MoneyAsDebt
2008-01-13

Paul Grignon's video "Money as Debt" has been an enlightening introduction into the world of economics for me. The video does a very good job of explaining what exactly money is in our society, and where it comes from. This is something that's not taught as a rule in schools, and is generally reserved for those who have a specific interest in economics (and these people are generally well into a college career by the time they learn this stuff).

Unfortunately, the video puts a 'doomsday' spin on the concept of interest-based fractional-reserve banking that is currently the modus operandi around the world. Since I've always had a bad taste in my mouth on the idea of "making money by moving money around", I was easily lulled into seeing nothing but evil and destruction as a result of our banking system.

Luckily, I never trust myself too much, so I shared the video with a very good friend, and she was not as easily convinced as I was! Our discussion has resulted in the both of us going out and getting a taste of basic economic theory, and trying to apply logical arguments to strike some sort of a balance between the often passionate arguments for or against fractional reserve banking.

You may be interested in watching the video before reading my thoughts on it.

Discussion of some of the main points made by the video

1. The origins of fractional reserve banking are corrupt
   unknown
   First of all, this is an allegorical story. We don't *really* know if the goldsmiths were hiding in their vaults, rolling around in gold coins like Scrooge McDuck. More likely, in situations like this that occurred in reality, the goldsmiths just recognized an opportunity to "have more stuff," without explicitly hurting other people. I don't think, for example, that there's any conspiracy theory here.
2. Interest-based lending can only result in all currency being controlled by the bankers
   false
   Unless the bankers NEVER spend any of the money on anything but other loans. And again, it doesn't really matter WHAT we use to represent the exchange of units of utility, as long as it is regulated in some fashion.
3. Fractional-reserve banking can cause the amount of currency in the system to grow without bound
   true
   But so what? it doesn't inherently change the physics of our world. It just changes the numbers that we use to represent some amount of utility.
4. There is a direct and causal link between endless consumption of national resources and the fractional reserve banking system
   false
   People consume because they want more stuff. If anything, the infinite growth of the currency supply is a result of the propensity of humans to want more stuff, and not the other way around!
5. A statically allocated, government-issued currency will erase all of the problems associated with a fractional-reserve banking system
   false
   It will just cause the inherent properties of human economics to manifest themselves differently.

Having made these counter-arguments to the video, I still have issues with the banking industry, in that the regulatory bodies give unfair advantages to those who control the money. These people get an unfairly large piece of the pie without generating a proportional amount of utility units for society. However, this isn't necessarily due to the fractional-reserve system.

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