Out of Proportion

Out of Proportion

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Where I live, one pound of organic potatoes costs 1 dollar. Consulting a business lawyer costs up to 500 dollar per hour.

Imagine an organic farmer driving his trecker with a load of 500 pounds of organic potatoes to his business lawyer’s house. He unloads the potatoes into the lawyer’s garden in exchange for talking to him for one hour.

You may argue that the lawyer had invested into his eduation. But this argument does not suffice to explain this extreme disproportionality.

A car mechanic costs 100 dollar per hour or, in agricultural currency, 100 pounds of organic potatoes.

The proportions are widely out of balance. The system is sick. One of the reasons is interest.

Money should facilitate barters. If persons A and B want to exchange goods, they can do so by meeting. If, however, A wants goods from B, B wants goods from C, and C wants goods from A, this is cumbersome to organize. Money is a solution: Let’s assume A has money. A takes the goods from B in exchange for the money. B takes the goods from C in exchange for the money. C takes the goods from A in exchange for the money. Finally, everbody has what they wanted and the money is where it was in the first place.

However, money has its pitfalls. Here is an example: Person A has a pound of peaches, person B has three dollars. The peaches lose value over time since they rot. The money holds its value or, in case of positive interest, even gains value over time. Therefore, the owner of money has an advantage over the owner of the peaches.

The consequence of positive interest is that it needs to be included in the prices of all goods and services. Say, I take a credit loan to finance my business. I do need to factor financing costs into the prices of my products or services.

This means: You don’t just receive interest for the money in your bank account, you pay interest for everything you pay for. For example, interest makes more than 70% of housing costs.

In total, you pay more interest than you receive. Rich people, however, receive more interest than they pay. Therefore, positive interest means a permanent flow of value from poor to rich.

It has not always been like this: In the Middle Ages there was a time with negative interest. People had to pay a fee to keep their money valid. There were different methods for this. One method was that coins had to be exchanged for new coins every year. For example, four old coins bought you three new ones.

Negative interest has an important and useful effect: Since hoarding money diminished its value, people were motivated to spend. A lot was invested in the Middle Ages and the economy prospered. Many of the gorgeous cathedrals that we admire today were created because of that.

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Money is one of the major factors of our system. For the system to be healthy, money needs to circulate in a healthy, balanced manner – just like the blood in your body. There are parts of your body with more blood, others with less. But these differences are reasonable and proportionate. Positive interest is one of the reasons why the money on this planet does not circulate healthily but aggragates disproportionally in a few places.

The system needs healing. ONE of the necessary measurements is a healing of the financial system.