Fractional reserve lending and the creation of money by banks is a bedrock of modern economic activity. However, despite its benefits, it’s fundamentally disrespectful and an affront to our sensibilities because it goes against what we’re all taught from a young age – that money is valuable and must be cherished and worked for.
People Work Really Hard for Money
My first job out of college in 2005 was that of a store manager in Chennai, India, for a large retail chain – Food World. The store workers were paid a pittance for back-breaking work and responsibilities. The salary of a floor supervisor was Rs. 2,500, or $45 per month. They worked 12 hours a day stocking, taking inventory, unloading, manning the cash till, bagging, customer service, and much more. And for all this, they would get a tiny amount that wasn’t even enough to pay their rent.
Well, the free market, I suppose. Tough right?
When I came to the US, I saw the same thing. People are working their asses off for a few dollars an hour, often scrounging to save every penny to make ends meet and obsessing over a few cents to save on gas. And while we might feel sympathy, we all acknowledge that money is scarce, that it should be worked for, cherished, saved carefully, spent carefully, and above all, respected. This is what we are taught is the basis of “good morals” and being a responsible adult.
“The Maid” is a Netflix documentary that depicts the hardships of a Alex, a woman subjected to domestic violence who escapes with her child. Her life revolves around a few dollars, struggling to fill gas, getting jobs cleaning houses for peanuts, and being unable to afford daycare and even food for herself and her child. For Alex, finding $500 would be a life-changing experience.
And yet what’s $500 in the world of money creation? A rounding error. Less than that even!
Banks Money Creation is Disrespectful
But when you find out how banking works, you realize it’s all a lie. Money isn’t scarce at all. Bankers create money out of thin air with the stroke of a pen. Billions upon billions of dollars are made without first putting in the requisite work. We find that there’s nothing sacred about money, after all. It’s just numbers on a ledger that bankers create and destroy.
For Alex in “The Maid” , a dollar represents work done. She cannot get dollars without working hard and struggling. For her, a dollar is something sacred, and it’s a stand-in for her sweat and, sometimes, her tears and blood.
But when a bank creates money out of nothing, where is the work done to back up that money? When a new deposit is created with new money from a bank loan, those are just numbers on a ledger. There’s no sweat behind those numbers. And yet, the rest of us are expected to sweat and scrounge and dedicate our lives to earning money?
None of this is a secret. But I feel people haven’t really thought about the ethical implications of fractional reserve lending. It’s a moral abomination. Our entire economic system relies on feeding us the lie that money is valuable and must be worked for. Society is built around that assumption. But in the background, this trust is abused. Modern money is no such thing. It’s cheap, plentiful, and doesn’t require any work to back it up.
It’s a scam and a deception of breathtaking proportions. I can only imagine that people haven’t thought through the ethical implications. Even those who know how it works simply accept it without question, citing the economic benefits but never considering the moral consequences.
I’m not proposing a solution here. I’m merely calling out the evil and immorality of the existing system. I don’t know what should replace it, but what’s happening right now is wrong and shouldn’t continue.