Richard Douthwaite on Debt-Based Money
= radio interview
"Douthwaite says it's not interest that creates the growing money supply, but a system in which you need bank loans to get money into circulation. It's true that the payment of interest is now only a minor part of the growing money supply, but he misses the deeper issue: without the idea of interest, the custom that borrowers pay back more than they borrowed, banks would have no incentive to loan money, and banks as we know them would not even exist. They might exist as secure storage lockers for valuable assets, and you would pay them a fee to hold real stuff, instead of them paying you a fee to turn your fake wealth into more fake wealth. With zero or negative interest, lending would be done only for charity, not for profit, so there would be a lot less of it.
Douthwaite suggests reforming the system so that money is created by government spending, and banks can still loan money at interest but they're not allowed to create money. The deeper principle here is that it's possible to have interest without runaway growth, but only if the amount of debt is kept in equilbrium at a low level. To me this seems dangerous and half-assed. As long as you have the custom of interest, you have powerful institutions that want to become more powerful by breaking out of equilibrium and creating more and more money as debt, and it's only a matter of time before they change the laws to permit it. It seems safer and simpler to have laws, customs, and social taboos that forbid any lender from ever getting back more than they lend." (http://ranprieur.com/archives/021.html)