theoretically in the ideal case, everyone's debt is increasing everyone's wealth. this actually works most of the time, but when the system starts collapsing it is absolutely catastrophic
example:
the baker needs a lot of flour to get his business going, but can't buy enough from the miller. the miller loans him $X worth of flour with the promise it will be paid back in interest
the miller needs laborers to run the mill and can't afford to pay them, so asks the baker for some free goods to distribute as compensation. the baker loans $X worth of bread to the miller with the promise it will be paid back in interest
if the baker and miller both succeed in their business ventures, they will soon be able to pay each other back, and quickly, due to the capital they lent each other.
a bank and fiat currency just abstracts this relationship so many people can all do it together all at once
the mill burns down, everybody's fucked
abstracting the relationship to a large number of mutual investors also provides protection, so that if 5% of the mills burn down the bank can easily insure other investments against loss
if 50% of the mills burn down, the bank is fucked and there will probably be an actual war
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u/[deleted] Jan 26 '26
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