| | Interest is an ethical consequence of the fact that we recognize 'depreciation.' Both are related to the effects of time on value.
Gold is valued not only because it is rare and shiny, but because it is a relatively durable holder of value; and then, because it is valued, it is ...valued.
But all value is not Gold; Gold is a value, not all value.
Most things we value deteriorate over time. If we continue to value them, it is necessary to exert fresh, new value to maintain them as a value, or replace them as a value. Real estate, food, automobiles,capital equipment...it all deteriorates over time and requires fresh,new value over time.
Interest is a consequence, something more than a reminder of this fact of the universe and its entropic degradation of value over time. That fact is reflected in finance. Just plain folks chafe at this rule of the universe, but blame greedy bankers because banking is an abstract exposure to the consequences.
That the Muslim world back then did not recognize this fact of the universe kind of marks it as a primitive culture.
A banker lends someone 15,000 and they go out and buy a new Chevy with it. But the Chevy does not maintain its value over time. In five years, it is not the same value. Not only as collateral for the loan, but as a value in the economies. Interest is the new effort of creating new value which replaces the value unavoidably lost to time.
Present value in this universe running mostly downhill is a precious commodity, because it has the potential of being used to eke out fresh new value from this same universe running mostly downhill; it has a cost when consumed. Interest is the institutionalization of making sure that at least part of that potential is realized; by requiring fresh, new value to be created in the future to compensate the economies for the consumption of that potential.
Interest is one of the means that mankind runs uphill in a universe that implores us to run only downhill.
On a related note, interest rates are and have been at or near record lows during these economic doldrums. Not a lot of fresh,new value being created in these sick things. Not a lot of fresh,new running uphill, which means, guess where we are heading.
Quantitative Easing...pushing a rope down the hill, with us along with it. That is not to say that the remote magic of raising interest rates is a lever to move economies; rather, it is to say that economies in which interest rates are dragging bottom have stalled the engines of running uphill, and that is the spark which needs to be reignited in the human spirit. I don't think we are anywhere close to doing that with the tribal nonsense going on. And so, our economies of waiting, the New Normal.
regards,
Fred
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