It still amazes me. The Bank of England notes and coins we use every day make up around 5% of the money currently in circulation in the UK. The rest, up to 95%, was and is being created by commercial banks for private profit in the form of loans to their customers. When a bank issues a loan, it creates this money, as digital information, out of thin air, but lends it as if it borrowed the amount, in effect charging its customers double the interest. But because the extra money we're required to pay back in interest is not created "out of thin air", we have to compete for the money that has already been created, by taking it from someone else. So when one person pays off a mortgage, or more accurately earns the right to own the principal he was loaned by paying off the interest, another person defaults on their mortgage.
We're anaesthetised to this reality by national economic growth, which we achieve by playing the same game on a global scale, where credit worthy First World countries compete amongst themsleves for a slice of the Third World's principal.
Ironically for a commodity which is created out of thin air, the operating principle for currency systems is scarcity. Limiting the amount of money in circulation creates the demand for high interest borrowing, or the creation of new money by lenders, and motivates the competition for old money among users of that currency. It seems then that currencies pit their users against one another, and transfer wealth from both winners and losers to the commercial enterprises that produce them.
Do money systems reflect human nature, or are they consiously designed to shape our behaviour? A study of the history of money systems and their produced social effects would answer this. But if currencies are purposefully designed to incentivise certain human qualities, would we as a society, given the choice, do so in the way described above? We would if we preferred competition to co-operation, scarcity over abundance, exclusivity in place of inclusiveness, self interest above social well-being. I suppose there are some who would want to live this way, given the choice.
Recommend The Future of Money- Bernard Lietaer.
