Understanding Savings and Lending
In my last post, I articulated that the questions we often ask can be the wrong ones. For instance, “How do we help the poor?” is a great question, but “Why are the poor in the condition they are in?” is a better one to start with. If we can answer the second one, we’ll be in a better position to answer the first. Further, if we know the answer to the second one, we may avoid lots of trial and error (though that is unavoidable no matter what) attempting to help the poor in ways that won’t work, simply because we’re running on the assumption that we’ve already got the answer to the better question, “What caused this in the first place?”
Through a long arduous process of understanding some basic economics, I mentioned at the end of the last post that I’ve concluded that the central banking system in the United States, what we know as “the Fed,” formally the Federal Reserve System, is the root of all sorts of evil. Central banking is predicated on the assumption that a few men in control of the supply of money can direct the flow of that money in ways beneficial to the economy. Ignoring the natural tendency toward corruption in such a paradigm, it is assumed that since the United States government has historically been on the side of “the people,” having a central bank doesn’t hurt us, it only helps us.
Nothing could be further from the truth. But before I get ahead too far, let’s consider how savings and borrowing works in the absence of some authoritarian figure. The following article provides and excellent description of what is called the “business cycle.” The business cycle is the economist lingo for what we know as “boom and bust” cycles in the economy. Four years ago, we were in a “boom,” and everything was hunky dory (according to conventional wisdom). Now we’re in a “bust,” and all hell has broken loose (so we’re told). But why did it happen this way? Why can’t we have an economy where things just progress slowly, but would be less volatile? Why can’t we have steady growth, rather than ups and downs, ebbs and flows? Lest you think the free market was at fault, think again.
Here’s an excerpt from the article, which can be read in full by clicking here.
Man is confronted with a world of physical scarcity. That is, not all of our wants and needs, which are practically limitless, can be met. Outside of the Garden of Eden, we must produce in order to consume, and this means that we must combine our labor with whatever nature-given resources are available to us. As inherently rational beings, men have come to recognize many ways of solving this problem, such as peaceful cooperation under the division of labor leading to enhanced productivity, and private property rights permitting economic calculation so that different courses of action can be meaningfully compared.
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