Interest, is it the work of the devil?

I don't know what you do for a living, but would you be willing to offer your goods or services at cost? For barter? How exactly would you plan to live, pay bills, cover overhead, keep people working? Nobody likes paying taxes, but we like smooth roads, good education, health benefits....well, you get the idea.

"So if it were not for interest we would all be paying lots less for stuff".


Without the loans (and interest) you wouldn't have anything to buy, but don't worry - you wouldn't have anything to spend either. Zero capital = zero production = zero wages.

well going back to first principals ...isn't that all money was supposed to be..
just an interim to facilitate bartering.

Go easy on me, I'm new at this…

give me a sec to think about the second point.

ok thought about the second one.

as far as I can figure, the removal of interest from your equation will only mean you cant have tomorrows money today...you will just have to wait till you have saved it up.
then you can spend it as capital.
or pass it to your descendants to spend as capital (to start ventures).

Interest IS the work of the devil, but it's also the oil in the machine of corporate finance. Money for nothing (and your kicks for free...)

Let's make it very simple. You have a factory that makes widgets. It takes time to produce and ship the widgets. In the meantime you have used up all your capital, and are not going to be able to order parts to make your widgets, or pay your workers to put the widgets together. There wll be some lag time before you will get paid for the widgets that you have already shipped. You may have some returns, and some customers may be slow payers.

So, you go to a bank, and take out a business loan. The bank is not in the charity business, and they too need to make money. So they "sell" you some money, and the interest that they charge go to the bank's expenses and profit.

The business loan allows you to pay your workers, buy more widget parts, and pay for all the other business expenses like rent on your building etc. It enables you to keep your widget business running smoothly.

And THAT is what you consider evil?

Re: Interest, is it the work of the devil?

Why rely on what "some people say"? The census bureau (www.census.gov) has the exact numbers available online. Last time I checked, 72% of all income was wages and other labor income, with the other 28% accounting for profits, interest income, proprietor's income, etc.


Interest is a market price for transferring consumption from the present into the future and production from the future into the present. Because most people prefer instant consumption and delayed production, this price is usually positive. If the interest rate was set to zero, the effect would be that present things get cheaper and future things get more expensive. There's no free lunch in doing away with interest.


Not just in recent history. There are taboos against lending money at interest in the Bible, and one thing Jesus is famous for is that he chased the merchants out of the temple. These onslaughts were nevertheless mistaken and foolish.


Yes -- as evidenced by our willingness to pay it when borrowing, and our unwillingness not to receive it when lending.

You may want to take a look at the relevant chapter in David Friedman's textbook on Price Theory, which is available online here.

phonex ..good point.

well... evil is a religious word and only used to get the idea across.

really I'm just trying to understand the concept of interest fully.

as far as the temporary freezing up of your up capital on large projects...maybe you start a small club of local people who have savings to invest...and sell them shares.

please give me a sec to think about the next point

Hi Thomas, Wow!...yours is brilliant..

so can I do one chunk at a time.?

first "the % cost of interest in goods and services..."

that was an actual quote from an interesting source.. but used mainly to get the point across.

What I see with my own eyes, on a day to day basis, is low income families buying everything with loans.
the TV the...the car... stereo...and it finally costs them 200% the actual cash cost of the product to do so.

If they cant afford to pay the cash price in the first place.. how will they ever afford to pay double it tomorrow?.

but that's off the point a smidge.

yes how do we accurately define the amount of interest cost contained in an actual good or service.
And how did the census people do it...

why bother...why not just figure out how much of your life's energy is put into servicing loans...and consider the cumulative effect that would have on everything you purchase.

grand duke..

Yup.

but I dont think bankers wear earings as in the DS tune.

Don't make the mistake of confusing the item (credit and interest) with people's abuse of it.

If people can't afford to pay back the principle and interest then they are foolish for buying on credit. That's poor financial planning and management (usually because people's "wants" exceed their income).

There are some people who are literally forced into the situation of using credit to buy food etc but those are a small minority and there should be other and better outlets for them.

fishin.

very true.

and the fact that large parts of their merger income is diverted to gambling drinking and drugs...(to dull the discomfort of poverty) does not help matters.

"Interest is a market price for transferring consumption from the present into the future and production from the future into the present. Because most people prefer instant consumption and delayed production, this price is usually positive. If the interest rate was set to zero, the effect would be that present things get cheaper and future things get more expensive. There's no free lunch in doing away with interest."

Thomas,

well, I like the balance of your logic.

but I think there may be an error in the last part of it

"If the interest rate was set to zero, the effect would be that present things get cheaper and future things get more expensive"

there is a name for this kind of logic error...eg if all parrots have feathers and are bright red...then all things that are bright red and have feathers are parrots...of course we know that is not true...you may be looking at a feather duster. "

the other two points were interesting also... will have a look at your lead.
thanks!