Problems with money

Context

Should we ban lending money for interest like Christians and Muslims did in the middle ages?

  • Pros if we do: No bank runs. No credit crunches.
  • Cons if we do: Shortage of money to go to war (taxes aren’t enough in an emergency), and other public welfare projects. Nobody will risk lending such large sums to the government unless they get interest for it.

Should it be backed by (have constant exchange rate with) gold/silver? Should the total supply be constant?

  • Pros if it is: Supply of money cannot be changed to make a few politically connected people (e.g. goldman sachs ) to become rich enough to influence the king/government.
  • Cons if it is: Interest rates will be higher with a constant supply of money because there is fewer money to go around, so even kings will have to collect more taxes to pay off loans borrowed by the government. Since supply of money only changes with new metal, money is hoarded by irrational actors in the economy, until there is not enough invested or lend out to make economic activity happen.

Should money supply change when central banks or governments want?

  • Pros if supply changes: The king/government has a source of low interest money to go to war, or do welfare and other legitimacy building projects, if the need arises.
  • Cons if supply changes: Supply of money can be changed to make a few politically connected people (e.g.court Jews and government contractors ) to become rich enough to influence the king/government.
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