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hualapaistoday at 1:54 AM2 repliesview on HN

The opportunity cost point is fair enough if one is thinking in terms of two concrete individuals. The illustration I offered was meant at a more abstract level, the two persons standing in for the creditor side and the debtor side of a closed economy taken as wholes. In that framing the issue is not whether a particular borrower can put the money to productive use (clearly he can), but that the system as a whole is being asked to generate more units of the circulating medium than currently exist within it. Even when real value is created, the monetary claim still exceeds the monetary stock. Settlement then requires continuous expansion of the money supply, continuous transfer of existing assets toward creditors, or periodic default. That structural pressure is what I was trying to get at.

I suspect the deeper difficulty is the “bond” in bonds themselves, the ongoing compulsion that interest introduces. Once interest is attached the debtor is under continuous obligation to produce additional claims simply to keep the accounts from breaking. Traditional writers on the Christian and Islamic sides generally preferred arrangements that avoided this continuous pressure. A pure discount (as with discounted Treasury bills and similar instruments) prices the time element once, up front: the creditor advances a smaller sum and later receives the larger face amount. The cost is paid at the beginning rather than levied as a recurring claim that must be met out of future circulation. In that sense the time value is acknowledged without the mechanism that forces the system to keep generating more monetary units than presently exist.

[edit:] Clarified the discount language.


Replies

hiAndrewQuinntoday at 4:09 AM

This still seems off to me. If I were a potential creditor in such a closed loop system, and I was told I absolutely could not charge interest due to these monetary supply constraints, I would either just stop lending entirely or I would demand something that isn't strictly denominated in money to make the risk I'm taking on, etc worth my capital outlay.

But then eventually, if the system were sufficiently complex, I'd probably tire of whatever complicated barter system we have already going on, and then it's likely some third party would step in offering something that's totally not money, dude, trust me, it's just like a handy clearinghouse of IOUs for people engaged in the trade of these non-monetary favors for favors...

Some people who hold or offer such IOUs might then take the bold step of calling them non-exclusive, as in I will mow the lawn of whoever happens to have my "one lawn mowed" voucher, I just happened to originally give it to this first guy, I have no idea what he did with it after that... Other people realize this "non exclusivity" deal actually makes the voucher strictly more valuable, you can do more things with it than you could otherwise... You see where I'm going with this. It's not passing my sniff test.

yeeeloittoday at 3:32 AM

Can you recommend a book to learn more about this concept?