Willem Hoogendijk,
The Economic Revolution, Green Print 1991 ISBN 1-85425-072-8
argues that interest is a very important driver for economic growth. In a competitive business environment, a company must increase productivity, so it takes out a loan to buy better machinery, and has to produce more in order to service the loan. Then his competitor takes out a loan for the same purpose, so completing a spiral of competitive growth.
Try this thought experiment: take 2 identical businesses, one with a loan debt, and one without. Who has to produce more to stay competitive?
Note also that repayment of interest means that there always has to be more money in circulation to pay to the banks interest, so the banks have to create more money by making more loans, so completing another spiral of ever increasing growth.
The argument is being put forward by monetary conservatives within the Green Party that economic growth arises solely from the desire for growth by individuals, businesses and governments. Their demand, in this view, drives the banks to produce more money.
This view assumes that banks are a passive player in the game. It overlooks the fact that financial institutions function in a competitive free market - in fact, the financial sector is arguably the most unregulated sector of all the economy.
Lending institutions market their product (money loaned at interest) competitively, actively and aggressively, as can be seen from their past advertising campaigns.
The effort of some to try exempt the loans industry from criticism is odd, coming at a time when even the commentariat is criticising the actions of the bankers &c. It is clearly a fact that ill-judged loans were made to people who had negligible ability to pay (= "sub-prime"). This was a systemic error in large parts of the industry, and the world economy is about to suffer significantly from this error. Financial CEOs have erred. They should take the blame personfully.
It is clear that loan facilities were marketed aggressively. Some time ago I had to see my bank manager about an unauthorised overdraft. He offered me a Platinum Card that would allow me five times as much overdraft. I said "You want me to go deeper into debt?"
The surprise of the Egg customers who were in credit at being cut off by Egg is evidence of the strong desire of lenders to lend. "…the credit card company, which was bought by US-owned Citigroup last year, had cut off diligent customers because they were unprofitable".
Loans were marketed aggressively because loan interest is how financiers make most of their profits.
Further evidence that money growth drives economic growth comes from the following green economists:
*The Grip Of Death* Michael Rowbotham, Jon Carpenter Publishing, ISBN 1897766408, £15 in UK
Reviewed thus:
“By analysing money in action, the flows and tensions, he enables the
reader to see the role and responsibility of the financial system for
the nature of modern growth. Forced economic growth is shown to derive
from intense competition for money, lack of purchasing power and near
total wage dependency. Demonstrating these in action he demolishes the
suggestion that growth is responsive to the aggregate desires of people
either as consumers or workers. His analysis is revealing and
complements Herman Daly's perspective on decadent growth and
Douthwaite's 'growth illusion' which enriches the few, impoverishes the
many and endangers the planet.”
Then Douthwaite, in “* The Ecology of Money *”:
"The [present monetary] system requires continual economic growth if it
is not to collapse. It is therefore incompatible with sustainability."
A non-green source:
“The Federal Reserve publishes data on the levels of M1 and M2 weekly, and has been collecting data on the money supply since the 1950s. In the less financially complicated world
<http://www.investopedia.com/university/releases/moneysupply.asp> that existed then, the supply of money showed a very strong correlation to how much money was spent, and it was therefore studied fervently by economists for clues to economic growth.
A further line of reasoning comes from the fact that an injection of
money is the antidote to recession, which is a condition of negative growth.
So there is a very strong case for saying that money supply must be brought under democratic control in order to control economic growth.
This is not to say that all the blame is with the lenders. We are dealing with a system here, where everything is interconnected. Of course individuals, businesses and Governments are also to blame for borrowing for things that do not benefit people or environment. But the banking system as a whole is greatly to blame, and our response to the money crisis should not stop at imposing greater restraint on the money markets: it must look at the root cause - the monopoly of private corporations over money creation.
