Letters of Credit, Debt and Banking — What To Do If the Whole System Like Taxation Turns Out to Be Wrong-headed?

Since the time of the late middle ages, the innovation of letters of credit opened up new avenues of access to gaining wealth through borrowing.  A relatively new industry – banking – began to grow up around the practices of lending and borrowing.  They also offered insurance of various kinds.  The liquid capital afforded by the issuing of loans, at various rates of interest (over the years), spurred on new developments in commercial and venture capitalism.

But the rise of the newly wealthy and their newfound “vertical mobility” came with an extraordinary price that few noticed – the future.  “Future cost” forms an idiom that should have been part of the vocabulary of technical economics for hundreds of years by now, but it shall lags behind (trekonomics).  When one makes a purchase, let us say,  Jeff buys a chair, on credit, he whips out the all-powerful credit card and the clerk runs in “through the machine,” which transfers funds from Visa to the business account of “Jack’s Furniture Store.”   Here is what just happened.

Jeff created his own “debt obligation” on a given date (say, April 10, 2019) and then will have to make payments (per the terms of his credit card contract) over the next 6 months to pay off the debt. He received a “good” (i.e. the chair) on April 10, and must repay more money than the cash was worth on that day, by an amount that “depends.”   The final amount of his repaid debt depends on how long Jeff takes to repay it, the interest rate he incurs, and any penalties that might (or might not) apply.

Notice that the future has to pay more by far than the “present” would if it “paid in cash” on April 10. This means that the use of credit DEVALUES the future against a (comparatively) more valuable past. This is exactly false according to the Ideal Val Sys.   It effectively subsidizes the past as being worth more than the future – just of opposite of what is entailed by “progress and excellence.”  This stymies progress by subsidizing its competitor.

Credit creates obligations TIED TO THE PAST, and IT DEVALUES THE FUTURE. It in effect sacrifices a superabundance of future labor value for present assets that quite often depreciate in value.  And the entire banking system that has grown up since the Middle Ages both presupposing and fostering this as a relatively universal condition and even a way of life.   I believe that good economics works precisely the opposite way – here, one sacrifices the ownership of present goods and services, investing instead of spending, in order to build a greater future at the cost of what is calls the “past.”

We should think this over, and ask how we can convert an entirely-global system (over the long haul) from a debt-driven, credit feeding, economy to one that favors and subsidizes its complement – like the investor’s practice of deferred gratification mentioned above. It can be done, and I shall attempt to blog on these topics more later.  Until then, have a think about it.

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