Until very recently nearly everyone lived in abject poverty. Most people had barely enough to survive. In 1651 Thomas Hobbes depicted the life of man as poor, nasty, brutish, and short. Yet a few centuries later a miracle had happened. Many people are still poor but more people suffer from obesity than from hunger while the life expectancy in the poorest countries exceeds that of the Netherlands in 1750, the richest country in the world in the wake of the Industrial Revolution.
In 1516 Thomas More wrote his famous novel about a fictional island named Utopia. Life in Utopia was nearly as good as in the Garden of Eden. The Utopians worked six hours per day and took whatever they needed. His book inspired writers and dreamers to think of a better world while leaving the hard work to entrepreneurs, labourers and engineers. Today many of us have more than they need but still we work hard and feel insecure about the future.
Why is that? The answer lies within the nature of capitalism. It is not enough that we just work to buy the things we need. We must work harder to buy more, otherwise businesses go bankrupt, investors lose money, and people will be unemployed and left without income. In other words, the economy must grow. That worked well in the last few centuries, and it brought us many good things, but it may be about to kill us now.
People in traditional cultures didn’t need much. They were easily satisfied. Many modern people in capitalist societies believe they never have enough. You can always go for a bigger house, a more expensive car, or more luxury items. Many of us do not need more but the advertisement industry makes us believe that we do. We believe in scarcity even when there is abundance. And so the economy must grow. That is what they tell us.
But what are the consequences of this belief? If you eat too much this is great for business profits. And if you become obese as a consequence and need drugs for that reason, you again contribute to business profits so this is even better. Meanwhile we are using the resources of this planet in a much faster pace than nature can replenish. Humanity is standing before the abyss. Civilisation as it is will not continue for much longer. The end is near.
What has this to do with interest? If we want more products and services, we need more businesses, so we need investments. To do investments, we need savings. And to make people save, we need interest to make saving attractive. Consequently investments need to be profitable to pay for the interest. But there can be too much of a good thing. If we don’t need more stuff, we don’t need more savings, and interest rates go down.
A sustainable and humane economy?
Is it possible for humanity to live in harmony with itself and nature? We work harder than ever before and in doing so we destroy life on this planet. It seems hard to change this. If you organise production differently then your products might not be sold at a price that covers the cost to make them. In a market economy the value of a product is the price it fetches in the market. Marketing often comes down to inflating the market price of a product or a service to make more profit.
In the past there have been two fundamentally different approaches to the economy. For instance, before Germany became united in 1990, there were a capitalist and a socialist Germany. Socialist Germany ensured that everyone was employed. People in socialist Germany had enough but they had little choice as to what products they could buy. For instance, in socialist Germany there were two kinds of yoghurt while there were sixty in capitalist Germany.
And there was little freedom in socialist Germany. The secret police were everywhere. When Germany became united the socialist economy collapsed. Socialist corporations suddenly were bankrupt because no-one wanted to buy the products they produced. The ensuing reorganisation of the economy led to mass lay-offs and a staggering rise in unemployment. Ultimately 60% of the jobs in the former socialist firms disappeared.
Many lives and communities in former socialist Germany were destroyed. And people suddenly felt insecure about their future as businesses had to compete and make a profit in order to survive. In a market economy efficiency considerations determine what is produced. These efficiency considerations are the result of customer preferences as well as the requirement to make a profit. Loss-making businesses usually can’t attract capital in a market economy.
The quest for efficiency results in fewer and fewer people producing the things we need. To keep everyone employed in a capitalist economy unnecessary products and services must be produced, causing a rapid depletion of scarce resources as well as lots of waste. At least in theory we work can a few hours per day so we have more time for our mobile phone and each other. It may also be possible to free up resources to address poverty and other social problems.
And what has this to do with interest? The profit a corporation is expected to make should be higher than the interest rate in the markets for money and capital. Because what’s the point in making the effort and taking the risk of running a business if you can get the same return on a savings account? And so it appears that with negative interest rates corporations with zero profits can survive and that the economy doesn’t need to grow.
Share of Labour Compensation in GDP at Current National Prices for United States
The road to inequality
Not so long ago an economist wrote a book that sent a shock-wave through the economic world because of stating a major cause of wealth inequality, which is that the return on capital usually is higher than the rate of economic growth. Capitalists reinvest most of their profits so capital usually grows faster than the economy most of the time. It can be proven beyond any doubt that capital can’t grow faster than the economy forever. Something will have to give at some point.
And what has this to do with interest? Interest is any return on capital. Interest income is the income of capitalists. That includes business profits and interest on bonds. The graph shows that labour income as part of the economy has diminished in recent decades in the United States. And that is because the capital share of national income has risen. In the past depressions and wars destroyed a lot of capital. Since 1945 there hasn’t been a serious depression or a world war.
The capitalist economy is like a game of monopoly. First everyone is doing great and capital is built in the form of housing and hotels. At some point some people can’t pay their bills anymore. To keep the game going, the winners can lend money to the losers. But at some point the losers can’t pay the interest any more. To keep the game going, interest rates must be lowered, so they can borrow more. But at some point some people can’t pay the interest again.
This happens in the real economy too. In a game of Monopoly we can start all over again. In the real economy that’s not an option. It would mean closing down factories in another great depression or destroying houses in another world war. So the game must continue. In Monopoly the rich can lend money at negative interest rates to the rest so that they can pay their bills. In the real economy this may be possible too.
Monopoly features a scheme that looks like a universal basic income. Every time you finish a round you get a fixed sum of money from the bank. At some point the bank may end up empty. The rich can then lend money to the bank at a negative interest rate to pay for it. It might seem a stupid thing to do because Monopoly is just a game. But the real economy is not. It may need an income guarantee for everyone financed by the rich.
An outline of the future economy
Can we have an economy that is humane and in harmony with nature? A few centuries ago no-one would have believed that we could live the way we do today and most people would have believed that it is more likely that unicorns do exist. If excess resource consuming consumption is to be curtailed, fewer options for consumers remain, for instance there may only be organic products, and supermarkets in the future might look a bit like those in former socialist Germany.
That may not be so bad. People in socialist Cuba live as long as people in the United States despite the United States spending more on healthcare than any other country in the world. Cubans eat no fast food so they live a healthier life style. And Cubans suffer less from a negative self image than people who are exposed to the advertisement industry. Advertisements aim to make us unhappy with ourselves and what we have in order to make us buy more products and services.
Like in former socialist Germany there isn’t much freedom in Cuba. If the government is to regulate the fat content in fast food or the sugar content in sodas then we lose our freedom to become obese. Alternatively, the government could even end our freedom to destroy life on this planet and kill our children. That may be oppression. But the alternative may be a collective suicide of humanity. Even though socialism failed we may have to pick the best parts out of it and integrate them into a market economy.
If the most resource consuming non-essential activities are to be axed, entire industries will be wiped out like in socialist Germany. One can think of making air travel sustainable and what that will with ticket prices. It is bad for economic growth. Many people would not like this. Still, life in a future sustainable market economy can be much more agreeable than life in Cuba or former socialist Germany.
So what has this to do with interest? A dramatic change to make the economy sustainable can cause a massive economic shock like the Great Depression. The economy can soon recover if interest rates can go negative. Before you say that it is more likely that unicorns exist, this has been tested during the Great Depression. The outcome is dubbed the Miracle of Wörgl. And evidence for the existence of unicorns has not yet been so forthcoming.
If interest rates are low then the creators of ideas and makers of things are rewarded more. They are the entrepreneurs and labourers rather than the owners of capital. It is in the spirit of Silvio Gesell who believed that labour and creativity should be rewarded and not the passive ownership of capital. Only when there is a shortage of capital or more demand for goods and services than there is supply, people need to be encouraged to save.
The economy is already constrained by a lack of demand rather than supply. That will be even more so when excessive consumption is to be curtailed and the rich have fewer options to spend their money on. And so it may become possible to fund an income guarantee with income taxes as well as negative interest on government debt. This can improve the bargaining position of labourers.
It is better to have an income guarantee rather than a universal basic income because that would be cheaper. There is little to gain from handing out money to people that already have enough. And the scheme should provide an incentive to work. A simple example can explain how that might work out. Assume there is an income guarantee of € 800 per month and a 50% income tax. The following table shows the consequences for different income groups.
Perhaps it doesn’t feel right that people are being paid for doing nothing. But nowadays people are paid for producing and selling things we do not really need and by doing so they endanger our future. Someone who does nothing at all can be worth much more for society than a travelling salesperson, a trader on Wall Street or a constructor who builds mansions for the rich. Of course it is better that people do something useful and useful people should be rewarded for their efforts, but doing nothing is always better than doing something stupid, and having zero value is always better than having negative value.
Another question is how this can be paid for? The Miracle of Wörgl shows us that the economy can flourish without growth when interest rates are negative so that most people will be employed. Money can still be a motivator to run a business or to go to work but less so than in the present. It doesn’t have to stop people from starting a business. Many entrepreneurs didn’t intend to become rich. They just wanted to be an entrepreneur or believed in the product they were making or selling. Still, there is no doubt whatsoever that a humane economy in harmony with nature will be very different from the economy of today.
Featured image: Slums built on swamp land near a garbage dump in East Cipinang, Jakarta Indonesia. Jonathan McIntosh (2004).
Other images: Share of Labour Compensation in GDP at Current National Prices for United States. FED. Public Domain
What is truth, and what is knowledge? Philosophers have been discussing these questions for thousands of years. It is the domain of knowledge theory, also called epistemology. It deals with truth, belief, and the justification of beliefs. It concerns the following questions. What do we know? What does it mean that we know something? And what makes beliefs justified? We usually acquire knowledge in two ways:
by induction, which is using observations to formulate general rules or theories, and
by deduction, which is applying those rules and theories to specific situations.
How does that work? Let’s give an example. After carefully investigating the records of people who have lived and are still living, you conclude, by induction, that people typically die before reaching 120 years of age. Using this rule and deduction, you infer that you will die before the age of 120. That seems straightforward, but there are pitfalls, so philosophers continue to discuss these issues.
There is a difference between rules and theories. A rule is that if A occurs, B happens. A theory is that A causes B. If we can’t observe A, the theory assumes its existence. A then exists in our imagination. The explanation of electricity assumes the existence of electrons and their behaviour. We can’t see electrons, not even with a powerful microscope. We imagine that they exist. We can do experiments to see how electricity behaves. We presume that conduction of electricity proves the existence of electrons, and that experiments demonstrate their existence. It is like living in the dark and assuming that cows exist, even though we have never seen them. We have theorised that such animals say ‘moo’, so if we hear ‘moo’, that must be a cow, which proves cows exist.
We are imaginative beings. Our knowledge involves imagination. We imagine electrons and gravity. Dogs can’t imagine electrons or gravity, so they can’t build electric cars or aeroplanes. Electrons and gravity may exist in our imagination, but they point at something real. Otherwise, objects wouldn’t fall to the ground, and we wouldn’t drive electric cars. This discussion of knowledge theory is a historical account. New ideas usually build upon previous thoughts. This treatise discusses Western philosophy. Western thinkers have been the most inquiring. As a result, the Scientific Revolution began in Europe. Science is the result of thinking, but it has also greatly influenced thought. It started with the ancient Greeks. What distinguished them from other traditions was their rational thinking.
Classical philosophy
Some 2500 years ago, Greek philosophers speculated about the nature of reality. Some claimed everything consisted of fire, water, earth and air. Later, a few philosophers argued that the building blocks of reality are small particles called atoms. These atoms differ in size and shape for different materials. The objects we see are groups of atoms stuck together. Democritus argued that the universe merely consisted of atoms in the void. That is already close to what we believe today. Speculation about the nature of reality, such as whether matter consists of atoms, is metaphysics.
Metaphysics is about how we imagine reality. We connect the dots in a particular way. We can imagine that everything consists of fire, water, earth and air, or we can fantasise that atoms are the building blocks of everything around us. It was speculation because these atoms were invisible, and the Greeks had no microscopes to verify their existence. By assuming that atoms exist and have different shapes and sizes, you can clarify the presence of various substances. You can also do that by presuming everything consists of fire, water, earth and air. Only we find atoms more neat.
The ancient Greeks also pondered other issues. Some figured that the Earth is a sphere. When you look at the sea, you see the horizon slightly curved, and boats disappear in the distance before their sails do. A philosopher named Xenophanes doubted religion. He realised that people believed that the gods were like themselves. Black people believed the gods were black, while red-haired people thought they were red-haired. Xenophanes claimed it was impossible to know the gods and how they looked. It was an early form of scepticism.
And why should you worship the Greek gods if the Persians and the Egyptians bow before other gods? If your birthplace determines your beliefs, your beliefs are likely false. The sophists were philosophers who had come into contact with different cultures. They claimed that absolute knowledge is impossible. Everything is subjective, they argued. This view is called relativism. Socrates is known for his dialogues in which he debated the sophists.
According to Socrates, there is absolute truth, even though we don’t know that truth. His pupil Plato later claimed that ideas are the basis of knowledge and that ideas, not objects, are the building blocks of reality. His view is called idealism. It relates to deduction. Plato’s pupil Aristotle asserted that knowledge comes from observation. His approach is called empiricism. It works like induction. Both methods come with problems. If you imagine a unicorn, you have the idea of a unicorn, and the idealist could claim unicorns exist. On the other hand, if you see a unicorn after eating some mushrooms, the empiricist could also say unicorns exist.
And so, knowledge can always be called into question. Even if no one has ever seen a unicorn, that doesn’t prove their non-existence. These creatures could still be hiding deep down in the forests. And perhaps eating mushrooms enhances your senses, allowing you to see things that would otherwise remain hidden. For that reason, scepticism emerged. There were two groups of sceptics. The first claimed that nothing is certain. They aimed to refute the claims of other philosophers. The second argued it is better to postpone judgment until the matter is sufficiently clarified.
These ideas revived in Europe in the late Middle Ages after texts of classical philosophers turned up in Arab libraries. European philosophers like Thomas Aquinas and William of Ockham were also theologians. They believed that there was no difference between theology and science. Over time, science and religion divorced. Their paths separated. Today, science requires empirical evidence, while religion does not. Scientists test assumptions, such as the existence of electrons, with experiments that others can verify. In religion, the evidence is often personal, as with most accounts of the Virgin Mary’s appearances, and experiments like checking the answer to prayers never yield anything substantial.
The most obvious explanation is usually correct, or what occurs most often is most likely the case. If you see something flying in the sky, it probably isn’t Superman. And so, it is rational first to ask yourself, ‘Is it a bird? Is it a plane?’ Once you have ruled out these possibilities, you can conclude, ‘No, it is Superman!’ William of Ockham is known for his principle of simplicity, Ockham’s Razor. It says the explanation with the fewest required assumptions is preferable. If what you prayed for transpires, you could check whether it is a coincidence before claiming that God is answering your prayer. The latter requires God’s existence and that this supposed infinitely powerful being listens to your request while ignoring many others, while a coincidence does not.
Modern philosophy
In 1492, Christopher Columbus sailed to America. Ancient sources, including the Bible, didn’t mention this enormous, lurking continent stretching from the North Pole to the South Pole. A little later, Nicolaus Copernicus claimed that the Earth revolved around the Sun rather than the other way around, which everyone believed until then. Traditional knowledge had failed dramatically. Copernicus had the luck of dying soon. The Catholic Church prosecuted Galileo Galilei for claiming Copernicus was right and the Bible was wrong.
At the same time, Protestants challenged the authority of the Catholic Church by making religion a personal matter. If you had reason to believe something, it could be correct. Religion is about your conscience rather than what the Church teaches. The number of issues on which we can disagree is infinite, so we have 45,000 branches of Christianity today. The ensuing religious wars ravaged Europe and ended without a clear winner.
And who was right? There can be only one truth. Merely believing something doesn’t make it true. However, questioning the existence of God was initially out of the question. European philosophers sought a rational foundation for religion, attempting to base it on verifiable claims, an effort known as deism. The project failed because it was impossible to establish the properties of the invisible fellow in the sky that everyone imagined.
The confusion spurred renewed scepticism and a new search for the foundations of knowledge. As philosophers from continental Europe, such as René Descartes, Gottfried Leibniz, and Baruch Spinoza, argued, our senses are deceptive. Therefore, only rational thinking can generate knowledge. This school is called rationalism, but it was a refurbished idealism.
a brain in a vat believing itself to be a person who is walking
In a thought experiment similar to the brain-in-a-vat scenario, Descartes questioned everything the senses register. Your brain could be inside a vat filled with a life-supporting liquid and connected to a computer that generates the impression you are walking. What is beyond doubt, according to Descartes, is that you exist, even if you are just a brain in a vat. And you can establish this fact through thinking. ‘I think, therefore I exist,’ he concluded.
Other philosophers from Great Britain, such as Francis Bacon, Thomas Hobbes, John Locke, and David Hume, argued that knowledge comes from observations. It was a renewed empiricism. A philosophical divide emerged between idealist continental Europe, most notably Germany and France, and empiricist Great Britain and, later, the United States. The duck test is an example of pragmatist empiricism. It says that when something looks, quacks, and walks like a duck, it probably is a duck. It is no coincidence that a US writer, rather than a German philosopher, invented it.
The divide affected moral philosophy and views about society. The empiricist view holds that ethical rules are whatever people agree on, thus reflecting society’s sentiments. The idealist vision is that morals are absolute and apply to everyone. Idealistic schemes to improve society, with religious claims to be the truth, such as Marxism, came from continental Europe. Pragmatic thinkers, including Adam Smith, the intellectual father of Capitalism, came from Great Britain or the United States. Smith attempted to describe what had happened and offer practical guidance on how to manage an economy.
It was an era marked by advances in the natural sciences. These advances were the result of thought. And the advances, in their turn, spurred thinking. It was the combination of observation and thought that led to scientific progress. You can investigate the effect of gravity on the motion of objects. You can do so by dropping an iron ball from a tower. You can release the ball from different heights and measure how long it takes to hit the ground. The table below contains the results of these measurements.
Height (in metres)
Time (in seconds)
0.05
0.10
0.50
0.32
1.00
0.45
5.00
1.01
10.0
1.43
50.0
3.19
It requires considerable thought to get the formula representing the relationship between height and fall time: fall time = 9.81 * √ (2 * height). For instance, 3.19 = 9.81 * √ (2 * 50.0). If the tower is only 50 metres high, you cannot measure how long it will take for the ball to fall from a height of 100 metres. Using the formula, you can calculate the fall time without measuring it: 9.81 * √ (2 * 100) = 4.52 seconds. It is the combination of observation and thinking that made this possible.
Finding the mathematical formula that matches the data is like solving a jigsaw puzzle. This method of reasoning is induction. It is establishing a general rule based on observations. You can never be sure the outcome is correct. Using your sightings and induction, you might conclude that all swans are white. And if you go to the Moon and drop an iron ball from a tower there, you will discover that the relationship between height and fall time is different.
Another way of reasoning is deduction. It involves working from assumptions to conclusions using logical reasoning. If the premises are all justified and the rules of logic are correctly applied, then the inference must be correct. Thus, deduction is the application of general rules to specific situations. If all humans are mortal (first premise), and Socrates is a human (second premise), then Socrates is mortal (conclusion). Also, if the relationship between height and fall time is fall time = 9.81 * √ (2 * height) (first premise), and the tower is 100 metres (second premise), then the fall time is 4.52 seconds (conclusion).
The scientific method combines thinking, induction and deduction. Simply put, a scientist uses observation and reasoning to develop a theory. You need observations to determine the formula that represents the relationship between height and fall time. The observations alone are not enough. It requires a stroke of brilliance or some puzzling to find the formula. Once you have found the formula, you can use deduction and experiments to check its validity. You can calculate how long it will take for a ball to fall from a height of 321 metres. You can then go to the top of the Eiffel Tower to drop the ball and measure how long it takes to hit the ground. If the measurement equals the calculated time, the theory works.
Kant and Hegel
The German philosopher Immanuel Kant didn’t settle for a duck test. Germans get to the bottom of things. He aimed to uncover the foundations of our knowledge. Kant realised knowledge arises from observation (empiricism), but we can’t know anything without thinking (idealism). We interpret observations. We recognise differences, count instances and think of cause and effect. Our thinking imposes its structure upon our observations. It is our nature. If we see a tree, we see branches and leaves. We see that the leaves are green and that the branches are brown. We see a difference between a tree and a deer. We can count trees. The concept of a tree encompasses other ideas, such as branches, leaves, greenness, and brownness.
We view the world through our framework, language. Without the word tree, we don’t see trees. So, if we only have the words animal and plant, a tree is a plant to us, and we don’t see a difference between trees, bushes, grass, and ferns. We don’t know reality or the things in themselves (relativism). We attach the categories to our perceptions. Speculation about the nature of reality, such as asking whether trees, gravity, or electrons exist, is pointless. Kant is also famous for attempting to find a rational foundation for absolute moral rules.
Subsequent idealist philosophers disagreed. They believed the mind creates reality, so absolute knowledge is possible. They argued that reality is subject to our thinking, allowing us to uncover it. The fall of a ball is subject to mathematical laws invented by the human mind. You can claim gravity causes the ball to fall even though gravity exists only in our imagination. Imagining gravity lets us predict how long it takes a ball to hit the ground after we drop it from a tower. Our predictions coming true corroborate the existence of Sir Isaac Newton’s imaginary invisible friend, gravity. You can poke fun at gravity this way, but gravity has proven to be a trustworthy companion, more dependable than many people you can see and touch.
The most notable idealist philosopher was Georg Wilhelm Friedrich Hegel. He argued that we increase our knowledge over time, so there is progress. If we dig deeper, we may learn more about trees, for example, where their roots are. The more we know, the closer we come to the absolute truth. However, by decomposing reality into parts and analysing them, we lose the essence of the whole. We are part of reality and interact with it. Hence, we are one with everything around us and history. We can comprehend reality only in this way. And in doing so, we might find the ultimate answer, which is why we exist. Hegel was also a religious man, so he expected us to discover God at the end of our quest for knowledge.
Seeking knowledge is a process that never stops. You can ask yourself, ‘Is the way I look at the subject correct and adequate? Have I not forgotten something?’ After we arrive at a conclusion, our experiences and thoughts continue, or the situation changes, and we may later come to a different belief. Hegel called it dialectic. Our knowledge increases. It pushes forward, leading to progress. Hegel’s dialectic has three phases:
an initial thought or assertion (thesis),
a contradicting or supplementing argument (antithesis, negation),
and the integration of the two into an improved insight (synthesis).
Contemporary philosophy
Kant ended the idea that metaphysics gives us knowledge. Philosophers became less ambitious from then on. One reaction was pragmatism. The theory of evolution suggests we hold beliefs to survive and reproduce. Pragmatic American thinkers like Charles Sanders Peirce and William James viewed thinking as a means of solving problems. They were not interested in truth or the nature of reality. Another approach, hermeneutics, associated with German thinkers such as Wilhelm Dilthey and Martin Heidegger, concerns human communication. Dilthey argued that the natural sciences are about interpreting observations, while the humanities are about meaning and, in Heidegger’s case, about what it means to exist.
Others embarked upon a renewed search for the foundations of knowledge. Analytical philosophers such as Bertrand Russell and Ludwig Wittgenstein believed that the primary tools of philosophers were language and logic. They aimed to develop a new method to gather knowledge. There is an outside world, and language expresses facts about that reality, or so they argued. This view is known as realism, which is closely related to empiricism. They claimed there are justified true beliefs. Jane might think something is true based on what she knows. If this is indeed the case, her belief is justified.
Karl Popper introduced the idea of falsification. You can never prove a hypothesis is correct, but you can prove it is wrong when you find contradicting evidence. That is also scientific progress because knowledge increases. The theory you believed in is incorrect. You might think all swans are white if you have only seen white swans. Once you spot a black swan, your theory is proven wrong. From then on, you think most swans are white while some are black. It is the way knowledge progresses. The belief that most swans are white and some are black is closer to the truth than the idea that all swans are white, even if a red swan is lurking somewhere out there that no one has ever seen.
Scientific theories must be falsifiable. Otherwise, they aren’t scientific. Scientific theories must enable us to make testable predictions. As long as these predictions come true, we assume the theory is correct. We can’t be certain, but the theory works for us. You can go out and look for swans and check their colour. Your theory says they must be either black or white. You can use the formula relating height to fall time to calculate the fall time from a height of 100 metres. If you do an experiment and the outcome differs from the calculation with the formula, the theory is wrong unless your measurement or computation is in error.
Edmund Gettier criticised the notion of justified true beliefs. You can be correct for the wrong reasons. Suppose Jane looks at her watch. It says it is two o’clock. She believes it. She doesn’t know it stopped exactly twelve hours earlier. Her belief is thus not justified. The watch accidentally gives the correct time, so her belief is true nonetheless.
As our knowledge increases, our understanding of reality changes. Philosophers call that a paradigm. Thomas Kuhn noted that scientific paradigms change over time. A scientific paradigm is a theory or system of ideas that dominates a field, such as physics. Existing theories don’t explain everything. The theories that clarify the most phenomena and leave the fewest unexplained are the best and form the paradigm in the field. The paradigm of your knowledge of swans is that swans can be black or white. It is better than your previous belief that they are all white. When you discovered a black swan, your paradigm shifted. You changed your opinion.
Unexplained phenomena, such as unexpected instrument readings, might indicate that the paradigm is incorrect. As long as no better explanation is available, most scientists attribute them to errors. At some point, the evidence accumulates that the theory is erroneous. Then a scientist develops a better hypothesis, and out of the confusion, a new paradigm emerges. Newton’s laws have long been the paradigm in physics. However, when scientists developed more precise instruments in the 19th century, they gave readings that Newton’s laws couldn’t explain. Initially, most scientists disregarded the evidence. It took a while before a fellow named Einstein could explain them. From then on, Einstein’s theories became part of the new scientific paradigm, quantum physics.
Paradigms in science affect how we see the world. Five centuries ago, most people in Europe believed the Earth was flat, a few thousand years old, and at the centre of the universe. Only a few educated people were aware that the ancient Greeks had discovered evidence of the Earth being a sphere. Despite the efforts of flat-earthers and creationists, most people today believe the Earth is a sphere, billions of years old, and an insignificant dot in the universe. And we may soon believe we live in a simulation.
Existing religions and ideologies, or the so-called Big Stories, are all wrong. It gave rise to post-modernism. Post-modernists claim that great stories like religions and ideologies are dead, and absolute knowledge is impossible. Words like ‘reality’ and ‘truth’ are totalitarian concepts, they argue. There is only room for small stories, lived experiences, and perspectives. A great source of inspiration was Friedrich Nietzsche. He proclaimed the death of God and heralded the end of the Christian story of God’s people on the road to Paradise, which gives meaning to our existence. And suddenly, we were out there, without God, condemned to give meaning to our petty existences ourselves. Post-modernism is not much more than relativism with a new marketing campaign. This view was, not surprisingly, criticised by those who claimed the truth is out there somewhere.
So, we are more or less back to where Socrates refuted the sophists. The truth is out there. Believing something doesn’t make it the truth. And if there is a truth, we might be able to find it. With the simulation hypothesis, speculation about the nature of reality or metaphysics re-emerged. We could all live as mindless figures in a computer simulation of an advanced post-human civilisation. It seems that knowledge theory remains stuck. At least, it is clear that while our knowledge has grown dramatically over the last 2,500 years, the theory of knowledge has not progressed accordingly.
Data, information, knowledge and wisdom
Having more data does not make us better informed, and having more facts does not make us wiser. The DIKW pyramid (Data, Information, Knowledge, Wisdom) shows how human understanding can go off track as we amass more facts rather than seek better understanding, which requires getting the relative importance of facts and the nature of their relationships. Data is raw facts, numbers, or observations. Data does not have meaning. A noise you hear is data. Information is data that has been organised and structured into a context that gives it meaning, so we can use it for a purpose. You have information once you can identify the noise as coming from a car engine.
To acquire knowledge, you need information, and it needs to be correct. Maybe there was a car on television because your husband was watching his favourite show. If you were waiting for a taxi and knew the noise was coming from the television, you wouldn’t go outside. Knowledge is our understanding of information. It concerns correlative, causal, and logical relationships. Wisdom is understanding gained through study and experience, which allows you to select the appropriate knowledge to deal with a situation. It is about seeing the relevant facts, their relationships, their relative importance, and the limits of that knowledge, including ways to deal with them.
Proof and evidence
There is a difference between proof and evidence, even though we use these words interchangeably. Proof is a final verdict that removes all doubt, whereas evidence supports a particular explanation. Proving is typically done through deduction, while induction involves using evidence. Proof requires that the premises are correct, which is problematic because the premises used in deductive reasoning, such as the relationship between height and fall time, are often attained by induction. In mathematics, proving is possible. It is pure deductive reasoning without applying it to reality. So, 1 + 1 = 2 is always true. However, if you think you see two trees, someone else may disagree. Perhaps the other person sees three trees or only bushes.
We don’t know everything. With a limited sample of swans and induction, you could conclude that all swans are white. We support claims with evidence, such as experiments, but we can never be certain that relationships like those between height and fall time are always the same. There is no proof, not even in science, but scientific evidence meets the quality standards of the scientific method. They involve careful observation and rigorous criticism, as we can be wrong about what we observe or think. A scientist may use observations to formulate a theory about the fall time of objects and then check it with experiments.
Words like ‘establish’ and ‘conclude’ bridge the gap between proof and evidence. Science aims for the best clarification of the observations. A hypothesis needs evidence and must explain the observations better than the alternatives. Assuming this universe is a simulation, we can explain phenomena that are currently unexplained, such as paranormal events. Rigorous scepticism could be filtering out paranormal events that don’t have multiple credible witnesses or other plausible explanations. However, we can’t test the hypothesis with experiments, so the simulation hypothesis is not scientific.
Scientific proof means that all the experiments confirm the theory. The problem with that is the same as with the swans. If you believe all swans are white, it is scientifically proven until you run into a black swan. That is why all our present knowledge about our existence, the age of the universe, and the laws of nature would suddenly become void if we discovered that we live inside a simulation. The simulation hypothesis can explain the unexplained and is closer to the truth, much like the theory that most swans are white, with some being black. Even so, there could still be a red swan out there we don’t know about.
Takeaways
Science can’t prove this universe is a virtual reality, but the evidence could be strong enough to establish that we do. It is, however, metaphysical speculation, not much different from saying that Sir Isaac Newton’s imaginary invisible friend, gravity, causes a ball to fall to the ground. The only difference is that gravity is predictable, so you can do experiments and check this friend’s existence. The computer we exist in could be less imaginary than Newton’s friend. You can only make that argument if you understand what knowledge is. So, here are some considerations:
We can always question assertions because the methods to arrive at knowledge, induction and deduction, can lead to wrong conclusions.
The validity of a statement depends on its accurate description (of some part) of reality. You can verify it with observations and induction. If anything occurs that violates the statement, it must be wrong.
The truth or falsity of a system of statements depends on its logical consistency. You can check a system of statements using logic and deduction. Contradictions point to errors.
A claim is plausible when sufficient evidence supports it, while no credible evidence contradicts it. Contradicting evidence nullifies it. In science, that is the falsification principle.
For survival, usefulness is more important than the truth. Religions help us cooperate, and that allows us to survive, which is their primary function.
Exotic explanations, such as a flying object being Superman, make sense only if common explanations don’t. When dealing with unexplained phenomena, you may have to consider them.
Minimalism argues for using as few assumptions as possible to establish a point. Assumptions are always questionable. It prompts us not to engage in unnecessary speculation or to use irrelevant data. That is why this booklet is thin.
Contradictory arguments can be correct in their own right, as there could be a higher truth or synthesis. Evolution and creation can both be correct if we live in a simulation. The simulation hypothesis resolves the question.
Proof means the absence of doubt, which is impossible in dealing with reality. Evidence can still support a particular explanation or theory. You can still look for the best explanation for the observations.
Latest revision: 2 September 2026
Featured image: Owl eyes. Brocken Inaglory (2006). Public domain.
Other images: Brain-in-a-vat. Alexander Wivel (2008). Public domain.
Humans imagine that they have rights and obligations and belong to social classes. This is what is meant with social order. There has been a variety of rights and obligations and social classes throughout history.1 Societies usually have a ruling class who invents the social order and benefits the most from it. A social order needs some kind justification to convince everyone to accept the rules that come with it. That is where religion comes in. You can compare the Code of Hammurabi, a Babylonian law from 1750 BC, with the United States Declaration of Independence from 1776 AD.
The Code of Hammurabi declares that the Babylonian social order is based on universal and eternal principles of justice dictated by the gods. It divides people into three classes, nobility, ordinary people and slaves. The code then sets out all kinds of laws and punishments for transgressions. The United States Declaration of Independence begins with the following words:
“We hold these truths to be self-evident, that all men are created equal, that they are endowed by their Creator with certain unalienable rights, that among these are life, liberty, and the pursuit of happiness.”
On closer inspection 3,500 years didn’t make a lot of difference. The eternal principles are replaced by self-evident truths but the order still needed divine support. There is no mentioning of classes. All men are created equal. But the devil is in the detail. Women and slaves did not have these unalienable rights when the constitution was written. Only nobility was done away with as businesspeople were the new ruling class. In the 200 years that followed slavery was abolished and women received equal rights before the law, but businesspeople are still the ruling class.
Saying that people are equal and have equal rights is problematic. People are not equal in their abilities as well as their opportunities. For example, we can imagine the right to live but we all die. Some people die young while others live very long. Many people are poor and have no access to good education. Some are rich and can go to the best universities. Still, we imagine that people have equal rights, just like the Babylonians imagined that people are divided into classes.
Social orders are the result of history, economics, and politics. Ideas are at the basis of them. Equality is a revolutionary and modern idea that has gained ground during the last centuries. It has affected political orders on every corner of the globe. Even the worst dictators now say in public that all people are equal.
A social order is also a collective imagination. A social order doesn’t exist in reality as such, but only in the minds of people. If people agree on a social order, whether it is a division into classes or the notion that everyone is created equal, it can be stable. Social orders bring peace and stability and that is the most compelling reason to have them. If people agree on a social order they can cooperate more easily as the order settles many matters that would have to be negotiated otherwise. A reason why certain social orders prevail over others is because they create more powerful societies.
Featured image: United States Declaration of Indepence
1. Sapiens: A Brief History Of Humankind. Yuval Noah Harari (2014). Harvil Secker.
In philosophy, the state of nature is about human nature and our natural way of life. We are social animals who operate in groups. What makes us unique is that we can collaborate flexibly on any scale. We employ language and shared imaginations like corporations, nation-states, money and religions. They help us collaborate. In this way, we created an imaginary world, civilisation. We can program ourselves to a significant degree and have different cultures. So, what is our natural way of living? That is hard to tell, but we can say a few things.
We help our family and friends but can also cooperate with strangers. It is not something we learn. It is natural human behaviour. Other social animals also do it, including chimpanzees, our closest relatives. Chimpanzees live in small troops of a few dozen individuals. Like us, they have close friendships, work together with reliable congeners and avoid unreliable ones. They have social rules, may cheat and probably can feel guilty. Like human males, chimpanzee males can be violent and kill each other.
Like human leaders, chimpanzee alpha males acquire their status by building coalitions and gaining support. Others show their submission to the alpha male. He strives to maintain social harmony within his troop, like a king maintaining peaceful relations between his subjects. He takes coveted pieces of food like the government takes taxes. Alpha males gain their position by building a coalition of supporters. Usually, a chimpanzee band has several alliances.
Coalition members in a chimpanzee band build and maintain their ties through intimate daily contact. They hug, touch, kiss, groom and take fleas from each other’s furs. Like humans, they do each other mutual favours. The coalitions in a chimpanzee band have good relations to protect themselves against outside enemies. Within the group, there are friendships and more distant, colder relationships.
There is a limit to the size of a group of chimpanzees. To function as a chimpanzee band, all members must know each other intimately. They must remember how others acted in the past to guess what they will do. Unlike humans, they have no language to share social information. Humans gossip to share information about others. Thus, we can learn someone is unreliable without being cheated upon ourselves. That allows us to collaborate in more sophisticated ways in larger groups.
Chimpanzee groups with more than a few dozen individuals are unstable. Its members do not know each other well enough to establish a hierarchy. Separate groups of chimpanzees seldom cooperate and compete for territory and food. There have been cases of prolonged warfare between groups of chimpanzees, including a few instances of genocide. Early humans lived similar lives but could live in larger and more stable bands of up to 150 individuals. The size of a group with which we can closely cooperate is one of our natural limits. We have overcome that limit with shared imaginations, which might be unnatural and a source of many troubles we have today.
Shared imaginations
We think in terms of cause and effect. We believe clouds cause rainfall. Our imagination also allows us to attribute causes to imaginary things. If the harvest fails, we can think the gods are angry. To deal with that, we can start a ritual like sacrificing a goat in the planting season to please the gods. Rituals also have another role. They bond a community and can outlive the beliefs that created them and lose their meaning. Many atheists still celebrate Christmas and think of eating turkey rather than the birth of Jesus.
Large groups face difficulties acting as a collective. Distinguishing between the contributions of individual members becomes challenging, so cheating and opportunistic behaviour are more common. Money, states, and belief systems like religions and ideologies help us deal with that. Money can keep track of our contributions and usages. States enforce cooperation. Religions and ideologies help us collaborate, for instance, by promising rewards in the afterlife or telling inspiring tales of worker solidarity.
For that, we share our imaginations. We imagine laws, money, property, corporations and nation-states. We think a euro banknote has value, even though it is just a piece of paper. And that is why we can use it for payment. If we believe the banknote is worthless, we cannot accept it or use it for payment. We imagine a law exists and, therefore, it works. Without these shared imaginations, our societies would stop functioning. Our cooperation also requires an inspiring story like a myth about the founders, a religion or an ideology.
Stories are the basis of our large-scale cooperation. We change how we cooperate and build societies by changing the stories. In 1789, the French population switched from the story of the divine right of kings to the sovereignty of the people. That changed the organisation of French society from feudal to modern, an advantage that Napoleon could subsequently exploit on the battlefield. Intelligent animals like monkeys can learn new behaviour but cannot change their organisation because they lack the stories to do so.
Norms and values
We invent rules and follow them. That is also in our nature. The rules differ per group, but all groups have rules. Norms are shared rules and expectations about the behaviour in a group or society. They maintain the social order, define cultural values, and shape social interactions. Norms can be laws, folkways, mores, taboos. Values are beliefs about what is important to us and society. Values can be honesty, respect, fairness and kindness. Norms and values thus reflect our rules.
Our rule-following behaviour is ingrained in our nature and comes with emotions like anger, shame and pride. If we have rules, we can spend less time negotiating about who does what and who gets what. It allows us to cooperate more efficiently and effectively. It also limits our freedom. We cling to our norms and values. Rules make societies stable. But they cause trouble if they have outlived their usefulness and block much-needed change.
Most of our communication is gossip. We need the group to survive. To survive, we must understand what is happening in our group. We talk about other people in our group, for instance, who is cheating or breaking agreements and what we should do about it. Groups enforce their rules by pressuring or ostracising those who do not conform to them. Being evicted from your group is particularly traumatic as it can lead to death.
Our inclination to attach value to mental models and theories promotes social stability. It also makes societies conservative regarding ideas and rules. Rules and institutions emerged to meet a specific challenge and become a burden once they have outlived their usefulness. Social change is often not a process of small steps but of long periods of standstill alternated with sudden dramatic changes.
Violence is often crucial for change. The fear of violent death can motivate us to do things we would not do out of self-interest alone. Those who benefit from the current arrangement hold off changes, so violence or the threat of violence can end the stalemate. That happened in the French Revolution. The human desire for recognition means politics is seldom about mere self-interest. We also judge leaders and the rules in society with our norms and values.
The struggle for recognition
Societies require individual members to play particular roles. Each role has a status and norms based on the values and beliefs of the culture of that society. Socialisation is learning your role in society and the norms and values that come with it. Groups of humans, including societies, have social hierarchies with statuses attached to the roles people play. In organised societies, status differences are more pronounced than in small groups. That is called stratification.
An individual or a group can recognise another person’s or group’s status, including this person’s or group’s beliefs and customs. The struggle for recognition differs from the struggle for material goods. All parties can gain from an economic transaction. You can exchange your fish for bread if you want bread more if someone else has bread and desires fish. But humans imagine social hierarchies. The recognition of one person, group or nation thus comes at the expense of others.
We aspire to social status, and some compete for leadership. Chimpanzee males compete for the status of the alpha male but also cooperate to defeat an enemy. We not only desire recognition for ourselves. We also seek respect for our beliefs and the groups we belong to. Much of our struggle concerns respect for groups such as women, ethnic minorities and homosexuals. There is an economic aspect, such as equal pay for women, but it is primarily about recognition. Pay is also a token of respect.
You cannot enforce recognition. Others must feel you deserve it. Leadership comes from a group acknowledging that a specific person has exceptional courage or wisdom or is impartial in conflicts and a desire from a community to have a leader. Once a society develops, we transfer our recognition to political institutions like parliaments and courts rather than individual leaders. In both cases, the political order requires legitimacy to make people accept the order and adhere to the rules.
Changing our environment
We change our environment. So, if we have a natural environment, we can make it unnatural. The first humans lived as hunter-gatherers in small groups of a few dozen individuals. Everyone in the group knew each other. If that is our natural way of living, city life would be unnatural. Our mental makeup emerged from evolution, so living in large cities could produce psychological problems like stress and alienation. The biblical vision of the state of nature is Eden, where people lived in harmony with nature.
But what does that mean? In the last 400,000 years, humans have become the top predators. That had enormous consequences for what we can eat and do. And it had psychological and social effects. Humans did not evolve but suddenly rose to their new position. Many historical calamities and things about how humans behave towards others and the environment, from the deadly wars to how people treat the ecosystem around them, result from this fast change that our evolution could not match.
Humans like Neanderthals, and later the modern humans, Homo Sapiens, began using fire. It gave them light, warmth, and an effective weapon against dangerous animals like lions and bears. That changed the balance of power between the animal species. The humans came out on top. Humans also used fire to change their environment. They started burning down forests and collected dead animals cooked in the fire to eat them. And cooking allowed them to eat more sorts of food.
The Agricultural Revolution was another dramatic change in human lifestyle. To feed more people, humans began to grow crops and herd animals. With agriculture, more people could survive, but it created new problems. Hunter-gatherers could move on in the case of conflict, but farmers had to protect their land and cattle against thieves and invaders. And so there were more intense conflicts, and people began to organise themselves for larger-scale wars in tribes and states.
Latest revision: 23 December 2023
Featured image: cover of The Origins of Political Order
From: The Origins of Political Order: From Prehuman Times to the French Revolution of Francis Fukuyama.
A few centuries ago, over 99% of the world’s population lived in abject poverty. In 1651, Thomas Hobbes depicted human life as poor, nasty, brutish, and short. It had always been that way. Yet, a few centuries later, a miracle had occurred. Nowadays, more people suffer from obesity than from hunger. Today, the life expectancy in the poorest countries exceeds that of the Netherlands in 1750, the wealthiest nation at the dawn of the Industrial Revolution. This miracle is the result of science, innovations and a massive build-up of capital. How could that happen? One crucial reason is that interest rates fell from 30% in the Middle Ages to 5% in England at the start of the Industrial Revolution. Had interest rates not gone that low, the Industrial Revolution wouldn’t have started in the first place. Only, what caused interest rates to go that low?
In the economic arena, the interest rate is the outcome of an epic battle between ‘Time Preference’ and ‘Capitalist Spirit’ that raged for centuries. The capitalist spirit won. Ordinary people suffer from a condition known as time preference, which causes them to spend their money on frivolous items. They think, ‘Live today, because you can be dead tomorrow.’ Economists say they lack trust in the future. There are also capitalists, who are special people who suffer from an illness called the capitalist spirit. Rather than spending their money on frivolous items, they think, ‘Don’t live today, but invest, so you will have more money when you die.’ Economists say that they have trust in the future.
And so, capitalists save and invest while ordinary people work for them and buy the products and services their ventures produce. When time preference prevails, there is little saving and high interest rates. People are poor because there is a lack of investment capital. When the capitalist spirit prevails, there are ample savings, low interest rates, and wealthy individuals with excess capital to invest. This miracle wouldn’t have happened without low interest rates, since investment returns must exceed interest rates, and low rates can’t persist without efficient financial markets and trust in political and economic institutions. So, how did that come about?
In the Middle Ages, Europeans gradually developed a capitalist spirit. The ethic of the merchant gradually spread, so that money and profit, rather than Christian values, came to drive Europeans. They found new trade routes and exploited their colonies. Initially, Spain and Portugal led the way, but their kings were short of cash and imposed heavy taxes on their people. Many merchants moved to the Dutch Republic, which was more business-friendly because the propertied classes ran it. The Dutch didn’t have a strong state with an army, so taxes were lower as well. The Dutch invented the stock market, featuring publicly traded shares, a crucial financial innovation that helps manage risk. Since then, investors have been able to invest in a corporation at any time and sell their investment at any time.
Later, Great Britain became the dominant power. The British business elite, who paid most of the taxes, didn’t like paying for incompetence and corruption. After they had gained control of the British state during the Glorious Revolution of 1689, they forced it to improve its competence. The British invented fractional reserve banking with a central bank, thereby creating efficient financial markets. Their colonial empire also expanded, so that they came to control the largest market, which favoured economies of scale. Once the competent government and financial innovations were in place, the Industrial Revolution took off. Low interest rates made long-term investments in machines profitable.
Once interest rates had decreased, economic growth accelerated, enabling investment returns to cover interest payments and allowing financial markets to expand, thereby driving further growth. The capitalist miracle is that financial markets helped boost trade and production by creating money that doesn’t exist to start businesses that don’t yet exist to make products that the people those businesses will hire will buy with this newly created money. Financial markets are at the basis of the capitalist economy. When growth slows, interest-bearing debt may collapse the global economy, but so far financial innovators have devised new lending schemes, aided by low interest rates. Low interest rates make an economy possible, not high ones. And trust makes low interest rates possible.
Usury: a hidden cancer
As long as there is growth, there is more stuff to dole out, even though the division of the fruits of capitalism has its shortcomings. Yet, that applies to every economic organisation. Personal qualities explain some inequality. Some people work harder, some are better entrepreneurs, some are more frugal, some are more useful, and some are better at exploiting others for their personal gain. Or they inherit estates. These people usually end up wealthier. The success of capitalism comes from increasing the size of the pie rather than from its fair division. The primary driving force in the capitalist system has little to do with individual qualities. It is profit or interest. Interest comprises all returns on capital. Interest is the reason why the rich get richer at the expense of the rest.
Yet, the primary objection is that it will end in disaster. Since the Industrial Revolution, we have become trapped in a global competition driven by innovation and economies of scale. As a result, a few oligarchs have become exceptionally wealthy, often by cornering markets. The tech sector is an example. Wealth inequality will be the most urgent immediate challenge once there is less to go around. Some think it is unacceptable that people are starving while the elites fly around in private jets. Of course, the elites fund think tanks spreading propaganda that the current system is most efficient, which it is, so it is believable, so that you are to blame if you can’t compete.
The relationship with usury is not that clear. Yet, more efficient financial markets and lower interest rates enable lending, so there is more interest-bearing debt than in the past. Most people pay more interest than they receive. We pay interest through rent, taxes, and the prices of everything we buy. Interest works like a tax on poverty, with the poor paying for the benefit of the wealthy. Lower interest rates could benefit most people by lowering prices. Only, we don’t see that happening. That is because other factors interfere.
In a usury-based financial system, lower interest rates allow us to borrow more, putting more money into circulation and thereby contributing to rising prices. As we borrow more, we may end up paying even more interest. To improve their yields in a low-interest environment, capitalists invent new schemes, such as leveraged buyouts and vampire capitalism. Lower interest rates also enabled more predatory lending by making loan-sharking profitable even at higher default rates.
Worse yet, low interest rates have exacerbated the excesses in the financial system. That is because we live under a usurious financial system. Had the maximum interest rate been 7%, schemes such as loan sharking and leveraged buyouts wouldn’t be possible. That would require us to look after people in financial trouble and limit their freedom, rather than giving them the liberty to borrow. We allow it because the merchant’s ethics have become the foundation of our moral system. And that is no ethics at all. Yet, a world without merchants is a world without many comforts. That is why we accept the bribe and allow trade to make us dependent on governments and markets, so that we become cogs in the system. Interest plays a crucial role in this process by making the money flow. Things aren’t straightforward, so ‘interest is evil’ is simplistic and not a helpful approach. The alternative comes down to forgoing many of the comforts of modern life, as the Amish do.
What is usury?
When you ask some random individual what usury is, and you do get an answer, it might be charging an excessively high interest rate. Traditionally, usury referred to paying for the use of money. In other words, usury is charging interest on loans. In this traditional definition, the currency has a constant value, so the borrower must repay the same value. If a ruler debases the currency and halves its gold content, a lender has a legitimate claim on the same amount of gold, hence twice the amount of currency. The reasons why usury is damaging are:
Usury turns money into a tool of power, enabling the rich to exploit the poor.
Usury disrupts the circular flow of money, causing economic hardship.
Fixed interest payments cause financial instability as incomes fluctuate.
Making a profit from a business venture is not usury. Still, all capital income is interest, and interest contributes to wealth and income inequality, unless the interest rate is at or below the growth rate. Capitalism has raised living standards, so the prevailing view is that its benefits outweigh its drawbacks. And perhaps, it did for a long time. Today, capitalist economies excel in generating money for capitalists by turning energy and resources into waste and pollution to market non-essential products and services in the bullshit economy. Therefore, the drawbacks may now surpass the benefits. Yet, if there is no viable alternative, then what can you do?
The economist Piketty found that interest rates on capital were higher than the economic growth rate most of the time.1 That is unsustainable. It requires capital destruction to create new room for growth or lower interest rates. In the past, World War I, the Great Depression, and World War II annihilated vast amounts of capital through physical destruction and bankruptcies, creating new room for growth. And so did the end of communism in the 20th century. Eastern Europe, China and India became new centres of growth. The wave of capital seeking a return has finally reached Africa, the last frontier. Increasingly, growth comes from ‘wealth-creating’ non-essential activities in the bullshit economy, such as collecting large datasets to track consumer behaviour.
Value standard
The idea behind banning usury is that it is unfair for borrowers to return more than they borrowed. Traditionally, the poor borrowed from the rich, so charging interest would make them even poorer. If you borrow a loaf of bread, you return it. That is simple. Money, however, is an abstract measure of value, so what counts as usury and what does not requires a value standard. Islam forbids charging interest on money and debts and also prohibits the debasement of currency. According to Islamic law, money is gold or silver. Lenders should receive the same amount of gold or silver as repayment for the loan. There is, however, no reward for the risk of lending, which impedes capital formation. It is one of the reasons why the Industrial Revolution didn’t take off in the Islamic world.
A Natural Money currency serves as the standard of value, so usury refers to charging an interest rate above zero on loans. To serve as a standard, the currency must have a stable value. The Egyptian grain money’s value came from a backing by grain in granaries. During the gold standard, gold was the standard of value, as you could exchange national currencies for a fixed amount of gold. The backing of today’s fiat currencies is the economy. The Quantity Theory of Money states that Money Stock (M) * Velocity (V) = Price (P) * Quantity (Q), so Money Stock (M) depends on Velocity (V), Price (P) and Quantity (Q), and the value of a single unit, such as the euro, is M / units in circulation.
A grain or gold backing can give the currency a stable value because there is a limited amount of grain and gold. Such a limit doesn’t exist for fiat currencies. Still, Natural Money currency can serve as a stable value standard because its issuance depends on lenders’ willingness to accept negative interest rates. Lenders thus only lend when they expect the currency’s future value to remain sufficiently stable. When they don’t lend, the amount of money in circulation shrinks due to negative interest rates and debt repayments, allowing the currency’s value to increase and prices to decrease. Trust in the currency thus stems from persistent deflationary pressures, as negative interest rates consume the money supply, and the maximum interest rate constrains credit creation.
Efficiency argument
Presumably, so it is an assumption, most of what humans do makes no sense. One of the outcomes is that today’s global economy is overcapitalised due to massive over-investment in the bullshit economy, which is about transforming energy and resources into waste and pollution to make the rich richer in a rat race that ends with the end of humanity. If we are to correct that issue, near-term future growth rates will probably be negative, either as the result of an involuntary collapse or a managed decline, and the sustainable interest rate will also be negative. Once the world economy is on a sustainable footing again, sustainable growth may allow growth rates to become positive once more in the more distant future. A stable economy operating near the maximum growth rate, which can be negative, can achieve its full potential and full employment. That is what the ‘miracle of Wörgl’ suggests.
To illustrate the efficiency improvement that we might achieve by discontinuing the bullshit economy, everyone engaged in air travel or cryptocurrency could do something useful instead, like building homes, caring for the elderly, practising organic farming, removing weeds rather than using pesticides, or joining the police force to keep neighbourhoods safe. It only takes a different approach to economics. There are countless other bullshit occupations, so you can imagine the improvement when all these people do something that benefits society. If 50% of the people worked on bullshit, economic efficiency could increase by 200%, a whopping figure.
When average investment returns are near their sustainable maximum, real interest rates are also near their sustainable maximum. The usury-based economy is unstable due to credit expansions and contractions, so it often does not operate at its sustainable maximum, reducing its efficiency. Natural Money helps achieve a stable economy and minimise financial system risk, thereby realising the sustainable maximum. It follows that real interest rates with Natural Money are higher, even when economic growth rates are positive. The maximum nominal interest rate is zero, so higher real rates translate into currency appreciation, allowing a zero interest rate to yield a positive absolute return.
A simple calculation illustrates this view. Economists assume there is a link between the amount of money (M) in circulation and prices in the equation Money Stock (M) * Velocity (V) = Price (P) * Quantity (Q). If ΔP, ΔM and ΔQ are sufficiently small, and velocity is constant, so that ΔV = 0, then it is possible to approximate this equation with %ΔP = %ΔM – %ΔQ, where %ΔP is the percentage change in price level, %ΔM is the percentage change in money stock, %ΔV is the percentage change in money velocity, and %ΔQ is the percentage change in the quantity of production.
The velocity of money (V) for Natural Money might be higher than for interest-bearing currency, and this could be accompanied by a smaller money stock (M). Still, the velocity is likely to remain constant, as the economic picture is expected to remain stable. Now, it is possible to calculate the real interest rate (r) as the nominal interest rate (i) minus the inflation rate (%ΔP), so that r = i – (%ΔM + %ΔQ).
Suppose the long-term average economic growth rate for interest-bearing money is 2%. For Natural Money, it might be 3% because the economy is more often performing at its maximum potential. Assume that the long-term average annual increase in the money supply for interest-bearing money is 6%. For Natural Money, it is 0%. The long-term price inflation rate could then be 4% for interest-bearing money. With Natural Money, there could be a 3% price deflation rate as the economy grows at 3% with a stable money supply. We can then produce the following calculation:
situation
usury money
Natural Money
nominal interest rate (i)
+3%
-2%
change in money supply (ΔM)
+6%
0%
economic growth (ΔQ)
+2%
+3%
real interest rate (r = i – ΔM + ΔQ)
-1%
+1%
Natural Money can increase economic growth, allowing real interest rates to be higher. Furthermore, because Natural Money has several stabilisers that reduce financial system risk, the level of risk is likely lower. As a result, the risk-reward ratios associated with Natural Money are better than those in the current usury-based financial system. In other words, the same real interest rate in a usury-free financial system is a better deal because it entails fewer risks. Hence, a usury-free financial system based on Natural Money is more efficient, so there will be capital flight from the usury-based economy to the usury-free economy after Natural Money is implemented on a large enough scale. The efficiency argument demonstrates that usurious finance is parasitic.
The real interest rate may improve more than the economic growth rate due to lower financial-sector profits from phasing out exploitative parasitic activities, such as interest-bearing consumer credit. Without credit card payments, consumers have more disposable income. Furthermore, economic and financial stability can reduce investment risks, thereby reducing the need for financial sector intermediation. The financial instability and the need for government and central bank interventions in the usury-based financial system create opportunities for politically connected and other savvy and informed individuals, sometimes referred to as ‘financial parasites’, to enrich themselves at the expense of the general public. The higher efficiency of Natural Money could end that.
The efficiency argument still applies when we switch to a values-driven, people-friendly economy that operates in harmony with nature. The financial inefficiency of such an economy stems from its limited ability to generate money for investors by transforming energy and natural resources into waste and pollution, producing unnecessary products and services in the bullshit economy. That depresses interest rates. And so, it is not an inefficiency in the financial sector. With Natural Money, a values-driven, people-friendly economy can remain operational thanks to the financial system’s efficiency. Terminating the bullshit economy in a usury-based financial system will also depress interest rates, but may bring about an economic collapse because negative interest rates are impossible.
Trust
Someone once asked me on a message board, ‘Why would I lend money interest-free?’ The borrower may not repay. Why take that risk? By trying to refute the idea, the poster unwittingly hit the jackpot on what usury-free finance is about. Indeed, the world is full of curious accidents. We lend interest-free to people we trust, and we may lend to family and friends, even when they are untrustworthy individuals living off our money. After all, they are family and friends. In a market, it won’t happen unless we trust the currency and the borrowers. Hence, ending usury is only possible in a high-trust environment. And investors must be in the market for other reasons than maximising their profits. Those who lend money to organic farms and invest in renewable energy have a different view of investing than vampire capitalists, who scam the government and rob grandparents of their retirement savings.
Trust is the foundation of our financial system. Credit means trust. And trust in the future is the foundation of the capitalist economy. Investors imagine that the future will be better so that their investments will be profitable or at least not loss-making. Credit, or financial capital, reflects this trust. Most of our money is credit, so its value depends on an imagined future. Some people argue that credit, banking, and central banking are fraudulent because they are fantasies. They may prefer something tangible, such as gold. Indeed, the capitalist economy, as well as civilisation in general, demonstrates the power of human imagination, and our faith in what we believe.
To have trust in the future, investors must believe that their investments are safe. The rule of law, political stability, the absence of graft, and sensible economic policies are fundamental to the economy’s effective functioning. As investments, such as factory investments, are long-term, the risk that a government will annul earlier commitments is a critical factor in investment decisions. Government actions, such as asset confiscation or taxation, can deter investors. Differences in tax regimes are equally damaging, as tax havens parasitise on productive economies that collect taxes to invest in their infrastructure and education.
Interest rates are the lowest in stable countries with low inflation, as trust translates into a risk premium on investments. The greater the risk, the more the future is discounted, the higher the interest rates, and the lower the standard of living, usually. Hence, Switzerland and Sweden have low interest rates, while Argentina and Mozambique have high interest rates. Interest rates in Europe are lower than in the United States. Apart from lower growth expectations, the Stability and Growth Pact, which limits government deficits, plays a role. And the government deficit as a percentage of tax income is a better indicator of the health of government finances than the deficit as a percentage of GDP. These are more sustainable in Europe. And so, trust also plays a role here.
Interest rates in Switzerland are currently at their lowest. In 2025, the key interest rate stands at zero. Swiss interest rates are so low because investors trust the Swiss currency. From 1990 until 2024, the government’s budget deficit averaged 0.45% of GDP. At the end of 2024, government debt was 20% of GDP. A general rule is that the lower the trust in the currency, the higher the interest rate. Venezuela has the highest interest rate at 60%, but with an inflation rate of 180%, investors are better off with a zero yield in Swiss francs. In a market, low interest rates signal trust. Hence, trust is a crucial prerequisite for ending usury. The currency needs to be as trustworthy as the Swiss franc, which, in turn, places a great demand on the society using it in terms of financial responsibility.
You can try to end usury the wrong way. In 2025, interest rates in Turkey rose above 40% to curb inflation following a failed monetary experiment. The assumption that interest charges cause inflation led Turkey’s leader to force the central bank to lower its interest rates. Inflation soared to 85% in 2022. In doing so, the Turkish leader defrauded creditors, thereby transgressing Islamic law. The relationship between interest and inflation exists, but it operates via credit. Credit expansion causes inflation, not interest itself. In a usury-based financial system with fiat currencies, raising interest rates curbs inflation by dampening demand for credit. That obscures the truth that interest is a cause of inflation. A better path to ending usury is to curb lending by setting a maximum interest rate and gradually lowering it to zero if market conditions allow.
With Natural Money, the central bank doesn’t set the interest rate or manage the money supply. The interest rate and the money supply emerge in the market for the lending and borrowing of money. The holding fee on the currency provides stimulus by making negative-interest lending attractive, thereby keeping money off the sidelines. At the same time, a maximum interest rate of zero imposes austerity, curtailing credit during booms or periods of high inflation. That will cool down the economy and dampen inflation. There could be deflation, and deflation could be permanent. The market for lending and borrowing is free in the sense that the central bank doesn’t manage interest rates and the money supply. However, the maximum interest rate of zero operates as a price control.
Interest rates emerge in the market for lending and borrowing. Negative interest rates require trust in the currency, the government and its policies, the financial system, and, ultimately, in the borrowers. It requires trust in the political economy and the future. In other words, all the world’s governments must be as reliable and capable as Switzerland’s, and the global economy must be on a sustainable footing. At the same time, market participants shouldn’t engage in scams. So far, business and ethics haven’t agreed very well. The ethic of the merchant is no ethic at all. The change requires a moral imperative. We shouldn’t harm other people or nature. Instead, we should see the consequences of our actions and change our ways. Only a new religion can make that happen.
The price of usury
Interest promotes wealth and income inequality. Most of us pay more in interest than we receive, either directly through loans and rents, or indirectly through the products we purchase. German research from the 1980s showed that the bottom 80% of the poorest people pay interest to the top 10% of the wealthiest people. Saving and investing can be beneficial, but as most economic activity is wasteful bullshit and suicidal also, we have to question that. Perhaps the Old Order Amish are better off than the working poor, who have social media, cars, and, of course, streaming services. And interest also works as a tax that the poor pay to the wealthy. The wealthiest individuals reinvest most of their interest income. That is what made them rich in the first place.
Interest promotes short-term thinking. With positive interest rates, money in the future is worth less than money now. It affects investment choices. With lower interest rates, long-term investments would become more attractive. Lower interest rates also enabled the Industrial Revolution because it required investments in buildings and machines that were only profitable at lower interest rates. Yet, the same applies to investments in a sustainable economy. For example, when interest rates are high, cutting down a forest today, selling the wood, and investing the proceeds may give higher financial returns than sustainable forest management.
Finally, usury is the primary cause of financial instability. Incomes fluctuate, while interest charges are fixed. It can bring borrowers into trouble. Worse yet, those who can’t afford it pay the highest interest rates, for example, in credit card debt and payday lending. Had they been unable to borrow, they would be better off. The freedom to borrow is the freedom to become a slave. Financial instability can lead to economic instability. Usury is a cause of financial crises, recessions and depressions. That is why governments and central banks manage the problem with fiscal and monetary policies. Yet, their actions create a false sense of security, allowing debt to continue to grow and ultimately leading to a financial apocalypse. Still, the road to the end of usury also goes through financial innovation and modern finance, which includes fiscal and monetary policies.
Fractional reserve banking
Innovations in financial markets have made them more efficient, enabling lower interest rates and increased lending, thereby spurring the Industrial Revolution. A crucial invention was fractional reserve banking. It turned bank deposits into money. There is always a demand for money. It is the most liquid asset. Economists call it the liquidity preference. Money commands power. You can use money to buy anything at any time. We may want to keep cash at hand for expected purchases, unexpected expenses, and investment opportunities.2 And so, we may not be willing to lend our money.
Fractional reserve banking enables banks to lend out money that depositors can withdraw. If you lend money to a fractional-reserve bank, you can withdraw it at any time, as if it were cash. Banks kept a fraction of deposits in cash reserves to meet withdrawals, knowing that only a small share of depositors would withdraw their money. That freed up funds for investments and helped to lower interest rates. A fractional-reserve bank creates money because a new loan automatically creates a new, equal-sized deposit. And that deposit is like any other deposit. You can use it to make a payment or withdraw cash. Fractional reserve banking eroded the commanding power of money, resulting in lower interest rates.
Fractional-reserve banks can fail when a large number of depositors withdraw their funds at once. The integrity of fractional-reserve money depended on the ability to exchange deposits for cash. That is where central banks come in. They can help banks in times of trouble by printing additional cash and lending it to them at interest. That safety net reduced the risk associated with bank deposits, allowing interest rates to drop even lower, which, in turn, promoted more lending and economic development.
If it sounds too good to be true, then it usually is. Lower interest rates have fuelled the economic boom since the Industrial Revolution and will eventually lead to a technological-ecological apocalypse. Critics of fractional-reserve banking and central banking further argue that lower interest rates encourage poor investment decisions and that the safety net provided by central banks creates moral hazard. If interest rates were to rise, these investments would become unprofitable, leading to bankruptcies and unemployment. And if central banks rescue banks in times of trouble, it will promote irresponsible lending.
There is overcrediting, and lower interest rates promote irresponsible lending by increasing profit margins for usurious lending. The way to end usurious lending is to set a maximum interest rate. More recently, critics have argued that central banks, through extraordinary measures such as quantitative easing, have suppressed interest rates. However, central banks believed that interest rates were too high. They couldn’t lower them because of a price control known as the zero lower bound, which distorts the market. By printing money, central banks aimed to generate inflation so that they could raise interest rates later.
Reserve requirements
Banks hold reserves, which are money issued by a central bank. Reserves include banknotes and coins, as well as balances held by banks at the central bank. The primary reason for holding reserves was to meet cash withdrawals from depositors or to make payments to other banks when depositors transfer money to another bank and the other bank demands payment in kind rather than an IOU. A reserve requirement is a liquidity requirement. A bank must have enough cash on hand to meet its short-term obligations. Two developments have profoundly affected the need for reserves:
Contrary to the past, depositors rarely withdraw their funds in cash, so the money remains within the banking system.
There are alternative sources of liquidity such as government debt. Government debt issued in the government’s currency is as safe as cash.
A government can guarantee repayments of debts issued in its own currency by printing more of that currency, with a so-called independent central bank as cover, which has become a core foundation of confidence in the current usury-based financial system. The central bank will not let the usury-based financial system fail, so it will print money to buy government debt, which reduces the supply of debt and increases the supply of currency by which to buy government debt, thereby lowering interest rates and allowing the government to borrow more, making new money available to pay interest.
These profound changes have made traditional reserve requirements of central bank currency largely redundant. Banks hardly need any cash in their vaults. If they pay another bank in kind, government debt is as good as central bank currency. Or a bank could borrow at the central bank or another bank and pledge government debt as collateral. The experts have concluded that reserve requirements in the form of central bank currency are now superfluous. High-quality assets such as government debt have become the actual reserve. And so, banking regulations today focus on solvency, or the ability to meet long-term obligations. Still, it would be a most serious oversight to ignore liquidity.
Globalisation, liberalisation, and derivatives
Advances in information technology and financial innovations have driven the globalisation of financial markets over the past few decades. In the 1980s and 1990s, governments liberalised financial markets and removed capital controls. Capital controls can lead to higher interest rates and higher costs of capital.3 Globalisation and liberalisation expanded the possibilities for borrowing and lending worldwide.4 The increased competition reduced the price of financial intermediation. As a result, the level of financial intermediation exploded, leading to the financialisation of economies and increased profits in finance.
Globalisation and liberalisation made financial markets more liquid. It became cheaper and easier to exchange financial instruments, such as bonds and stocks, as well as goods and services, for cash. This development is known as financialisation. Like fractional-reserve banking, financialisation eroded money’s commanding position as the most liquid asset, thereby diminishing the commanding position of money holders in demanding interest.
Globalisation and liberalisation also caused trouble. Money and capital could move more freely, making it easier for changing expectations to lead to financial instability. Central bank interventions neutralised a series of financial crises in the 1980s, 1990s and 2000s. Lower interest rates prompted investors to seek higher yields and take on more risk. However, trust and, therefore, liquidity can suddenly evaporate. Some countries used capital controls to counter financial instability while central banks provided liquidity.
Innovations in risk management and derivatives enabled the financial sector to further increase lending. These innovations spread risk, allowing the total amount of risk in the system to grow. Due to a lack of regulatory oversight, derivatives also enabled scammers to sell fraudulent mortgages, contributing to the 2008 financial crisis. Still, banks that professionally used derivatives to hedge their risks weathered the crisis better and had fewer loan write-offs.5
The notional value of outstanding derivatives can be mind-boggling. Their actual value is much lower. You can best compare them with insurance policies. The notional value of your fire insurance policy is typically based on the value of your home. The actual value is the premium you pay. That is, until your house burns down, and the actual value becomes the notional value. Insurers can handle that until many homes catch fire simultaneously.
The actual value of an interest rate derivative on a 3% ten-year bond with a notional value of €1,000,000 might change by €81,109 if the interest rate increases to 4%. As long as parties use derivatives to hedge risks, and counterparties, the ‘insurers’, can absorb the losses, the system will function. An equivalent to all houses catching fire simultaneously could be a sudden increase in interest rates. When the system is more stable, the need for these instruments decreases.
Wealth effect and bubbles
Lower interest rates increase the value of assets via discounting. In theory, the price of an asset is the net present value of its future revenues. Even though that is often not the case in practice, the theory explains why the prices of assets such as bonds, real estate, and stocks rise when interest rates decrease. In this sense, lower interest rates can promote wealth inequality, but only when we consider the net present value of assets. If future revenue streams don’t change, wealth inequality is merely a temporary side effect.
There was, however, another dynamic operating beneath the surface. Lower interest rates allow consumers to borrow more by taking out higher mortgages, thereby financing their unsustainable lifestyles. Critics called it a wealth effect promoted by an asset bubble. Lending propped up consumer spending when the incomes of many working-class people were lagging, and the wealth of the rich ‘trickled down’ via lower interest rates as they were running out of sensible investment options, giving them yet another avenue by which to squeeze the working class. In a system of usury, lower interest rates are of no help.
Financial sanity
Interest compounds to infinity. Three grammes of gold at 4% interest turn into an amount of gold weighing twelve million times as much as the Earth after 2020 years. Most of us aren’t long-term planners. We are busy fixing holes rather than solving underlying problems until things fall apart. Economists do this as well. John Maynard Keynes invented government borrowing as a fix for usury-induced debt problems. He once justified his short-term thinking with the world-famous quote, ‘In the long run, we are all dead.’ And this man was the founding father of modern economic policies.
More debt has now become the standard solution for debt problems. Today, most money comes into existence as a loan on which the borrower must pay interest. Every loan creates a deposit. The depositor automatically becomes the lender. If the interest rate is 5%, and €100 is circulating, then €105 must come back. So, where does the extra € 5 come from? Here are, once again, the options:
Depositors (on aggregate) spend some of their balances so borrowers (on aggregate) can pay interest from existing funds.
Some borrowers default and do not return (part of) the balance.
Borrowers (on aggregate) borrow the extra €5.
The government borrows the extra €5.
The central bank creates €5 out of thin air to cope with the shortfall.
Depositors can spend their balances, so interest payments do not necessarily cause a shortage of money. Still, in practice, they do, mainly because depositors, like Scrooge McDuck, find it difficult, emotionally or otherwise, to part with their money. New debt fills most of the holes left by depositors’ Scrooge McDuckism. That is why debt levels nearly always increase. Still, money doesn’t always reach the right places, which causes financial crises. A few defaults are acceptable, but too many can cascade into a financial crisis, triggering an economic downturn or even a depression.
The cost of allowing the financial system to fail is so great that it is not an option. The 2008 financial crisis could have meant the end of civilisation as we know it, had central banks not saved us from a financial apocalypse caused by usury. When no one else is borrowing, the government and the central bank must step in, either by borrowing or printing money outright, to introduce new money into circulation to repay existing debts with interest. In this way, debts continue to grow, and we have become the hostages of the usurers.
The end of the road
The road to the end of usury ran through financial innovations. They lowered interest rates. Today, the world is awash in debt, and interest payments strangle the global economy, to the point that future interest rates may be negative. That could either be the end of usury or, if usury remains, the end of the economy. The world economy may collapse, or we can have a graceful decline, promoted by the efficiency of a usury-free financial system. The efficiency of Natural Money can help us build a high-trust world economy founded on moral values.
In a simplified world, we rely more on family and community, and less on markets and states, so the economy will also become simpler. Natural Money eliminates risk from the financial system, so that, after its implementation, several modern financial instruments may become obsolete, joining fossil fuels and marketing strategies. Still, economies of scale apply to several essential products and services, including finance. Negative interest rates require risk management that only scale can provide.
Latest revision: 4 November 2026
Featured image: Loan shark picture circulating online, origin unknown.
1. Capital in the Twenty-First Century. Thomas Piketty (2013). Belknap Press. 2. Keynes, John Maynard (1936). General Theory of Employment, Money and Interest. Palgrave Macmillan. 3. Edwards, Sebastian (1999). How Effective are Capital Controls? Anderson Graduate School of Management, University of California. 4. Issing, Otmar (2000). The globalisation of financial markets. European Central Bank. 5. Norden, Lars, Silva Buston, Consuelo, Wolf Wagner (2014). Financial innovation and bank behaviour: Evidence from credit markets. Tilburg University.
