> 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.

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.