Sunday, October 15, 2006

Microcredit Demonstrates the Beauty of a Free Banking System.

When you examine the concept of microcredit what you find is access to capital on a small scale. What most people identify as a major function of a bank is that banks provide capital. Microcredit is a beautiful example of the potential of a free banking system. Thus it is obvious that a free banking system is most helpful, and a free banking system is easily put into place. The question that will now need to be answered is: How will the interventionists try to prevent this from becoming common knowledge?

An additional merit attributable to a free banking system that provides microcredit is the trustworthiness of the recipients, enhanced by designing in accountability using social contracts. In the economic literature on free banking, a free banking system is self-regulating because in the unhampered market only the banks that are trustworthy in the eyes of the depositors would remain viable. The instant there is any indication of poor ethics the depositors will transfer their funds to a trustworthy competitor.

The microcredit concept adds a second tier of stability to the free banking system. The social contracts protect the assets of the bank by serving to guarantee a trustworthy relationship between the debtor and the creditor.

It is clear then that free banking is a strong and productive means of bringing about prosperity.

Stepping back though we can also see where the problem is. The currency which is used as the medium of exchange has to be worthy of trust. This is where the interventionists fail. They are using their powers of intervention to extract wealth and direct it to the favored ones. Afterwards the debased currency flows to others, but through heavily controlled channels.

Now the challenge becomes clear. Can the interventionists use the influence of the media and of their education system to portray the worldwide system of interventionist banking as better and more viable than a free banking alternative? They do have the resources to influence us.

Those who think clearly and independently will know that the corrupt system will continually intensify its intervention and impede human prosperity while those places where the elements of a divine economy appear will show signs of true prosperity.

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1 comment:

Rich said...

I just found your Blog after following links from K. Gilbert's e-mail. I am a Baha'i and the owner of a manufacturing business so I am very much part of the economy; it affects me more than I affect it! I'm very interested in pursuing more study of the DEM. Because I am uninitiated please bear with my questions if they seem naieve.

When you talk about a 'free banking' system what is free about it? Are you talking about a system with no banking regulations or a system that loans money without interest, or a third possibility I have not considered? If it is an interest free system then who is going to invest in a bank (or work there) if there is no return on investment (ROI)or any obvious way to pay the employees and light bill? If it is a regulation-free system then we rely solely on human nature and the goodness of the people in the system to do the right thing.

Even if every one of my employees was a Baha'i I would still need a set of work rules and policies to establish some sort of order and expectations within the business. How would a banking system operate without rules and contracts so that all parties involved know and understand the expectations of the bank?

Moving on, when you mention interventionism or the intervention of humans in a divine economy I can understand the burdensome governmental regulations and taxation and the corruption related to the redistribution of wealth as our politicians see fit. However, how does any economy exist without some level of human intervention? There is an undeniable competition, at many levels, going on in the human economy. I must compete with fellow manufacturers doing the same kind of work; my suppliers compete for my business; cities, states and nations compete for resources like labor, energy and raw materials. As a species we are in a constant competition for survival, even in our most advanced civilizations (maybe even moreso). So how do we interact, obtain education and a skill set, apply for and, with luck, get a job and continue to grow in our careers and move our businesses forward without competition? As I see it, all forms of competition are a form of intervention with the economy.

There is a constant give and take, flow and ebb to the world economy as humankind grows and our societies become more and more complex. How do we avoid what I see as the natural and continuous intervention of humans in the world economy? After all, without humans there wouldn't be an economy as we know it.

Please take my remarks in the spirit in which they are intended. I want to learn more about this model and how I can apply it to my life and business. I am not trying to discredit anything you've said in your blog; I just don't understand. Thank you.