Rationalizing Usury: the Time Value Hoax

Anthony Migchels — Real Currencies Dec 11, 2013

So I’ll get down upon my knees and bless the Working Man, Who offers me a life of ease through all my mortal span;
Whose loins are lean to make me fat, who slaves to keep me free,Who dies before his prime to get me round the century.
Whose wife and children toil in turn until their strength is spent, That I may live in idleness upon my ten percent.
And if at times they curse me, why should I feel any blame, (John Turmel, Thoughts of a Rich Man on Usury)
The idea that ‘the lender can’t use the money when he lends’ is the classical argument to rationalize Usury. But the bank doesn’t lend anything. It’s all credit by bookkeeping.
The ‘time value of money’ is the notion that holding money today is worth more than tomorrow. Between today and tomorrow there will be inflation and the missed opportunity of investing it.
It is at the core of modern theory of finance. It is the rationale for Usury, it can be heard each and every time when people defend it. It is the defining belief that creates acceptance for interest on loans of money.
Because Usury is supposed to be the compensation for the ‘lost’ ‘time value’ to the lender.
People will also point at risk, but there is no risk, there is collateral. Only bogus credit card debt and consumer loans are without collateral and the interest on these kinds of loans can be quite astonishing. But for serious credit, business loans, mortgages, there is collateral and there is no risk to the lender.
The fact that the time value idea still holds so much sway is quite astonishing, after 12 years of Truth Movement and mass exposure of fractional reserve banking.
Because the fact is: nowadays the creditors are usually banks and banks don’t lend anything. They create credit, by bookkeeping. That is what fractional reserve banking is: double-entry bookkeeping, in which debit and credit are implicit and automatic.
It is one thing with simply uninformed people, including most economists who are remarkable mainly for their ignorance in monetary matters. It is borderline bizarre with the Austrians, who are famous for their analysis of fractional reserve banking. But how can one on the one hand defend the ‘time value’ hoax and on the other hand explain that the banks create money and don’t have reserves for what they purportedly lend? It creates quite a cognitive dissonance.
The banks don’t lend and that’s why the ‘time value’ ‘argument’ is a total hoax. Utterly irrelevant. The bank wins nothing by creating money (other than the opportunity to extort the ‘borrower’, who doesn’t realize he isn’t borrowing anything real) and it gains nothing when the money is repaid: the bank takes it out of circulation and the money just ceases to exist as a concept. There is nothing in the books anymore.
The Austrians, and indeed also many paper money reformers, then go on to claim the problem is that the bank creates money! And that we will all feel much relieved when these are indeed savings when we borrow from the bank. Then our sense of ‘justice’ is satisfied.
This hoax is known as ‘full reserve banking‘ and nowadays there is a growing and unisono choir for ‘reform’ of banking based on this idea. The Financial Times’ Martin Wolf wants it. The Frankfurter Algemeine splashes a front page with this great idea. Dutch television is soon airing a major program defaming fractional reserve banking and hallowing our right to pay interest to ‘savers’ (the rich), instead of bookkeepers. The IMF is writing positively about it.
We don’t realize that this means that we will continue paying the same amount of money. Why aren’t we asking ourselves the question ‘but if the bank creates the money by bookkeeping, why am I paying interest?’
That is of course the rational response to the awareness that money is created at close to zero cost.
But even if money was printed debt-free or if we use Gold to back all the money, usury would still be both wrong and unnecessary. Because why do people save? To use it later! They don’t want to use it now, otherwise they would not save! So they lose absolutely zero by not being able to use it now if they lend it out. Not using it now but later is the essence of saving! And if we are not going to use it now, why not let somebody else use it in the mean time??
And even when we think of inflation we are wrong: most ‘inflation’ in the sense of rising prices since the war was caused by ever higher interest charges passed on through prices. It was not caused by money printing, the extra money was printed to pay off the usury. Interest bearing money cannot exist without eternally rising prices (or eternal deflation when the money supply cannot grow, as is the case with Gold). Interest-free money, on the other hand, will see stable prices if managed correctly.
So there is no ‘time value of money’. The rich are just insanely addicted to money and they want more. So they have sly idiots (‘economists’) think up excuses to explain it’s all so necessary and pay them a few hundred grand per year to have it look good.

Inconvenienced millionaires

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