Savings. Frugality.

Only consuming what we can actually afford.

Investment with real skin in the game. If you have to take on much higher risk to get returns we will find ourselves being more careful about those returns actually happening.

so...it would take actual generations for people to get out of being utterly broke since in your world, you'd have to save up as a poor person to actually open up a business or do anything worthwhile. sounds so fun, sign me up. i want my family to be poor for 250 years until we finally have 2 million that we need to start that farm my great great great grandfather wanted to.

some people on this website literally live on a different planet

sadly you can remove the "on this website" qualifier from your last sentence and it holds just as well...

How easy is it for a real life poor person to just get $2M to start a farm? Almost everyone I've met with family farm inherited the land which was probably traced back to it being claimed in the frontier days.

In the agricultural corner of the world I consider my motherland, there are banks that cater specifically for farmers and fishermen. Actually, my first bank ever belong in this category, probably the biggest fish in this pond. It's honestly rather inconvenient if you are not in the agricultural demographic; if you live in the urban areas it's next to impossible finding a convenient branch.

I'm not in a position to elaborate how their loans work but they do exist and I'm also pretty sure two million of our not-USD currency is not a prohibitive amount to loan to start a farm. It's a realistic investment people in rural areas can do.

A lost folks in general (and SV in particular) operate on the principle of "got mine f you". They're comfortable so now we don't need to do anything to make anyone else so. It's a symptom of the greater issue of a lack of empathy.

> Savings.

Those savings are gonna grow at a pretty slow rate if you can't lend with interest.

Being able to create money out of thin air doesn't actually create the associated claim on value that the money represents.

So you're looking at this in terms of how you interact with money in the existing system. But all else being equal there would still be the same amount of value created & we can imagine ways that the value is distributed without the weirdness of banks & how we currently create money.

Savings are just delayed consumption.

If I want returns I should seek an investment.

In the current system (that is 'better') inflation exceeds the interest on savings, so you lose money by keeping it in a bank.

In tons of countries compound interest is a fairy tale found only in "Economy 101" books...

Savings don't grow, not in real terms and on a societal scale. A miniscule fraction of real goods and services in the economy can get buried in the basement and saved for thirty years.

my cousin's grandfather is 101 and lives in the house he lived his childhood in; i think he was born there. he and his parents have expanded the house significantly since then, as well as, of course, repairing and maintaining it. it's very comfortable now. a society that builds durable housing stock is saving up the goods and services that went into its construction

one of the things in the house is a nearly complete collection of national geographic magazines, going back before he was born; a treasury of knowledge about how people lived all over the world during that century-plus, as well as how they were seen from the point of view of the usa, ready to be perused and enjoyed at any moment without tracking cookies, broken links, images scanned at the wrong settings, or javascript incompatibilities. the images are mostly "retina display" resolution and famous for their beauty. preserving them for this century-plus has consumed very little resources

right now i'm listening to a song by rush recorded 40 years ago; every year there is a wider variety of recorded music available for me to listen to and compositions for me to sing, as long as we don't start losing it faster than it is recorded

last night i washed a shirt i got as a gift 17 years ago; if i can keep it from getting eaten by moths or sour sweat, it will surely last another 13 years

— ⁂ —

but these are mostly consumer goods, not capital goods like lathes and motorcycles; having more shirts, national geographics, or rush songs won't increase my economic productivity, which is what is needed for such savings to grow rather than shrink more slowly (though plausibly you can be more economically productive if you have a house big enough to set aside a space for sewing or grinding telescope mirrors or enlarging negatives). and for that it isn't necessary for the actual material good itself to survive for decades; it is only necessary for it to augment economic production by more than its own value during its lifetime, however short that lifetime may be

a car may have a lifetime of 10 years and, by enabling an uber driver to provide higher-value services than they otherwise could have, produce twice as much value as its inflation-adjusted cost of manufacture over that lifetime, 20% of the cost of manufacturing it every year. multiply that by the number of uber drivers in a society, and you have savings growing, in real terms, on a societal scale. and there are a thousand kinds of capital goods like this which continue to produce real value over a period of time once savings have been invested in them: house insulation, refrigerators, washing machines, olive trees, engine lathes, kitchen knives, electric drills, laptops, and so on. even factors of production that are consumed within a few months or a year can qualify, like knitting yarn

(however, a drill you buy, use once, and then leave in the garage and never use again does not; it may not be decaying very fast but it's not growing)

this is how a society can grow its savings in real terms on a societal scale, through accumulating capital goods and knowledge so that its productivity can increase over time

Nice stories, and I don't doubt that some money can be productively invested. But does the marginal dollar saved wind up in a productive investment, or does it wind up malinvested? In other words, is money the bottleneck for increasing productivity, or is it figuring out improved processes and predicting the future economic landscape?

most of it gets wasted

but money is not really a bottleneck or a resource; it's just a way to keep score

making a loan is an investment with real skin in the game

What you've just created is a world in which the only people who can afford to buy a home are people with rich families they can borrow money from. Congratulations, you've concentrated wealth in even fewer hands.

Low interest rate debt turned housing into a lending arms race to see how deep you can bury yourself.

There are other ways. Like buying one brick at a time. It's a real thing in places where access to lending is less common.

I've lived in homes built that way. They're always a little janky, but usually much higher quality overall because they're built for a family and not for quick turnaround.

I know guys who are literally growing the timber for their dream home while they live in a singlewide. Lifestyle inflation in the USA is caused in large part by access to this easy debt, and it routinely ruins people in the bottom half of the income distribution.

so the economy grows annually at ~0.0% meaning no real value gets created because productivity basically never improves and labor participation tanks

congratulations, you've taken us back to Feudalism

This is incorrect, in standard macroeconomics, credit theoretically has no effect on the long term growth rate of an economy. The only thing that grows an economy are increases in worker productivity, theoretically driven be technological advancement. See https://www.stlouisfed.org/on-the-economy/2015/june/what-dri...

Loans are just move the money around and create “business cycles” of booms and busts. Which in my opinion exacerbate wealth inequality as opposed to reduce it.

I'd say that's a crude reductionist view. See https://www.jstor.org/stable/2118406 to name one paper but there's tons of research on the link between capital markets and economic growth

What part of that crude or reductionist? Technological progress being the sole driver of growth is the dominant view in macroeconomics. Even the paper you link attests to that.

It's reductionist because "technological progress" is too broad a stroke. "Productivity" is not directly observable or measured, right?

Access to inexpensive capital is a key driver of technological progress.

Robust capital markets allow for more efficient allocation of savings into business ventures, driving productivity forward

Owners typically have skin in the game now as those that provide a loan.

There's a reason that people don't save up the purchase price of a home in order to buy it. They are willing to pay a serious premium in terms of Interest so that they can have a home today instead of waiting 15 years for 30 years in order to purchase a property.

If you want a car to get to a job and make money, you want it now, and are willing to pay more later. Without the car, you wont be able to work and save.

How would you pay for university? How would you buy a house? How would a company build a factory?

You would have to use the money you inherited or were given annually from your parents more carefully so that you have it to spend on the things you really need or where you see a big opportunity. It's a sacrifice but it's all worth it in the end to get rid of fractional lending, which I find confusing and distasteful.

Sell equity stakes or form a joint partnership. This is exactly how most startups get funding.

Also, it’s not clear to me that credit has lifted people out of poverty; I’d argue that interest based lending has kept people in poverty, transferring wealth to those who already have it.

I dunno, people buying a house (and the mortgage that goes with it — their biggest loan of their life) is (to me) a good thing, rather that everyone a renter.

Why though? It perpetuates real-estate bubbles by incentivizing a large portion of the populace to speculate on non-productive assets. If real estate weren’t so highly incentivized in the US, I’d rather be a renter with a long term lease with all its legal protection and invest my money in a business or something. We’d have a much larger renting class and likely would be able to push through much more renter friendly policies. As it stands, majority of Americans act like bourgeoisie when they really aren’t.

The end game of everyone is a renter is the government owns all residential.

When you have everyone is a renter, then renters change laws to make it not profitable for people to own rentals which the government eventually picks up. I don’t know anyone from eastern block countries living in the Soviet time that wants anything like that.

Why does a business need a loan? They can just sell shares/equity to raise funds. It's better in every way; there's skin in the game. Why would anyone even want to loan money to a startups? If the startup founders go out of business and flee the country, the lender loses everything. The downside is unlimited. Yet if the startup does well and it becomes a billion dollar company, the lender will get maybe 20% return on their loan; the upside is limited. There is a reason why independent people invest their money in startups as opposed to loaning them money... It's only banks and big institutions which loan money to private equity to go towards startups; and it's never their own money... It's typically the public's money (as bank loans represent newly printed credit which dilutes the value of citizens' currency). Nobody in their right mind would loan their own cash to a startup at sub-8% annual ROI when inflation is 8%+... In the best possible case, you end up with the same amount of buying power as you started with; in the worst case, you lose everything.

As for car loans and home loans... Similar thing. If people couldn't get loans for houses, real estate prices would have to come down to an affordable level that people could save for. If people couldn't get a loan for a car which they need as part of their small business, they could sell equity in their business to raise money for the car.

The question above are circular. How would people get loans if loans didn't exist? They wouldn't, we don't need them and society would be better off.

I think that's a possible answer worth discussing , but nothing precludes that now. There's a reason why people don't crowdsource shares in their house when they want to buy it or if they're business when they create it. Sometimes they would rather pay the interest than share their asset. Sometimes there is a lack of Interest in people wanting a steak

Well before mortgages home ownership was about 2% and we had a very small number of people who owned all the real estate because people couldn’t afford it without a loan.

If your happy with going back to this that is your perogative but I would Be against your world view.

A house would only cost around 5 years' worth of the median salary. Now it's like 15 years and that doesn't even account for the fact that taxes are way higher today and so it's much harder to save... With modern tech, things should be a lot better but for most people, it's worse, much worse.

Salaries have not being keeping up with productivity gains as the economy has become anti-competitive by design. Every time money changes hands, it gets taxed maybe 30% on average... By the time $100 has changed hands 10 times, there is only $3 left out of it for the people (the rest went to the government). It centralizes everything around the government; money cannot flow too far from it. The modern economy is a giant social scheme with 0 merit. For many, it's hell on earth.

Could you please share where you got that measure of “2% home ownership” before mortgages?

These would be good questions to ask an undergraduate microeconomics professor. They have answers. It's not that nobody has ever thought about this before.

I know the answer; it's because being able to issue unlimited money, diluting the public's savings and salaries and then collecting interest on it benefits certain powerful people in a risk-free manner. That's not the answer which an economics professor would give me though. They are not trained to use their analysis skills so much as providing canned explanations. These economics professors have to pay their bills too and their paychecks come from the people earning interest on the big loans... The paychecks of economists literally come from this system that they're suppose to analyze in an unbiased way. Not going to happen.

Damn it can someone please just give me free money so I don't have to participate in this system and don't have to think about it every day? Maybe if I could also benefit from it without having to work, it would be easier to just let it be. It's exhausting to get screwed every day and knowing exactly how I'm being screwed and yet having no power to do anything about it except whining online to random people hoping desperately that the system will improve just enough that I can get the tiniest opportunity. I've been working on side hustles for 10 years straight but I've never had the social connections to get traction regardless of how good the product is or how much users love it.

This is a very good Dunning-Kruger effect example. You aren't being screwed, you are swimming in water you can't see.

It's not about information. It's about social connections; that's how you get opportunities. Information and intelligence is worthless and a pretext.

If I befriend Elon Musk and he makes one tweet about any of my existing projects, I'll be a millionaire within a year. 100% guaranteed. I wouldn't have to change anything or know anything more. Then I would have impostor syndrome instead.

It's easy to claim that anyone who receives help and has it easy 'suffers' from impostor syndrome and anyone who doesn't receive any help suffers from Dunning-Kruger effect. I know how this works. Only those who really struggled can see all sides; that's because nobody tries to hide anything from you; there is no incentive to.

You're wrong about whether fractional reserve banking is broadly good for people living in developed economies - it is - but you're unlikely to be talked out of this conspiracy kick you're on, so :shrug:. All the best to you!

Well it's not good for me and I'm merely a typical product of this system. The system will make plenty more of me. I was totally alone a few years ago, now I look like a moderate. Unfortunately, future contrarians may not be as curious, tolerant and understanding as me so they will probably end up blaming capitalism as a whole and demand communism... China will swoop in and 'liberate' the people. When this happen, I will be shrugging my shoulders in complete apathy due to moral exhaustion.

If intelligent people cannot separate the monetary system from capitalism, the average person won't either.

It is good for you. The fact that there is a thriving economy, that there are lots of businesses to work for, that you can start a business if you want to and get money from a bank to do so, this is all very good for you.

But sure, keep wishing we could go back to feudalism or whatever, great plan!

I don't think we should abolish lending, but all those things would be vastly cheaper in a miserly debt free economy