More on the Problem of Interest and Debt

Let us go back to when gold and silver was used to make coins.

These coins could not change in value or number, and the amount mined each year was very small, so if anyone charged interest on a loan then either the borrower ended up with less gold, or they had to take it from some-one else.

Neither of these improved society and it explained why both the Catholic Church and Islam condemned usury - the charging of interest.

The invention ( and public acceptance ) of the concept of paper money and bills partly solved this problem. It meant that the total supply of money in circulation could increase each year in an amount at least equal to the profits made from charging interest.

The Money Supply is the amount of money available for other to access and use. At its most narrow definition it is the money held in bank current deposits - liquid deposits.
The next broadest definition includes other deposits, short term deposits, and non-bank deposits.

It is not the amount of coin or notes in circulation - which is typically only equals 2-3% of the total money supply. The majority of the money supply is accounting notations that state that the depositor has ownership of the stated amount, and these are assumed to be real reserves, and that the owner agrees that these can be lent to others.

A government’s reserve bank or treasury can increase the money supply buy printing more notes and paying government employees and suppliers - this extra cash goes into the banking system and become 10 times that amount in liquid deposits as banks engage in fiat leading ( lending $100 for every $10 held in cash or real reserves ).
Governments can also issue bonds, or modify the definition of tax receipts, so that current deposits appear to increase. Too rapid an expansion of the money supply in this way typically leads to inflation, but in periods of recession, it can stimulate productive activity and improve the circulation of cash through the real economy.

The problem is that interest is charged each agreed time period. So it compounds and grows each year, and even if you gradually pay off your debt and reduce the interest you pay, your payments go back into the banking system, get lent to someone else, and the overall interest over the entire money supply continues to get charged, and paid for from real earnings.

The only way to match this is either inflation, the increase in the prices charged for things, or by making and doing a lot more of whatever generates the real earnings. Some of this might be from wages growth or improved productivity; some might be by the capital growth of the asset you took on debt for ( a future increase in real value to offset the loss due to interest charged now ).  But these are only accounting changes, they don’t alter the underlying dynamic of ongoing interest charged against real earnings.

Throughout history, every economy where interest is charged ends up with debt growing faster than the population’s ability to to pay. It can be masked for a while through apparent increases in property or capital value in currency ($) terms, and it can be eased briefly in periods of economic expansion ( eg; mining or resources booms ) but ultimately everyone becomes more impoverished and the environment more degraded.