The financial system based on usury is doomed to instability

Interest rate and physical system

Throughout the Middle Ages, the great controversy surrounding usury in the West is considered by contemporary historians as the “birth of capitalism”ⁱ. Indeed, capitalism and all the practices associated with it were put in place and made possible by the progressive lifting of religious taboos, particularly those concerning money. From then on, we can affirm that capitalism is ultimately only the philosophical and political sanctification of usury (or the interest rate).

However, the economic/monetary question will quite quickly free itself from its fundamentally moral side. Indeed, over the years, itis physics and the mechanistic approach Who go servedr of model. There “ general equilibrium theory » by Léon Walras For example, displaying the will to establish a “social physics”has was a crucial event at this stage. But while the prohibition of usury will fade, the dominant trend in economics will overlook the fact that this mechanism contradicts at least two fundamental principles… of physics.

Interest rate and entropy

According to a fundamental principle, everything making up the entire universe, including men, is doomed to disappearance. Physicists explain the same phenomenon with the notion of “entropy” encapsulated in the second law of thermodynamics.

Roughly speaking, entropy means that the material universe continually loses an infinitesimal part of its mass without the possibility of recovering it. It is often considered the amount of disorder in a system. When it is said that “ entropy increases “, it is a tendency of all physical systems tending irrevocably towards more disorder. Although entropy always increases, its rate of increase can vary. Once picked, fruits decompose within days, unattended buildings fall into disrepair within a few years, and minerals in the earth’s crust can remain for millennia with minimal signs of deterioration.

This trend, encapsulated in the second law of thermodynamics, has been applied to the physical dimension and these analyzes have numerous implications in the economic process.

However, looking more closely at the structure of our financial system based on usury (or interest), it is clear that it contradicts the very nature of the entropy process. You should know that among the types of interest applied in modern finance, a distinction is made between so-called “simple” interest on the one hand and “compound” interest on the other. The first convention applies to charging interest on the principal amount of a loan, while the second applies to the principal amount and interest at specified intervals.

In order to analyze the concrete application of these two types of interest, let us take the simple example of a man borrowing 100 loaves of bread at the annual rate of 5% in the year 20 AD.

The amount of the loan remaining to be repaid at the end of the second year with a simple interest rate would only be 110 loaves (100*(1 + 0.05*2)) since the first year’s interest of 5 loaves would itself not earn interest during the second year. In 1995 AD (1975 years later), the total loan amount outstanding and now due would be 9975 loaves of bread (100*(1 + 0.05*1975)). In other words, no compounding will take place under the simple interest regime.

Let us now focus on the case of compound interest. The total amount due for repayment after the first year (AD 21) would be the original loan amount of 100 loaves plus 5 loaves of interest. Then the new principal amount would become 105 on which an interest rate of 5% would be charged again. In the year 22 AD, the total amount to be repaid will be 110.25 loaves. Those familiar with the compound interest process will not be surprised by the insane results when the same calculation is done over a long period of time. In 1995 A.D., the total loan amount outstanding and now due exceeds 700 trillion billion billion billion billion billion billion loaves of bread… (100*(1 + 0.05)¹⁹⁷⁵). As absurd as this figure may seem, one cannot help but think that there would not be enough bread available to cope even if every person who has lived on Earth had successfully produced and stored even 10 million breads per day. In fact, repayment would still be impossible if the original lender charged a more lenient interest of 2.5% per year.

A strange phenomenon is at work in the example above because the mathematics used do not agree with the realities of the physical world. Bread decays and rots, while interest-bearing loans go the opposite way. In a simple barter economy, an individual would hold their excess wealth in the form of physical assets. By retaining its surplus, it would incur a sort of “storage cost” and another could also arise over time since the quality of the stored assets would be subject to the law of entropy.

In an interest-based economy, 100€ borrowed must be repaid up to 100€ plus interest. But these 100€ of money lent at interest do not obey the same law. In the application of compound interest, a given monetary value can miraculously follow the path ofinfinite geometric increment.

Therefore, the interest rate has the power to transform capital into a formidable monster. In this way, an unhealthy accumulation of capital occurs in the hands of a handful of individuals, thereby affecting its equitable distribution. This dangerous phenomenon is steering our societies towards a plutocracy, subject to monopolization and economic concentration; so much so that the so-called principles of free competition and free enterprise are in practice greatly weakened. We can clearly see that the usurious transaction poses a problem because it endorses an injustice which materializes in a unstable balance of power between the creditor and the debtor.

Interest rate and balance

The discoveries of science also point to a universe dependent on a series of laws that are based on balance. The entire universe is subject to a uniform law, and its constituent parts unite to form a glorious harmony both in its structure and in its movement. This supreme principle operates everywhere in the creation of the universe: solar systems, galaxies, even the orbital movement of the planets have the same mathematical precision. If there had been an absence of absolute justice in operation anywhere in the universe, universal disorder and chaos would naturally have followed.

Reciprocally, man, being a social animal, must maintain a balance and treat his fellow human beings with justice and fairness. However, when the principle of justice is applied to the human sphere, it includes the aspect of free will. Thanks to our ability to choose, select and decide, human beings have the freedom to choose between two radically opposed paths.

The fundamental unity in economic life is characterized by the transaction. Since this invariably involves at least two parties, the prerequisite for any fair economic transaction is absolute justice in the exchange. The man’s conduct is then linked by considerations of reciprocity (treatment of the other party similar to the treatment received by him). Any contract is best explained as a transfer of rights, which is complete at the time of agreement and is governed by a defined conception of justice and morality. So, the golden rule “ Don’t do to others what you wouldn’t want done to you. » applies to the economic sphere more than any other because it involves an exchange.

However, a problem arises when the contract is flawed and one party to the transaction gains the upper hand over the other. When the balance tips too much to one side (of the economic transaction), the imbalance is automatically created with consequences which can be harmful to both sides, without, in the moment twe cannot imagine the scope generated by it. Indeed, if efforts are always required from the same side, and if the bar is not redressed, human relations will become impossible, one will gain the upper hand over the other with what that entails in terms of frustration, anger, bitterness, desire for revenge, hatred, etc. This is the case with economic relations between humans who are linked by the transaction, whose condition sine qua non is to be fair and just.

However, the case of an imbalance materializes precisely when an interest rate is charged because the borrower bears a large part, if not all of the risk. In reality, the very foundation of our financial system, the pillar of which is based on the interest rate, is the perfect illustration of a violation of absolute justice and the law of balance necessary for any economic transaction.

As explained above, interests follow a growth pattern exponential. Exponential interest growth grows very slowly at first, then faster and faster, eventually skyrocketing almost vertically. In the physical world, this pattern of growth usually manifests itself during illness or near death. Cancer, for example, follows an exponential growth pattern. It develops slowly at first, even if it is constantly accelerating, and often, by the time it is discovered, it has entered a phase of growth that cannot be stopped. Exponential growth in the physical world generally ends with the death of the living organism and its host. In the same way, interests are unnatural and constitute the cancer within the social structure.

As a result, there is no doubt that the financial system based on usury is doomed to instability, or even decay. The recession or crashtaking the form of a correction (or a more or less sudden downward movement) and putting an end to a general upward trend (artificial growth), is the end point of the usury cycle because it is based on a crass injustice which always ends up exploding in mid-air because it requires a natural rebalancing. The economic and financial crisis is therefore the idea of ​​cataclysm, of natural disaster, as the concretization of the regulatory mechanism.

Crisis and disorder are therefore inevitable because they are the very nature of capitalism. The history of capitalism is a history peppered with economic crises, all of which can be traced through the trajectory of usury. Those who praise the financial system always fail to admit that the “prosperity-recession” cycle is caused by the “boom” (prosperity) which precedes it because the latter is a thick fog hiding in fact over-indebtedness!

In the tangled tree of mechanisms leading to imbalances in the financial system, there is therefore a common pathogenic factor: interest. As long as the economic and financial system is based on this destabilizing factor, it will contain within it the seeds of its own destruction.