psychological research into the causes of wellbeing suggest that past a certain (decent living) point it's not even that big a deal for most [which would suggest that unlimited economic growth isn't a necessary condition of life - not that it wouldn't be desirable, if sustainable]. Any rational needs to deal with them all, and not just as preferences that can be mapped onto a graph with indifference curves, but as complex interlinked variables.
I have a (bad) habit of thinking of things in terms of programming. To use that as an analogy, getting the best definitions for the objects that will make up the system is important, and a lot of the battle. Some of the current ones will be reusable, some will need refactoring, some (hello 'externalities') will need catted to /dev/null.
[/ramble of conciousness]
There seem to be loads of monetary nuts in the US, especially among the sustainability crowd. They're looking for scapegoats and quick fixes to social problems. It's a rather bad company to keep, what with antisemites and all.
Not that monetary issues are necessarily immaterial. But this particular issue is:
The government can get as much money as it wants from the central bank. Interest paid to it is much like a tax.
There's also such things as default and inflation. They keep debt from piling up too high.
There's nothing that says that economic growth has track material consumption or vice-versa... except that people's appetite for stuff seems insatiable. Once again, it's a social problem and not something that you can fix with wonky economic tweaks.
Not that growth is necessarily desirable anyway...
Rushkoff makes no sense at all.
Read "The History of Money".
On the question of whether or not growth is built-in to the system--no, of course it's not. It's biased that way because it makes people richer, and the economy is currently all set up around positive feedback loops so that a growing economy drives more growth. This is one reason economists are afraid of negative growth (as they call it), because the same feedbacks kick in and economic shrinkage leads to even more shrinkage. But, for instance, if you manipulated monetary policy so that the inflation rate matched the growth rate, that would essentially halt real economic growth. Any government that did that would get voted out of office pretty quickly, though...
On the Rushkoff quote, he seems to conflate central bank loans and the money that already exists in the economy. The creation of new money via central bank loans (which is how we do it nowadays) is similar to a ponzi scheme, but it has important differences. Central bank loans can be thought as money that you borrow from the future--you have to pay back more than you borrowed, but you have enough time to do work that generates actual value that pays back the bank. Ponzi schemes demand constant new cash infusions to keep going. In our economy, the central bank could stop making loans and the money already in the system would keep circulating, allowing people to pay off their debts by doing work and getting paid for it. Money isn't just created--it's also stored and circulated, and when central bank loans are paid back, it can be destroyed. Much more complicated than Rushkoff makes it out to be.
monarchs began to make local currencies illegal, and force locals to instead use “coin of the realm.” These centralized currencies worked the opposite way. They were not earned into existence, they were lent into existence by a central bank - sounds like twaddle to me. Who is this bozo? In the days when central currencies were being created, the coin of the realm was gold, there was no lending-into-existence. Mind you, I could be wrong.
Loans that are used to invest in “capital” can be repaid out of the increase in productivity that results from the increase in capital. Suppose for example, that I can carve widgets with my pen knife, and each widget takes me a full day to carve, and I can trade it for one day’s food for myself. Then you (the Central Bank or any other lender) loan me enough money to buy a saw. Now, I can make 3 widgets per day. Thus, I can sell the widgets at a lower price, and the widget user benefits. Out of my increased profits, I can still repay your loan, and have more food than when I was carving widgets with a penknife. Thus, the loan has provided benefits to four different parties. The maker of the loan gets interest. The maker of the saw has a sale. The widget user has lower costs, and the receiver of the loan gets the benefit of additional capital. Central bank loans can be a great good.
Economies are sustainable if and only if all costs are accounted for and amortized in appropriate time periods. The current economy does not account for the full costs of using natural resources such as oil, coal, metals, timber, wild fish, grazing land and urban land. For the last 4 centuries, we have priced these goods at the cost of extraction. Redwood lumber was priced at the cost of cutting it down and taking it to town. Fish were priced at the cost of pulling them out of the water. The price of diesel to power the fishing boat was the cost to pump it out of the ground and refine it.
Now we know that a nice blue fin tuna is worth $US400, 000. If we had always treated them as being so valuable, we would have more of them left. As it is, almost all of the tuna are gone. Almost all of the redwoods are gone. More importantly we have not accounted for the costs of global warming. When the costs of AGW come due, we are going to be in a world of hurt. Moreover, the costs of AGW will come due much sooner than any of the economists recognize. Thus, it is no longer honest to discount these costs. It is time to take the cost of AGW at full face value.
The reason that commodities prices have stayed low is that the market value of extracted resources does not reflect the full value and costs of the resources. As proof, I point out that the cost of coal does not include the cost of sea level rise that will impact our cities, infrastructure, and agriculture with other climate feedbacks. The cost that I pay for electricity does not include the costs of AGW, or salmon lost to hydroelectric dams, or raptors killed by the windmills on Altamont pass. The price I pay for water does not include the value of the fish killed by the pumps. The price I pay for a widget does not include the cost of health care for the workers. Nowhere in our society do we account for and charge the full long term cost, but only by recognizing those long term costs, can you have a sustainable society.
Some things are priceless. The "full long term cost" is essentially infinite.
Yet we need to destroy them to live. Nothing lasts forever.
Rushkoff's confused analysis of money/interest is not new with him, and refutations are old hat - I haven't read "The History of Money" myself, but I'm sure it's a good source. I actually found Neal Stephenson's Baroque trilogy (which covered much other ground) a rather enlightening discussion of the relationship between what we think of as money, and trust, and its abuse by various governments in the past.
What the Rushkoff-style analysis fails to take into account is that bankers are not some "other", aliens, removed from humanity. They are people who have to buy their own food and pay for whatever it is they need, just like we do. Or they can invest their money, just like we can (banks allow us to invest in this way) - the stored value represented by that money goes out to other people, and we all hope that those people will be successful and share some of their success back. If they're not successful, we get bankruptcies, pulling back on investments of this sort, and a reduction in the supply of money.
Money is not conserved, whether made from gold or out of thin air as the US treasury does now. It's just a tool. It doesn't force growth, nor inflation, it just does what it's supposed to - represent value in a manner subject to common public convention. In a sense it's a fiction, but a self-consistent looping convenient one. Of which life is full of many other examples, if you look (language, just for starters)!
But it's not a Ponzi scheme.
Thanks, all. Just the sort of interesting conversation I was hoping for.
Arthur, money as language is an interesting analogy.
Even so, if money comes into existence as a promise to a bank to return more money, or really, more value as expressed by money than the value proffered, doesn't the aggregate of those transactions require an increase in "value"?
Are you saying banks don't lend money into existence? It was my understanding that essentially, they actually do that. There's some multiple of actual deposits they can use, but it's more than 1. (I seem to think it's about 20... ?)
Because, given that they do, I don't see what's fundamentally wrong with Rushkoff's argument, once growth approaches limits.
While real growth was possible it promoted real growth, but now that is is not so straightforward the system solves the wrong problem.
I am suggesting that it would be best to build a new system on top of the old system if that is possible.
It is a tall order. The people trying to put Humpty back together again aren't thinking in those terms, though.
Humpty will never be quite the same, and putting him together on those terms will not work for long.
Much depends on the extent to which the old system can tolerate a steady state. Let's stipulate that Rushkoff's history is oversimplified and his manners rude. But does his basic argument hold? If not, what is the flaw?
(I hope to hear from Tidal on this one.)
There are many flaws, several of which have been pointed out but you're not listening.
You've had spectacular demonstrations in the news that your assumptions don't hold: loans don't have to be repaid, trillions can be decreed into existence and so on.
The problem with a steady state economy is not money or banks. It's greed.
Yes yes. Read History of Money, which makes a much much more extreme case for my arguments than I make myself.
He gets into the spiritual and cultural reasoning behind central banks and fiat currencies, which is why I pulled back and made a more moderate explanation.
But it's bizarre to use History of Money as a counter-argument to my contentions, when it is a much much more radical assertion of the same idea.
And it's also strange to call someone's assertions "bozo" and then admit in the next sentence that you don't know whether what you are saying is true.
Everyone read History of Money, and then let's reconvene.
I do admit that in condensing the premise of my own 100,000 word book into 800 words, I simplified the argument. I was also making a bigger point, and this is that bailing out banks may not be the best solution to developing a healthier economy.
In answer to the bigger questions raised here - no, it can't go on forever. This is what accounts for what we call "cyclical" investments and markets. Boom and crash is the breathing of the system, and it does work for a long time, unless corporate-government bonds become too tight and redistribution of wealth from poor to rich takes precedence over maintaining transactions.
Michael - yes, banks do "lend money into existence" in pretty much the sense you describe. But the same money can be used to pay back a loan, and the interest, and ten other loans besides, because once one payment is made, that money re-enters the system as investments or payments or something else, and is available to be repaid again.
People don't just obtain money through loans, they obtain it by doing useful work and being paid for it, and the same piece of currency or electronic equivalent could circulate to many people before seeing the inside of a bank again.
Look up "velocity of money" and the "equation of exchange", for instance. It's (slightly) more complex than the Rushkoff quote you were focused on.
Douglas, thanks for stopping by.
The main issue of this blog is sustainability. Your argument that these problems are at the root of business cycles is peculiar from that point of view; after all, cycles are sustainable. But even if we accept your counterintuitive idea that people were healthy and well fed in, say, prereformation England, that doesn't maen there hasn't been great progress and great aggregation of wealth in the meantime. Consider, after all, how we are communicating.
Many people who think the financial events of the past few months either are or at least presage a major turning point in human history believe that way because we believe that the conditions that supported that increase in wealth no longer hold. If you seriously claim that there has been no increase in wealth, it's hard to engage, since that seems so obviously wrong.
That doesn't, to me, mean there is nothing to your argument. But if you take it too far you won't succeed in making the case.
Arthur, I cannot see what velocity of money could have to do with it.
We know that precipitation globally equals evaporation globally; the complex flows within the air and the ocean (velocity of winds and currents) don't change that. How money comes into existence or winks out of existence equally seems a reasonable place to examine the system.
Velocity of money introduces time into the question; interest does the same thing, so they are related in that way.
It might help to be explicit in an example, so let's turn to yours:
"A business borrows 1000 dollars from the bank to get started. In ten years, say, it is supposed to pay back 2000 to the bank. Where does the other 1000 come from?"
First, what does the business do with the $1000 it borrows? It presumably spends it on, say, capital equipment and employee salaries to be able to start to create things of value. The recipients in turn pay for their expenses and livelihood, and purchase things of value from one another and from the business in question. With all this churn, some recipients will deposit some of the money back in the bank.
The bank can use those deposits to make more loans, but it also needs to pay for its own expenses, and will purchase things for itself, pay its employees, pay interest to its depositors, etc. Some of this money will then find its way back to our business, to pay for the useful things it does.
If the loan is paid back in increments, rather than all at once after ten years, there's no need for any more than that total $1000 ever to be created - our business will likely receive tens of thousands of dollars in income over that period of time, and be able to pay back its loan with interest, all using the same $1000 total money supply.
If the bank makes a huge profit from charging excessive interest, that wealth is shared among its shareholders, who can use it to buy more stuff from our business or elsewhere.
The reason capitalism is so closely associated with growth has nothing to do with charging interest or Ponzi-style scheming - it's that capitalism is, generally, quite successful at putting the wealth of a society to work to make things better for everybody.
But it doesn't always work.
And so we come full circle:
it's that capitalism is, generally, quite successful at putting the wealth of a society to work to make things better for everybody. But it doesn't always work.
I'm an Arthur Smith fan, and in this case my 2¢ would alter the italicized to state it's that capitalism is, theoretically often quite successful at putting the wealth of a society to work to make things better for those who can participate
Money is a way to keep track. "Money as language" is interesting, and we created money to keep track of stuff. And we invented capitalism as a way to talk a different language amongst those who had and those who wanted.
Human foibles are a 24 in pipe wrench in the gears, and our refusal/denial/hiding of this fact prevents us from stepping back and seeing that it is not monetarism that got us in this mess, it is the creation of fake wealth by banks and greedy actors that got us in this mess.
Slavishly believing "the market" will straighten it out is absurd. People are the market and the market is not some mythic force or fundamental force of nature. The maintenance of this false distance or false separation is one of the keys to understanding this mess.
Best,
D
I sometimes think of making a model of a very simple economy and exploring how it works.
For example a population of just 20 people on an island with 3 resource types. They can work extracting a resource, trade, or lend/borrow. Some simple rules governing their behavior.
Explore what emerges, how changing the rules and behavior changes the system.
See how it can be improved, see what happens when availability of some resources drops, etc.
It might all be folly doing this, perhaps it's too complex and 99% comes down to the behavior rules. Never tried due to other priorities. I suspect this kind of thing has been done centuries ago by economists anyway.
I side with most of the posters upthread - centralized currencies are not intrinsically problematic. Admittedly, maybe that's a blindspot/bias, and I'm glad that Douglas is participating and I look forward to any other comments. But his currency part of the argument meant I didn't really get into the rest of it...
That said...
To focus on a specific question that mt posed about (mainstream?) economics - "is growth built in? Because if it is, we have a problem."
I think that is framed just a bit off. There is nothing inherent in economic activity or "economics" that requires growth. Look at the identity equations for something as simple as GDP = C + G + I + (X - M). There's no need for "growth".
But growth IS built-in institutionally w.r.t.: (A) present norms and expectations for global wealth/income distribution; (B) modern capital markets institutions.
I going to leave (A) because it's been hashed to death everywhere.
On (B), though, growth is really, really "built-in". Insurance companies, pension plans, corporations, endowments, long-term govt debts... All of this - and much, much more at a societal level - is premised on growth. And I am not saying they are premised on growth rates that are simply "too high". I'm saying they are premised on growth - period!
But - crucially - this isn't about economic activity or "economics", per se, requiring "growth". It's about various institutions we've erected in this economy that are "built-in growth"/cum "perpetual motion machines".
If Rushkoff's point is that "banking" - as currently configured - is another institution that is fundamentally broken because of a "need" for growth, there I would tend to agree. But frankly, I don't really know enough to say much. Certainly, in the simplest configuration of a "bank", we're always going to need financial intermediaries so I'm not so sure that they're broken except for the perversions they became, but I just don't know enough about his overall point there.
In any event - at a societal level - to contemplate that some of these integral institutions are nothing but growth junkies is deeply worrying...
c'mon. Plug 0% long-term growth numbers into some of these institutional models. Insurance policies? Pension plans? They collapse. (And, no, I am not conflating equity or bond market returns with "economic growth". I am saying that in a low/no-growth economy that these institutional models collapse as currently configured.) (I have described this further in earlier threads, and I will dig up links later...)
The good news - and the bad news - is that the problems are more about "institutional" economics, not about overall economic activity and "economics". Maybe that seems like a distinction without a difference, but I think it is, in fact, critical.
Nevertheless, that's still disturbing because 99% of "us" are explicitly/implicitly/accidentally/unawaredly bought-in to these "institutional" economics premised on growth. We can't just opt out.
Is "money itself" one of these institutions? I strongly doubt it, but I am open to understanding how it could be.
Final scribble: w.r.t. to decreasing environmental impact "intensity" proportional to consumptive growth... run the numbers for a bit... you run into serious physical limits in short order... consider, for example, water (or substitutes) throughput in thermoelectric operation... You could get awfully efficient, but given enough "growth" in output, you are eventually subject to some unyielding realities... it's seductive, but as long as you keep cranking up up material growth in output/consumption, you have a problem...
I'll try to write something better "referenced" later, but wanted to engage...
btw. how we ever would hope to "manage" an economy with "steady state" as an objective? yikes, considering the difficulty we have trying to "manage" the one we have now... interesting times, though.
Club of Rome?
Maybe we can have a steady state impact constraint atop a nominally growth-based economy by design.
I don't know of anyone (besides myself) trying to envision how such a thing might be constructed.
In their growth issue (that we both blogged about) New Scientist had a brief "what if" written after discussions with Herman Daly (page 1 and page 2). He's mentioned it from time to time, though I don't know how thoroughly he's explored it.
Money is a medium of exchange.
Before money, you traded grain to me for chickens or you gave me grain, I gave joe chickens and he gave you meat. Or whatever.
The introduction of money meant that we didn't have to set up elaborate chains of barter or be limited to one on one exchanges.
The "belief" was that money had some intrinsic value. At first, by its weight in some metal, then because someone (the government) guaranteed that they would take it from us and return something of equal value.
The reason that governments got into the money business, is that it provided a believable guarantee that their money would hold value (we can now get deep into the "real money" weeds, but let us not.)
What banks did (~1500) was increase the availability of money (capital) without increasing the money supply (inflation) and debasing the currancy
What's with the date of ~1500 for banks?
re: growth
Not conflating interest rates with growth, Tidal? Then what has government debt to do with growth?
You've got to face the reality that most of us don't have pension plans, life insurance or some such. Pension plans are really no way to finance retirement anyway.
Yes, lower growth does imply lower investment and different business strategies in many sectors... that's the whole point!
Now, if there really is something about growth that's so important, you'd better figure exactly what because GDP is merely a number.
In an economy that's not growing fast, economic growth is going to depend on fiscal and other policies, on what activities are monetized and reported as well as on the chosen deflator. The vagaries of the GDP figure is therefore not necessarily going to reflect something that affects most businesses.
As to the financial system, it fails from time to time in growing economies anyway.
Basically about when the usury laws began to disappear. Capital formation depends on being able to access loans that earn interest for the lenders. It's a weakness that Moslem's have yet to really be able to work around although there have been a whole lot of work arounds to get to the same end without "actual" payment of interest. OTOH there are already the loan sharks
Usury laws were turned into a joke. High-level church officials were the premier source of capital for medieval banks.
Financial types seem to have a knack for working around regulations, isn't it?
Southpark's take on the economic situation.
http://www.youtube.com/watch?v=8yL5bvGzHfE&feature=player_embedded
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