Trade and finance

Capitalism has lifted billions out of poverty, but sadly, there is a price to be paid. Welcome to the dark side. Trade and finance, thus the profit motive, power the system we live in. And that will eventually end humanity. Worse yet, we are almost done. Most notably in the past, ordinary people regarded merchants and bankers with suspicion. In popular culture, trade and banking were the domains of people of questionable ethics. It is hard to pin down the issue, but they do not only bring the good things in life. Everywhere you see the death and destruction they cause. The ethic of the merchant is profit, nothing else. We think we can’t do without trade and finance, but can we do without moral values? The distinction between trade and crime is elusive. When governments fight the drug trade, they intervene in the market for opioids and prevent businesspeople from doing business.

Hermes, the Greek god of trade, was also the god of thieves. Like thieves, traders don’t like to toil and produce something. They live off other people’s work. That is a caricature. Trade can be useful. Competition can be tough. And we can’t live without trade anymore, because we buy everything we need in the market, yet also many things we don’t need. Still, as the number of unnecessary products and services increases, trade proliferates. The pace at which we transform energy and resources into waste and pollution hastens as traders facilitate a competition, so we end up supporting an ever-expanding class of traders with our labour. The alternative is to produce all we can locally and accept a lower standard of living. That was also Mahatma Gandhi’s advice.

Jesus Christ chased the money changers from the temple. Yet, in The Parable of the Talents, he said that you must put your talent to work. Talents were money, so it could mean putting your money to work. And Jesus never said anything about usury. Yet, Muhammad did. Jesus further said that it is easier for a camel to go through the eye of a needle than for a rich man to enter the kingdom of God. You can take your pick and pimp your argument with Jesus’ words. Was Jesus a socialist or a capitalist?

It is silly to think in such terms. Jesus lived 2,000 years ago, when economics as a field didn’t exist. Someone claiming to be Paul added that the love of money is the root of all sorts of evil. The Jewish writer Jesus Sirach noted, ‘A merchant can hardly avoid doing wrong. Every salesman is guilty of sin.’ Sirach made a few other peculiar remarks, like, ‘A man’s wickedness is better than a woman’s goodness. Women bring shame and disgrace.’ And so, you’d better take his ‘wisdom’ with loads of salt.

Humans chasing money is indeed a most terrible force. Eliminating it might require drastic measures that few people have the stomach for. The Taliban are among the exceptions. You get the idea. You will only do that if the disease is worse than the cure. The prohibition in the United States led to increased crime, as did the relaxed drug law enforcement in the Netherlands. Markets have no morals, and the ethic of the merchant is no ethics at all. The individual businessperson may have moral values and refrain from a trade, but merchants as a group never do. Traditional moral systems accept that you should be able to make a living, but they hold that greed is wrong. We have gone a long way since then. Today, we see trade as mutually beneficial, so we believe that those who engage in a trade do so voluntarily because they all benefit, or believe they do.

The pursuit of wealth, regardless of the consequences, became not only the foundation of our economic system but also of our morality. And so, Friedrich Hayek could write, ‘The disdain for profit is due to ignorance and to an attitude that we may, if we wish, admire in the ascetic who has chosen to be content with a small share of the riches of this world, but which, when actualised in the form of restrictions on others, is selfish to the extent that it imposes asceticism, and indeed deprivations of all sorts, on others.’ Our ethic is that we can do as we please, as if consequences don’t exist. And the ascetic is selfish when he says everyone should live like him. It is moral depravity at its finest. And so, what was once good has become evil, and what was once evil has become good.

Economists would even argue that someone who is altruistic maximises personal utility, so that altruism becomes a selfish act. And the ascetic tries to maximise his personal utility by attempting to force others to live as he does. An economist can’t imagine that we would do something good for its own sake. The problem is not self-interest as such, but greed or the merchant’s ethic, and the difference isn’t clear. In any case, we have a suicidal appreciation of wealth. Had we looked down on riches and luxury and aspired to have just enough and do with less, this world could be a much better place.

Many merchants are people like you and me without evil intent. Shop owners make a living by providing their customers with a service. They are often people who care, not the greedy, evil kind that run Wall Street or sell weapons to warring factions in Africa. Still, something is profoundly wrong with trade. Individual merchants may have ethical values, but markets never have them. And trade drives the creative destruction that will ultimately destroy us. Yet, suppressing trade promotes illicit markets and crime. And so, we accept the drawbacks, thinking the alternatives are worse. And that is a fatal mistake.

A pragmatic approach is that outcomes matter more than intent. If the result of evil intent, such as greed, is good, it is good. And if the outcome of good intent is terrible, it is wrong or perhaps even evil. If factory owners destroy artisans’ businesses and pay their employees low wages, but overall opulence increases as clothing becomes cheaper, then it is good. Likewise, if a country switches to socialism out of good intentions, but the population starves, it is evil. Before the Industrial Revolution, nearly everyone was as miserable as today’s poorest. Capitalism has lifted billions out of poverty. So why bother?

Trade and finance became the engine of growth, bringing industrialisation, modernisation, colonisation, the slave trade, mass migration, the loss of livelihoods for craftspeople, and the depopulation of the countryside. Various movements, such as socialists, anti-globalists, religious groups, small-is-beautiful, environmentalists, and also the Nazis, attempted to provide alternatives to the current order with their visions of Paradise. They all failed. The system is a brute force driven by our sentiments and urges. As consumers, we crave the best service at the lowest price, and as investors, we desire corporations to increase their profits. And we don’t think about the consequences.

Usury: the destroyer of civilisations

Money is to the economy what blood is to the body. It must flow. Otherwise, the economy will die. If we stop buying stuff, businesses go bankrupt, we become unemployed, the government receives no taxes, and everything comes to a standstill. That doesn’t happen because we keep spending on necessities like food and clothing. When we buy less, the economy slows, and a recession ensues; if it gets worse, a depression- the ultimate economic nightmare that policymakers desperately try to prevent. If that happens, businesses go bankrupt, and people become unemployed and depressed. Usually, the economy recovers, but it may take time. To prevent that misery, we must keep buying more stuff or pay more for the same, to make the economy grow.

Money must flow, so those who have more than they need must bring it back into circulation. If they don’t spend, they must lend it out. And they will do so only if they receive a reward in the form of interest. The scheme of usury is that those who are short of money borrow it from those who have more than they need, and pay for it, so that they will be even more short of money, while those who have more than they need get even more. For some reason that mathematicians can explain, that usually doesn’t end well. Finance can get complicated because traders in financial markets make it complex with their get-rich-without-working schemes, but usury makes much of it possible.

In the past, when borrowers couldn’t repay their debts, they became the serfs of the moneylenders. It is why several ancient civilisations had regular debt cancellations and why religions like Christianity and Islam forbade interest on money or debts. Usury is the practice of paying for the use of money, which is profoundly evil. The evil of it lies in the circular flows. We all need a medium of exchange. A simple explanation helps to clarify the issue. Imagine the Duckburg economy running on 100 silver coins. With these 100 coins, everyone has enough money, and the Duckburg economy operates smoothly. Scrooge McDuck owns ten, but he is a miser and doesn’t use them to buy items from others.

The circular flows of Duckburg now suffer a 10-coin shortfall. Products remain unsold, and several ducks lose their jobs. To prevent that, Scrooge McDuck can lend these silver coins for one year at 10% interest to ducks who come short, so the money keeps flowing. At the end of the year, the economy is 11 short. Scrooge McDuck then lends 11 coins at 10% interest. In this way, he will own all the coins after 25 years. Scrooge McDuck can implode the Duckburg economy by storing the money in his vault. When the citizens of Duckburg become desperate, Scrooge McDuck can buy their homes, let them pay rent, and become even richer. If you think that is smart, you have the ethics of a merchant.

Barataria: an economic fairy tale

It is not easy to step out as the system hooks on our inner drives, such as the desire for comfort and riches. The alternatives couldn’t compete. It is not that they couldn’t provide for us. A few people step out or go off grid, but it is like a rehab from a consumption addiction. It is a sober life while everyone around you keeps on living the good life. After Us Is the Deluge is the prevailing mood among consumers. But what are our options anyway? In the early 1990s, the Strohalm Foundation published The Miracle Island Barataria, an economic parable by the Argentinian-German economist Silvio Gesell.¹ I rewrote the narrative to better highlight its message. Gesell explores three options: (1) communism or socialism, (2) private property and markets without traders and bankers, and (3) a fully capitalist economy.

As the story goes, in 1612, a few hundred Spanish families landed on Barataria, an island in the Atlantic, after their ships had sunk. No one searched for them, and they became an isolated community. They worked together to build houses, shared their harvests, and held meetings to decide on matters that concerned everyone. It was democracy and communism. After ten years, the teacher, Diego Martinez, called everyone into a meeting. The previous year, several crops had remained unsown, while a part of the harvest had been rotting in the fields. As they were on the brink of famine, something had to change. Martinez noted that working together and sharing had helped them build their community, but the islanders had become lazy.

They came to work late, took long breaks, and left early. They spent their time at meetings discussing what to do, but much work remained undone. ‘If someone has a good idea, he must propose it in a meeting to people who don’t understand it. We discuss it, but we usually don’t agree or we don’t do what we agree to. Nothing gets done anymore. We could do better if we had the right to the fruits of our labour and take responsibility for our actions,’ Martinez said. He added, ‘The strawberry beds suffered damage because no one had covered them against night frost.’ He mentioned several other examples. Martinez said, ‘If the strawberries are yours, you protect them. And if you have a plan you think is worthwhile and you can keep the earnings, you do it yourself and hire people to help you.’

He proposed splitting the land into parcels and renting them to the highest bidder to finance public expenses. Fertile lands would fetch a higher price than barren ones, giving everyone an equal opportunity to make a living. He also proposed introducing home and tool ownership to make the islanders feel responsible for them. But with property and having the right to the fruits of your efforts, you need a medium of exchange or money. The islanders decided to use potatoes as money. Everyone needed potatoes. They had value, so they were good money.

Potatoes are bulky, thus difficult to carry, and they rot. At the next meeting, Santiago Barabino proposed establishing a storehouse for the potatoes and issuing paper money that could be exchanged for potatoes when needed. So, you had banknotes of 1, 2, 5, and 10 pounds, and 10 pounds of potatoes. The Baratarians agreed. The notes had an issue date and gradually lost their value due to storage costs and rot. If you returned the banknote to the potato storage after a year, you received 10% less than you had paid for it. And because the issue date was on the banknote, buyers and sellers knew its value.

For several years, Barataria issued banknotes backed by stored potatoes. Their value declined over time to cover storage costs and the cost of rot. Borrowers didn’t pay interest. If you had savings, you would lend them to trustworthy villagers, provided they agreed to return notes of the same weight. The notes lost value, prompting everyone to spend their money and to store food in their storehouses. As a side benefit, there was still enough food in case of a harvest failure. The islanders did well. There were no poor or rich people. There were no merchants buying goods at low prices to sell them at high prices. And no one paid interest. Things were cheap in Barataria. The chronicle notes that the islanders acted as good Christians and helped each other.

Then Carlos Marquez had a new idea. He addressed the Baratarians, ‘How many losses do housewives suffer from keeping food in their cellars? We shouldn’t put our savings in perishable products, but use money that has a stable value. We can back our money with something we don’t need and doesn’t deteriorate. The Pinus Moneta is a nut we can’t eat, and doesn’t rot,’ he said, ‘We don’t have to back money with a commodity of value like potatoes. The things we buy and sell give the money its value. If we do that, we can buy things when we need them and don’t have to store them ourselves.’

What a great convenience that would be. It seemed too good to be true. Diego Martinez argued against the proposal. He told his fellow islanders that a medium of exchange passes from hand to hand. It remains in circulation. But savings stay where they are unless those who are short of money borrow them and pay interest. You end up paying interest to use the currency you need to buy the things you need. His argument was to no avail. And that is the price of democracy. People decide about questions they don’t understand. And no one knows the future, so what seems a good idea often has unexpected consequences.

And if you are doing well, you can’t imagine that seemingly insignificant errors can ruin you. Marquez spoke passionately, while Martinez warned cautiously, saying things were fine as they were and he couldn’t foresee the consequences. That swayed opinions. The islanders switched to money backed by the Pinus Moneta. This money didn’t lose its value. That made it attractive to save money. Suddenly, everyone tried to exchange their supplies for the Pinus Moneta, causing mayhem in the marketplace. Everyone brought everything they had to the market. But no one could sell their goods as everyone wanted money.

The company Barabino & Co. came up with a cunning plan that didn’t require a tail to be called a weasel. Barabino & Co. set up a bank with accounts that Baratarians could use to save and make payments. Everyone could bring their money to the bank and receive an extra 10% after a year. The naive Baratarians agreed. They could have known there weren’t enough Pinus Moneta nuts to pay the interest. And they didn’t ask themselves how Barabino & Co. would generate the profits to pay that interest. With borrowed money, Barabino & Co. bought goods from the islanders and deposited the funds into their accounts, but they purchased only food and seeds.

The following spring, Barabino & Co. hiked food and seed prices. Most islanders paid more for food and seeds than they received in interest. They went into debt with Barabino & Co. With the profit, Barabino & Co. bought the next harvest and cranked up food prices even further. Soon, Barabino & Co. owned everything. Most were in debt and worked hard, but a few wealthy people lived off interest income. They didn’t work and lived a life of luxury on the interest on their accounts. The Baratarians needed money to pay for the items they bought from Barabino & Co. They had to borrow this money from Barabino & Co. and pay interest to use it. There weren’t enough nuts to repay all the loans with interest, so the islanders went further into debt year after year. They paid interest on money the bank created out of thin air, giving it to the wealthy.

The Baratarians worked harder and grew more creative in making money, only to find themselves deeper in debt every year. That is how usury works. There was no money to pay the interest, so the debtors borrowed more. The islanders invented, produced, and sold more products, most notably wooden items made from the island’s trees. Not everyone could keep up, and more people lived in sheds, eating scraps. At least, the economy grew, and the Baratarians grew accustomed to luxuries they hadn’t had before. They had wooden chairs, boxes, ornaments, toys, outhouses, carts and tables.

The change came with other unfavourable consequences. The Baratarians became agitated, deceitful, and immoral. Crime rose as everyone desired the luxuries the rich enjoyed, which they didn’t have to work for. Of their Christian faith, not much remained except an empty shell. They were busy making money. Then came the day the Baratarians had cut down all the trees on the island. They suddenly lacked the wood needed to make the tools for harvesting their crops, and they starved. That was the day the Pinus Moneta lost its value. After all, you can’t eat money.

Adam Smith and the Wealth of Nations

In the original tale, the Baratarian economy didn’t collapse, but the British rediscovered the island and found a class society much like their own. What the story has wrong is that trade doesn’t make things more expensive, but cheaper. Yet, that comes at a price. The revised story tells how devious acts contributed to an outcome most of us now deem desirable. By subjecting ourselves to this system of trade and usury, most of us live far more comfortably than people in the Middle Ages. By saving and investing, capitalists build their capital. Capitalism is about making present sacrifices by saving to have more in the future through investing. It promotes competition via innovation and economies of scale. But there is no ultimate goal, no vision of Paradise, only creative destruction without end.

The Baratarians were in debt, worked hard and were ingenious in finding new ways to transform scarce resources into money. The competition was tough. Those who couldn’t keep up became homeless. As there was never enough money to repay the principal with interest, the Baratarians went deeper into debt, worked even harder, and became more creative by inventing and selling new products, generating an economic boom that ended in starvation once the trees were gone. We face a similar problem. The Earth’s resources are finite. Money becomes worthless once there is nothing left to buy or sell.

Adam Smith, the founder of modern capitalist thought, claimed that pursuing our private interests promotes the public good. A baker doesn’t bake bread to serve the community but to make a living. It is why we have something to eat. The baker doesn’t want to lose customers, so he bakes what they desire. Otherwise, they go to his competitor. Smith believed it would work out well, as humans are moral creatures. We temper our behaviour to avoid harm to others. That is why moral relativists might argue that we don’t need a public interest. The private interest will do just fine. Yet, it is not how markets operate. Individuals may have ethical values, but markets never have them. As the least scrupulous usually win the competition, things are gradually growing more evil.

Factory owners didn’t consider the plight of the artisans they put out of business or the miserable working conditions their workers endured. And they often couldn’t, as the competition was tough. They would have gone out of business if they had done so. Moral considerations don’t drive business decisions. Without self-interest and trade, we would be poorer, and poverty was Smith’s primary concern. Increasing production was the way out. Self-interest and trade were the tools to achieve that. And it succeeded marvellously. Since the Industrial Revolution, increases in production have lifted billions of people out of poverty. When Smith lived, the Industrial Revolution hadn’t started yet. No one could foresee how it would end. Smith argued:

• The division of labour drives increases in production. If you specialise in a trade, you can do a better job or produce more at a lower cost.
• A market’s size limits the division of labour. Transport costs limit market sizes. Energy costs drive the volume and distance of trade.
• Merchants preferred precious metals as money. It enabled them to store their gains, allowing them to wait for opportunities to profit.

Producers produce items at different times and in other locations, and in quantities that consumers do not need. That is why we trade. Traders bridge those gaps by storing, transporting, and dividing goods. Trade promotes large-scale production and labour efficiency, so fewer people are needed to provide for our necessities. That allows for more fanciful products, services, and industries, thus a higher standard of living, but we don’t need most of these products and services, and producing them takes energy and resources. Adam Smith already guessed what the division of labour and the convenience of organised society would do to humans when he wrote,

The man whose whole life is spent in performing a few simple operations, the effects of which are perhaps always the same, or very nearly the same, has no occasion to exert his understanding or to exercise his invention in finding expedients for removing difficulties that never occur. He naturally loses, therefore, the habit of such exertion, and generally becomes as stupid and ignorant as it is possible for a human creature to become.

Evil empire of trade and usury

Economic and financial power translate into military power. The Europeans didn’t finance their conquests with taxes as previous conquerors did, but with profits from their colonial enterprises. No one likes paying taxes, but everyone loves making a profit. The scheme thus became an unprecedented success. Venture capitalists funded the first ships, hoping to find new trade routes and riches. And they found them. The Europeans reinvested their profits, allowing their capital to grow and their financial and military strength to increase.

After the bourgeoisie took control of the British government during the Glorious Revolution, the British state became a venture of the propertied class, much like the Dutch Republic. The Netherlands was an oligarchic republic run by merchants, the most successful and wealthiest nation at the time, and was organised like the earlier republic of Venice. The British imported knowledge of Dutch governance by appointing a Dutch governor as their king. In the following centuries, Great Britain became the world’s largest empire.

Contrary to the Dutch, who had a minimal state and relied on private armies, the British bourgeoisie benefited from a functioning state and was willing to pay for it. The propaganda storyline became that taxation became legitimate because it had the consent of the taxed. The British bourgeoisie didn’t like to pay for corruption or ineptitude, so the state’s performance improved.³ With its secure and expanded tax base, the clampdown on corruption and ineptitude, and the invention of modern banking, trust in British financial markets improved, and Great Britain could borrow more at lower interest rates.

It helped Great Britain defeat France, which had twice the wealth and twice the population. In France, the wealthy didn’t pay taxes, and the government was always short of funding. France defaulted on its debts several times. The French government was inept and corrupt, which made lenders reluctant to lend to it. The British economic successes led them to build an extensive colonial empire, creating a large market, low interest rates, and high wages, which helped ignite the Industrial Revolution.

During the Napoleonic age, several European countries modernised their governments, establishing bureaucracies with career paths based on qualifications and merit. The British also later modernised their administration, aligning it more closely with the rational principles of government adopted by other European countries after the French Revolution.⁴ The benefits of the division of labour imply it is better to let bureaucrats run bureaucracies and businesspeople run businesses. You don’t let government bureaucrats run a business, nor do you allow your businesspeople to run the government.

The United States followed a different path. The Founding Fathers established the new state based on the most modern principles of their time. In doing so, they were ahead of their European counterparts. There were regular elections for the president and parliament, and a separation of powers among the executive, legislative, and judicial branches. Later, the US also became the first democracy.⁴ Several European countries later followed suit, but by then, their states had become professional bureaucracies.

The US administration, however, didn’t become a fully modern professional bureaucracy, so it remained plagued by corruption, cronyism, and unqualified appointees. Politicians gave their supporters government offices after winning an election.⁴ In 1881, a disgruntled campaigner for US President Garfield who had sought a diplomatic job as compensation shot the president. Appointing people for political reasons had become uncommon in much of Western Europe as professional bureaucracies rely on qualified people. Modernisation efforts in the US began in the 1880s, took decades, and never fully succeeded.

The Founding Fathers established the United States as an oligarchic republic ruled by the propertied classes, similar to Great Britain and the Dutch Republic. Rather than relying on a clean government like the British elites, they relied on political corruption to get things done, for instance, via campaign financing, bribing judges, and funding think tanks that advise the US government. After World War II, the United States emerged as a superpower, and the gold-backed US dollar became the currency used in international trade. To finance its military, the US began running deficits in the 1960s and ended the convertibility of the US dollar into gold in 1971. The US dollar then became the de facto reserve currency, most notably because oil-exporting countries accepted it.

The US dollar’s reserve-currency status enabled US elites to utilise the productive capacity of the rest of the world to sustain their empire. Foreign countries delivered goods and labour in exchange for US dollars, which the United States printed out of thin air. Americans had relatively low taxes and high deficits because foreign countries financed the extravagant lifestyles of wealthy Americans, even as many people remained poor.

The US financial elites at institutions such as the World Bank and the IMF pushed developing countries into US-dollar debt, making them dependent on exports to sustain the US empire. As a result, many industries in the United States began to suffer from the Dutch Disease, with demand for the US dollar driving up its price. The US dollar has become an international store of value, and so has US government debt. As a result, deficits have escalated further, and the American economy depends on controlling the world’s financial markets. The American empire became an evil empire of trade and usury, but the end of that empire will not necessarily make things better.

Latest revision: 11 November 2026

Featured image: cover of The Miracle Island Barataria

1. Het wondereiland Barataria. Silvio Gesell (1922).
2. 1 in 5 business leaders may have psychopathic tendencies—here’s why, according to a psychology professor. Tomas Chamorro-Premuzic (2019). CNBC.
3. The Origins of Political Order: From Prehuman Times to the French Revolution. Francis Fukuyama (2011).
4. Political Order And Political Decay. Francis Fukuyama (2015).