No, I'm arguing with what you proposed, which is this:
> > People would still lend money to their friends and family. Stores would extend credit to customers because they want to make sales.
which is not in anyway a meaningful alternative to the actual credit market.
> Notice that the first two are the only ones that are actually good for anything.
Except that the first two only exist because of the third.
> But you don't actually need any lenders for that. If all you want is to create new money and give it to people, the government can create money by fiat and just hand it out to all citizens, or pay for government with it in lieu of taxing people. It's the same thing, there is just no interest.
It's the same thing, there is just no incentive whatsoever for the behavior to happen, so it reality it's not at all the same thing. This would cause massive devaluation of currency.
What do you mean? The government creates money all the time. They love it -- they get to spend money without raising taxes. The only downside at all is that in the extreme it causes too much inflation.
If we made it harder for banks to make loans but then created correspondingly more money and used it to lower taxes on people so they would have more money and not need to borrow as much, what economic difference do you see other than interest not being paid to banks?
It may be easier to imagine if you think of the government as a bank that makes interest-only loans at 0% interest.
> This would cause massive devaluation of currency.
Bank lending already does that. Look at housing and education prices (where the inflationary effect of lending is strongest), or even the general value of the dollar over time. The dollar has lost more than 90% of its value since 1950 and far more of the increase in the money supply has been due to banks than the government.
$1 in new loans and $1 in government-created money cause the same amount of inflation. If you replaced one with the other the only difference would be that no interest would be paid to the bank.
The vast majority of new money is not created by the government, and that fact seems to be missing from your argument. If we no longer had credit we would be shrinking the available money supply by about 90%. This would be completely catastrophic for not only the US but the entire global economy.
Maybe you could be more specific about what you're proposing because I feel like I am not really understanding it.
Cause less money to be created by banks and more by the government, and have correspondingly lower taxes (or even negative taxes) on middle income people.
Oh boy. You might want to take an economics class there bud, what you're talking about would just create the same situation Zimbabwe is in. More fiat without anything backing it leads to inflation.
You're assuming the alternative to lending at interest is nothing rather than something.
A loan really does three things.
First, it creates new money. When you borrow money from a creditor, notice that they generally don't mail you a bundle of dollar bills. What really happens is that they credit your account with the loan amount, and at the same time create a loan account with a negative balance which is what you owe them. These cancel out, which causes their books to balance even though it is simultaneously the case that the amount of cash in their vault hasn't changed and the amount of money in your bank account has. This is why increased lending causes price inflation.
Second, it causes there to be more money in the hands of borrowers. This is where you get economic growth; people have more money to spend.
And third, it causes the borrower to owe the lender interest.
Notice that the first two are the only ones that are actually good for anything. Even the inflation is generally a cost, but in moderate amounts it's beneficial because it counteracts the natural deflationary tendencies of a growing economy. All you really want is for people to have money to spend.
But you don't actually need any lenders for that. If all you want is to create new money and give it to people, the government can create money by fiat and just hand it out to all citizens, or pay for government with it in lieu of taxing people. It's the same thing, there is just no interest.