Our
monetary system has some absolutely glaring dysfunctions, which already from a
purely mathematical viewpoint do not permit any different conditions from those
we have in the world at present. I would like to explain what I mean by this in
a story:
The nice little village
In a little
village live three families:
- The Farmer family
- The Tailor family
- The Mason family
Whatever
there is to do, one of the three families does it perfectly or they do it
together. The Farmers are in charge of producing food and also run a small
country inn. The Tailors are responsible for everything to do with clothing and
are famous for their traditional costumes. The Masons are talented craftsmen
who are always on the spot when there is something to build or repair. Nothing
is lacking in our little village; the villagers are happy and contented.
The bank comes to the
village
One day a
young family, the Bank family, moves to the village from the nearby town. Mr and
Mrs Bank are thrilled by the idyllic villages and would like to make their
contribution to its prosperity. They invite the whole village to the country
inn. There they suggest that each of the local families open a current account.
At first this is free of charge. If they have a debit balance it costs a small
amount of interest but for this they can afford much more immediately. Besides
that, the Bank family would make purchases in the village, thus bringing the
interest they have taken in back into circulation. Each of the three respected
families would receive an overdraft of €
10,000 without special security, i.e. everyone is allowed to overdraw their
account by € 10,000. No sooner said than done.
The economy flourishes
The first
thing the Farmers do is to have their inn redecorated. The Tailors decide to
hold their daughter’s wedding reception in the Farmers’ inn. For this big
celebration all the villagers have new suits and dresses made by the Tailors.
In this way visible prosperity comes to the little village. After a short time
all the houses are freshly painted, the villagers also dress in their Sunday
clothes on workdays and go out wining and dining. As everything is going so
excellently, Mr Bank is only too pleased to increase the credit limit for all
the families, which makes the economy flourish even more. He spent most of the
income from the interest in the little village. He liked the Farmers, the Tailors
and the Masons, and the Banks had found a place in their hearts.
A rude awakening
One day the
bank was visited by inspectors. They found that the Farmers and Tailors had for
a long time exceeded their credit limits. It seemed that they were running up
greater and greater debts. On the other hand, the Masons had a credit balance
of more than a million euros on their account. The two families with debts had
exactly the same amount of debts as the Masons’ credit balance. The former were
secretly ashamed of their debts and the latter of their wealth. And as they
never talked about money, they all thought that the other families were in the
same situation as themselves. After all, they all had nice houses, lovely
clothes and held lavish parties.
But how did
these high debts come about?
Well,
nothing else is possible mathematically. When someone transfers money to
another person, the former has a debit and the latter a credit. The total
amount of all the accounts is zero. We call this the law of balance and it is a
zero-sum game.
The collapse
The bank
then requires the Tailors and Farmers to repay their loans immediately, which
they naturally cannot do. Therefore their houses are forcibly converted for
other uses: a supermarket moves into the former country inn and a clothing
discounter into the Tailors’ house. But they are not successful for very long
either and soon have to give up. The country houses which used to be so
attractive have become empty ruins.
Although
the Masons did earn a great deal of money initially, they could not really be
happy about it as after all they had lost their best friends. The latter were
now living in council houses which had been built by external companies.
Discounters had also commissioned external construction companies since they
were cheaper than the Masons. The nice village had been destroyed.
And the
Bank family? Apart from the fact that they had also really liked the families,
they had to write off their losses. The enforced conversion of the buildings
had brought in far too little to cover the bad loans. So as not to go
completely bankrupt. they are applying for one of the government bailouts but
these are more for large banks…
All in
all, all those involved have lost.
Small scale and large
scale
This story is not a unique case. It is happening systematically on a large scale
throughout the world. You don’t believe it? Then just change the names and make
Greece, Spain and Germany out of Farmer, Tailor and Mason!
If this is
happening everywhere on both a small and large scale, the system must be at
fault, which it in fact is.
Our monetary system is a zero-sum game:
according to the law of balance the sum of all accounts has to be zero, i.e.
total amount of credit absolutely has to equal the total amount of debt. This
makes the vast majority of people into losers of the system.
