So why is the self-interest of credit creators worthy of comment? (see this blog: 7th Dec). Surely everyone works to maximize their own self-interest? Indeed it could be said that self-interest is at the origin of the biblical maxim: ‘Love your neighbour as yourself’. When you analyze this it says: 1) Love yourself 2) love others to the same extent. Treat others as you would like to be treated. If you like fairness for yourself be fair to others.
Adam Smith said “It is not from the benevolence of the butcher, the brewer, or the baker, that we can expect our dinner, but from their regard to their own interest”. In saying this he is also implying that the rest of us should let them have the freedom to get on their business. If you like freedom for yourself let others be free. Human society seems to run well as people pursue their own self-interest as long as they respect the rights and freedoms of others to be allowed to do the same. The swings over the centuries of modern democracy are attempts to counterbalance one or the other trend. Traditionally the left puts general fairness above individual freedom and the right, vice versa.
Adam Smith’s butchers, brewers and bakers are people running businesses that are open to all comers. They win trade though providing good products at competitive prices. But would Adam Smith’s dictum apply to someone who personally controlled the water supply to a city or a country? Surely not. Monopolies are taken into public ownership or otherwise closely controlled. Huge potential profits from supplying things essential to basic life are not permitted to those who happen to have sole ownership of them. In the UK all oil found on your land is public property and a royalty is taken by the government for every barrel extracted and sold by the oil companies.
Commercial banks have collectively been entrusted, almost alone, with a monopoly to supply an essential factor of modern life: credit. This can be likened to the supply of water. The uncontrolled ease with which bankers may create money gives rise to the ‘law’: 'Unless otherwise directed, an institution authorized to create money will maximize its own self-interest in the deployment of that money'. We as a society would not dream of entrusting the supply of our water to any unregulated firm or person, so why do we allow the monopoly on credit creation to be run by bankers for private profit? The media is currently full of agony and anger over bankers’ bonuses (e.g. Andrew Hill in the Financial Times Sat 12 Dec 09). For me, every such article, brings point to the formulation of the ‘law’. For real answers to banker’s bonuses, see this blog for 7th Dec.
The sub-title of the book The Free Lunch is Fairness with Freedom which are its themes.