The story of the 11th round illustrates how the introduction of interest in a monetary system forces artificial
competition amongst its users beyond what would naturally occur.
Once upon a time, there was a small village where people
knew nothing about money or interest. Each market day, people would bring their
chickens, eggs, hams, and breads to the marketplace and enter into the
time-honored ritual of negotiations and exchange for what they needed. At harvests, or whenever someone’s barn
needed repairs after a storm, the villagers simply exercised another age-old tradition of helping one another, knowing
that if they themselves had a problem one day, others would surely come to their aid in turn.
One market day, a stranger with shiny black shoes and an
elegant white hat came by and observed the whole process with a knowing
smile. When one farmer who wanted a big ham ran around to corral the six chickens needed in exchange, the stranger could not refrain from laughing. “Poor people,” he said. “So primitive.”
Overhearing this, the farmer’s wife challenged him: “Do you think you can do a
better job handling chickens?” The stranger responded: “Chickens, no. But I
have a much better way to eliminate
all the hassles. Bring me one large cowhide and gather the families. I will then explain this better way.”
As requested, the families gathered, and the stranger
took the cowhide, cut perfect leather rounds
in it and put an elaborate stamp on
each round.
He
then gave ten rounds to each family, stating that each round represented the
value of one chicken. “Now you can trade
and bargain with the rounds instead
of those unwieldy chickens,” He said. It seemed to make sense and everybody was
quite impressed with the stranger.
“One more thing,” the stranger added. “In one year’s
time, I will return and I want each
of you to bring me back an extra round, an eleventh round. That eleventh round
is a token of appreciation for the
improvement I made possible in your lives.”
“But where will that round
come from?” asked the wife.
“You’ll see,”
replied the stranger, with a knowing look.
Assuming that the population and its annual production
remained exactly the same during that year, what do you think happened?
Remember, that eleventh round was never created; it was never cut from the
cowhide.
As the stranger had suggested, it was far more
convenient to exchange rounds instead of chickens on market days. But this
convenience had a hidden cost: the
demanded eleventh round generated a
systemic undertow of competition among all the participants. One out of every
11 families would have to lose the equivalent
of all its rounds, even if everybody managed their affairs well, in order to
provide the eleventh round to the stranger.
The following year, when a storm threatened some of the farmers, there was an atypical reluctance to assist neighbors. Families were now
wrestling one another over that eleventh round. The introduction of interest-bearing money actively discouraged the long-standing village tradition of spontaneous cooperation.
The Eleventh Round is a simplified illustration for
non-economists. The impact of interest was isolated from other variables by
making the assumption of a zero-growth society: no population increase and no
production or increases in the money supply. In practice, of course, all three
variables (population, output and money supplies) grow over time, further obscuring the impact of interest.
The point of the Eleventh Round is that, all other things being equal, the
artificial competition to obtain the money necessary to pay the interest is
structurally embedded into the
current system.
So how does a loan, whose interest is never created, get
repaid? In a static or declining system, it requires someone else’s principal being used. In other words,
not creating the money to pay interest is the device used to generate the scarcity necessary for a bank-debt
monetary system to function. It forces people to compete with each other for
money that was never created, and penalizes
them with bankruptcy should they not
succeed. When the bank checks creditworthiness,
it is really verifying their
customers’ ability to compete successfully in the market place– that is to say,
to obtain the money that is required to reimburse
the principal and interest. Ultimately,
someone must always lose.
In the current national currency paradigm, one reason why so much
attention is paid to central bank decisions is that increased interest rates necessitate more bankruptcies in the
future. The economic pie must grow
that much faster just to break even.
The monetary system obliges us to incur debt and compete with others in order to perform exchanges and pay the resulting
interest to the banks or lenders. No wonder “it is a tough world out there”,
and that those who live within a competitive monetary system so readily accept
Darwin’s supposed “survival of the
fittest.”
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