compound interest remains a phenomenon that violates physical and mathematical law

[cobben]

Remember David Graeber, the anarchist monetary anthropologist - "Debt - the first 5000 years"?

This is not by Graeber.


I had posted this as part of a series of articles in another thread, then having read through it again decided it merits a separate thread.
He makes a number of historical claims which I find fascinating, now I have no idea how accurate they may be.
Comments?


What's all the fuzz about money?

Debt-free money may well be the solution to restoring a sane monetary system.

. . . compound interest remains a phenomenon that violates physical and mathematical law, meaning that unpayable debts must be cleared periodically through major systemic breakdowns and deleveraging on a massive scale.

But what happens when society is in ecological overshoot, using 1.5 times more than the earth's generative capacity already? Then the problem of compound interest becomes a dramatic impediment to the survival of the human race where interest-based money is directly responsible for the destruction of the biosphere. The existence of capitalism, debt and interest-based money are intimately intertwined. What needs to be understood is that "interest" is not a natural, trans-historical feature of money.

Negative interest

Indeed, traditional "pre-modern" societies were marked by the use of negative interest money, whose loss of value reflected the ongoing decay of natural resources (and the "physical" nature of the money was itself subject to decay). In Bernard Lietaer's excellent new book, New Money for a New World, of which I read part in the manuscript version, has a very interesting section on medieval Europe before the 14th century, where the European population doubled in just three centuries.

In the "Brakteaten" system of the European Middle Ages, Lietaer writes, people had to give their coins back every four to six years, for example, five coins in exchange for four. The result was that accumulation of money was not very profitable, meaning that those with money had very good reason to invest it into productive resources or to lend it out, which was itself a core reason for the economic wellbeing of that time.

In this period, Lietaer writes, farmers enjoyed a five day working week, which included not just the day of the Lord, but Blue Monday, the day of the family, as well as more than 100 religious festival days. Female skeletons in the cemeteries of the time showed them to be quite tall, a sign of excellent health. However, after the defeat of the Cathar heresy, the French king re-introduced centralised royal money and interest. According to Lietaer, the results soon proved to be catastrophic and the 14th century was plain horrible.

Lietaer offers an interesting hypothesis - that it was not the plague which destroyed the High Middle Ages, but actually the dislocation through centralised money, which decimated the social fabric and allowed the plague to make easy inroads. By that time, the social pressure of the banking and merchant sectors became such that the Church slowly abandoned its opposition to usury. As the historian Jacques Le Goff has argued, it even introduced the idea of Purgatory, so that bankers could pay off their sins and shorten their punishments.

. . .

[aaron]

Re: compound interest remains a phenomenon that violates physical and mathematical law

where interest-based money is directly responsible for the destruction of the biosphere. T

That is a stretch. It seems to me that deleveraging is damn good for the environment. The U.S. is a great example of this right now. We are using less and polluting less than we were a few years ago. This trend will continue as interest must be paid.

[jtabeb]

Re: compound interest remains a phenomenon that violates physical and mathematical law

That is a stretch. It seems to me that deleveraging is damn good for the environment. The U.S. is a great example of this right now. We are using less and polluting less than we were a few years ago. This trend will continue as interest must be paid.

That's a really SMALL nit to pick, given the focus of the argumentation presented in the article. And that's assuming that this point is indeed a "nit", instead of a valid question. (And yeah, neither the author's statment nor your re-buke will pass for unqualified statements, hence "valid question" is exactly how I would characterize that contentious point.)

For what it's worth...

[BiscayneSunrise]

Re: compound interest remains a phenomenon that violates physical and mathematical law

Hello All, A few thoughts as I just check out iTulip briefly ( I have been busy in grad school).

I think the hypothesis posed here is an interesting catalyst for discussion. And while I do agree that compound interest can be destructive to the debtor, the rest of it is kind of nonsequiter slam on bankers.

-People had to trade in five coins for every four in the Brakteaten system, thereby building in inflation into the system (Your 5 coins are now only worth 4, kind of like knocking off zeros from devalued paper currency, right?). This so called "pre-modern" and presumably better monetary system really isn't much different than the current system of inflation stoked by central banks to encourage spending not saving (hoarding). It seems governments throughout the ages have always had an interest in encouraging spending rather than saving.

-Centralized money caused the plague by first weakening the social fabric. Really? The plague spread rapidly due to densely populated Europe being great fodder for the bacteria carrying fleas. Even in much less densely populated Asia (with no central banking), the plague still spread, granted not quite as fast but just as deadly.

-The plague, did indeed, remake European society (creative destruction, anyone?) but rather than blocking the rebuilding society, I would venture to guess that it was trustworthy central banking and compound interest that set the stage for the Renaissance. Thoughts?

Greg

[don]

Re: compound interest remains a phenomenon that violates physical and mathematical law

Hudson's a bit better grounded . . .

Debts grow at an exponential rate (the Miracle of Compound Interest), making financial success all-absorbing – so much so that empires become self-defeating. That is the tragic flaw of high finance and military conquest alike.

Military overreach is what prompted aggressors to shift to financial modes of conquest. For economists who seek comfort in basing their discipline on physics, the relevant paradigm is Newton’s Third Law of Motion applied to international power politics: Every action creates an equal and opposite reaction. Exploited parties are impelled to break away – or become bankrupt.

The decay spreads from the imperial financial core itself as predators use their foreign financial booty to lord it over the population at home, polarizing and impoverishing the economy and thereby destroying the domestic market. That is the story of the decline and fall of the Roman Empire, and it should remain the standard economic model. Such a “market” is self-destructive.

from the 'tulip thread - Hudson: Get Real

[jtabeb]

Re: compound interest remains a phenomenon that violates physical and mathematical law

Hudson's a bit better grounded . . .





from the 'tulip thread - Hudson: Get Real

Sigh! There you go Don, quoting Hudson, Again! Next thing you know you'll be quoting that other American economist who also makes sense, Dean Baker. You'd better stop it right now because at this rate you'll end with a very short list of the very few American economists who's theories are useful because the theories are predictive. Heck, you might even start quoting from Minsky's Instability Hypothesis.And from ther WHO KNOWS how far you'll go! In fact, you might even cite "uncle" Milton Friedman, who proposed that all banks should operate on a 100% reserve basis (no fractional reserves) to , from my reading anyway, reduce the chances of the downward spiral toward what Minsky called "Ponzi Finance".

AND, if you were so bold as to go that far... Then it would only a very small step to see that federal government could become SELF-FUNDING through the revenue generated from the treasury selling currency to the banks so that they could maintain their 100% reserve requirement for any balance sheet expansion. And having come this far, you would have to be BLIND not to see that this revenue would in fact exceed the operating budget of the federal government and that this excess revenue could be used to provide for a "national dividend" that could be payed out to each individual tax payer on a yearly basis. Which, in effect, would provide a garanteed income to all us citizens (garanteed but variable, based on private sector market driven currency expansion needs).

So just STOP, stop it already! Stop making sense!


Okay, tounge no longer in cheek.
keep up the good work old chap, fight the good fight, and never believe anyone who says our problems are too big to fix. Anyone who seriously claims that is just not intelligent enough, not well studied enough, or is not imaginative enough to derive a workable solution to the problem. (Forgot to add that they just maybe too weeded to the system and its masters, that they are not honest enough to see that a problem exists in the first place, let alone come up with a solution to a problem that they can't or willfully won't see.)

[Thailandnotes]

Re: compound interest remains a phenomenon that violates physical and mathematical law

"The decay spreads from the imperial financial core itself as predators use their foreign financial booty to lord it over the population at home, polarizing and impoverishing the economy and thereby destroying the domestic market. That is the story of the decline and fall of the Roman Empire, and it should remain the standard economic model. Such a “market” is self-destructive."

Lapham's quarterly on Politics from September...

via TomDispatch...http://www.tomdispatch.com/blog/175595/

"Thomas Paine in the opening chapter of Common Sense finds “the strength of government and the happiness of the governed” in the freedom of the common people to “mutually and naturally support each other.” He envisions a bringing together of representatives from every quarter of society -- carpenters and shipwrights as well as lawyers and saloonkeepers -- and his thinking about the mongrel splendors of democracy echoes that of Plato in The Republic: “Like a coat embroidered with every kind of ornament, this city, embroidered with every kind of character, would seem to be the most beautiful.”

Published in January 1776, Paine’s pamphlet ran through printings of 500,000 copies in a few months and served as the founding document of the American Revolution, its line of reasoning implicit in Thomas Jefferson’s Declaration of Independence. The wealthy and well-educated gentlemen who gathered 11 years later in Philadelphia to frame the Constitution shared Paine’s distrust of monarchy but not his faith in the abilities of the common people, whom they were inclined to look upon as the clear and present danger seen by the delegate Gouverneur Morris as an ignorant rabble and a “riotous mob.”

From Aristotle the founders borrowed the theorem that all government, no matter what its name or form, incorporates the means by which the privileged few arrange the distribution of law and property for the less-fortunate many. Recognizing in themselves the sort of people to whom James Madison assigned “the most wisdom to discern, and the most virtue to pursue, the common good of the society,” they undertook to draft a constitution that employed an aristocratic means to achieve a democratic end.

Accepting of the fact that whereas a democratic society puts a premium on equality, a capitalist economy does not, the contrivance was designed to nurture both the private and the public good, accommodate the motions of the heart as well as the movement of the market, the institutions of government meant to support the liberties of the people, not the ambitions of the state. By combining the elements of an organism with those of a mechanism, the Constitution offered as warranty for the meeting of its objectives the character of the men charged with its conduct and deportment, i.e., the enlightened tinkering of what both Jefferson and Hamilton conceived as a class of patrician landlords presumably relieved of the necessity to cheat and steal and lie.

Good intentions, like mother’s milk, are a perishable commodity. As wealth accumulates, men decay, and sooner or later an aristocracy that once might have aspired to an ideal of wisdom and virtue goes rancid in the sun, becomes an oligarchy distinguished by a character that Aristotle likened to that of “the prosperous fool” -- its members so besotted by their faith in money that “they therefore imagine there is nothing that it cannot buy.”

Postponing the Feast of Fools

The making of America’s politics over the last 236 years can be said to consist of the attempt to ward off, or at least postpone, the feast of fools. Some historians note that what the framers of the Constitution hoped to establish in 1787 (“a republic,” according to Benjamin Franklin, “if you can keep it”) didn’t survive the War of 1812. Others suggest that the republic was gutted by the spoils system introduced by Andrew Jackson in the 1830s. None of the informed sources doubt that it perished during the prolonged heyday of the late-nineteenth-century Gilded Age.

Mark Twain coined the phrase to represent his further observation that a society consisting of the sum of its vanity and greed is not a society at all but a state of war. In the event that anybody missed Twain’s meaning, President Grover Cleveland in 1887 set forth the rules of engagement while explaining his veto of a bill offering financial aid to the poor: “The lesson should be constantly enforced that, though the people support the government, the government should not support the people.”

Twenty years later, Arthur T. Hadley, the president of Yale, provided an academic gloss: “The fundamental division of powers in the Constitution of the United States is between voters on the one hand and property owners on the other. The forces of democracy on the one side... and the forces of property on the other side.”

In the years between the Civil War and the Great Depression, the forces of democracy pushed forward civil-service reform in the 1880s, the populist rising in the 1890s, the progressive movement in the 1910s, President Teddy Roosevelt’s preservation of the nation’s wilderness and his harassment of the Wall Street trusts -- but it was the stock-market collapse in 1929 that equipped the strength of the country’s democratic convictions with the power of the law. What Paine had meant by the community of common interest found voice and form in Franklin Roosevelt’s New Deal, in the fighting of World War II by a citizen army willing and able to perform what Machiavelli would have recognized as acts of public conscience.

During the middle years of the twentieth century, America at times showed itself deserving of what Albert Camus named as a place “where the single word liberty makes hearts beat faster,” the emotion present and accounted for in the passage of the Social Security Act, in the mounting of the anti-Vietnam War and civil rights movements, in the promise of LBJ’s Great Society. But that was long ago and in another country, and instead of making hearts beat faster, the word liberty in America’s currently reactionary scheme of things slows the pulse and chills the blood.

[aaron]

Re: compound interest remains a phenomenon that violates physical and mathematical law

Sigh! There you go Don, quoting Hudson, Again! Next thing you know you'll be quoting that other American economist who also makes sense, Dean Baker. You'd better stop it right now because at this rate you'll end with a very short list of the very few American economists who's theories are useful because the theories are predictive. Heck, you might even start quoting from Minsky's Instability Hypothesis.And from ther WHO KNOWS how far you'll go! In fact, you might even cite "uncle" Milton Friedman, who proposed that all banks should operate on a 100% reserve basis (no fractional reserves) to , from my reading anyway, reduce the chances of the downward spiral toward what Minsky called "Ponzi Finance".

AND, if you were so bold as to go that far... Then it would only a very small step to see that federal government could become SELF-FUNDING through the revenue generated from the treasury selling currency to the banks so that they could maintain their 100% reserve requirement for any balance sheet expansion. And having come this far, you would have to be BLIND not to see that this revenue would in fact exceed the operating budget of the federal government and that this excess revenue could be used to provide for a "national dividend" that could be payed out to each individual tax payer on a yearly basis. Which, in effect, would provide a garanteed income to all us citizens (garanteed but variable, based on private sector market driven currency expansion needs).

So just STOP, stop it already! Stop making sense!


Okay, tounge no longer in cheek.
keep up the good work old chap, fight the good fight, and never believe anyone who says our problems are too big to fix. Anyone who seriously claims that is just not intelligent enough, not well studied enough, or is not imaginative enough to derive a workable solution to the problem. (Forgot to add that they just maybe too weeded to the system and its masters, that they are not honest enough to see that a problem exists in the first place, let alone come up with a solution to a problem that they can't or willfully won't see.)

Good ideas have been bouncing back and forth for years. When was the last time our govt made good choices? There is no hope and no reason to fight. The problems are not too big to fix but the oligarchs are.

Third parties and organized protests will be crushed. They had a lot of experience in ME as well as Occupy Wall Street.

I am thinking we need a military coup or something. But, even those guys are controlled by the man. I wonder who Petraus pissed off, for example.

[Thailandnotes]

Re: compound interest remains a phenomenon that violates physical and mathematical law

I wonder who Petraus pissed off, for example.

http://nymag.com/news/frank-rich/dav...raeus-2012-12/