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I = S - M

The modern way of thinking about economics has been I = M - S Where I is the I as in me, M is what is 'mine' and S is what ...


Gandhiji's image is on all of India's currency. But currency in India and everywhere in the world is part of the modern banking system of more more more that is distinctly un-Gandhian. This is unfortunate because like steam or electricity the banking system is a tremendous force that can be tapped for good.

To understand what banking in the economy of use may look like we must first understand how modern banking emerged and how it works. Once we do that I will outline how we can develop a distinct banking system for what I call the economy of use: A banking system for the benefit of all. 

The history of modern banking can be explained very easily. When people had money that needed looking after a man with a strong box would offer to look after the money for a small fee. Let us imagine 100 villagers leaving their gold money with the man with the strong box; he becomes their banker. The villagers come to the banker to withdraw some of their money and to deposit some new money to be kept safe for them.

The banker soon sees that he has a large reserve that is untouched. Although part of their deposits are withdrawn by the villagers, fresh deposits come in all the time. The banker realizes that in practice this large reserve that is permanently unused is about ten times the amount that he needs to have ready and available for the villagers who withdraw their money in any given period of time.

Imagine that each of our 100 villagers has deposited 11 gold coins with the banker. Then the banker would see that 100 gold coins were enough to keep at hand for any withdrawals and 1,000 gold coins were available to him, the banker, to play with as he saw fit. 

Though the money rightfully belonged to the 100 villagers, it was the banker, by the device of lending and relending money not his own, who tapped into a tremendous power beyond the wildest dreams of agriculturists or manufacturers, kings or queens, conquerers or imperialists. 

Powerful as it is, the story so far is only the story of proto-banking. We need to see Act II of our play to see banking in its real form emerge. 

This happens when our banker realizes that he need not keep any money at hand at all! The villagers keep faithfully depositing their money with the banker and he in turn hands them receipts, little pieces of paper emblazoned with many seals, that are the banker's promise to pay. And lo and behold the entire village starts accepting these little pieces of paper and starts circulating these little pieces of paper for real goods made with real human effort. With this paper money is born and the modern banking system is established. 

Having established how modern banking was created we can now turn to how modern banking works. This can be explained in 4 easy steps:

1. The banking system creates money out of thin air. The amount of money created is about ten times as much as any individual or potentate with that amount of money could create.

2. The banking system governs money completely, creating a State within a State. Money is different from food and other goods and services. While everything else takes effort to produce, money can be produced effortlessly by the banking system. It can be used for evil or it can be used for good.

3. Money which is the 'product' of the banking system is perfectly liquid. It can be used for whatever the banking system wants without having to wait or lose value. Hence the banking system can control business and industry, agriculture and its related infrastructure, and in general the entire economy. Perfectly liquid money, without limit, can energize X and enervate Y, make lives and break lives, and over time drain wealth or revitalize communities by the selective charging or non-charging of interest.

4. No other system, not agriculture, not industry, not services, can outcompete the banking system for the simple reason that the banking system uses money that is counted ten times over and over again. 

We have explained how the banking system was established and how it works everywhere and always in all of the world. We now need to explain what capital and interest are. 

Capital is defined as the produced means of production. Capital is used to do things with: to make things, to buy things, to go places and to do stuff. Interest is capital's reciprocal flow. Like a shadow it is ever present whenever capital is involved and flows always in the opposite direction of the flow of capital.

Capital can flow into two distinct places: productive investments and use investments. Productive investments are activities that involve the use of capital to make more and other stuff. Someone borrowing capital to start a business would be an example of productive investment. Use investments are activities that are concerned with the daily act of living in society. Someone borrowing capital to feed her family or to marry would be examples of use investment.

Historically, although the charging of interest for productive loans was always accepted, the charging of interest for use loans was heavily frowned upon and termed usury. There were legal and more importantly moral safeguards against usury in society. 

Banking in what I call the economy of use would seek to harness the fantastic power of the banking system for good rather than evil. It would consist of the following propositions:

1. We accept that interest is everywhere and always flowing as a reciprocal flow to capital. 

2. While interest is ever flowing, interest should be charged and paid only in the case of productive loans. In the case of use loans interest should not be charged nor paid but borne by the lender rather than the borrower. Thus we shall permit of no usury.

3. The banking system is a tremendous motive force like steam is to a steam engine. We must harness it and use it for good.

4. In the economy of use, productive loans are defined as loans obtained for the purpose of doing something productive in harmony with Mother Nature and contributing to the family and community. Use loans are defined as loans for the purpose of obtaining things that will and must be used rather than hoarded. 

5. Dignity Banks should be set up in village after village, community after community, and should charge a simple interest of 5% for productive loans and 0% for use loans. In a few years if the principal is depleted, fresh infusions of capital should be made to the Dignity Banks.

Thus would banking under the economy of use harness the quiet power of banking to do good rather than evil. I ask people and groups with money and capital to help me achieve this goal. We are all in this together. We are the 100%. 

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