It's not a normal bank loan, certainly. But real zero-interest bank loans do exist, and if your credit card is issued by a bank, spending with it (as long as you pay off the balance at the end of the month) is effectively obtaining a short-term zero-interest bank loan.
I think it's useful to look at the fundamental mechanics of lending (swapping one new debt for another, transferring the new money, recovering it, and ultimately writing off both debts) in isolation, before considering the effects of default and interest (which is discussed in part 2: https://economics21st.substack.com/p/money-and-banking-2).
No "zero-interest" bank loan exists there because the banks, cunningly, load the bank charges onto the vendor who accepts the card transaction. Some vendors offer incentives to cash-customers to avoid losing those bank charges on "credit-card" sales.
They certainly charge the vendors. I think there are different valid interpretations. You can either see it as a zero-interest loan for the customer and separately the bank charging the vendor for the payment service it provides (which is valuable for avoiding the cost and risks of banking the cash), or the vendor is paying the interest for the buyer, or some combination of the two. Or you could argue that it's people who don't pay their credit card balance in full each month who subsidise the people who do. I'm not sure there's any way to say that one of these interpretations is more correct than any other.
On the existence of zero-interest loans, there's UK tax law about firms lending to directors or employees interest-free, so I assume it has been known to happen.
That seems to me to be an implicit subsidy of banks and other payment processors at the expense of cash users. I think it was only in the 1980s that vendors in the UK were actually allowed to charge less to customers paying by cash (or more to card users).
I don't disagree with this simple explanation of how our money actually works. It does not seem to conflict with Graeber's discussion of its evolution, either.
However, what it actually represents is not the promise, debt, or thing in the possession of each. It is the work behind the thing. In the case of money, it is the work exchanged to obtain the money.
"It does not seem to conflict with Graeber's discussion of its evolution, either."
Yes, I'm no historian, so I'm neutral on the claims of the evolution of money. I just set out to describe a variety of solutions to the problem of trade in terms of what everyone owns, is owed and owes.
I'm not sure how you're concluding that the money represents work. If you look at how the balance sheet of the bank changes, money gets created when a bank writes an IOU, and gets destroyed when the holder of the money agrees to it being destroyed. These two events aren't associated with the performing of work, or its opposite (if that means anything!).
If we look at how money is created, used, and destroyed, and how it appears on a balance sheet, it works just like any other debt. Things which you owe are your liabilities. Things which you are owed are your (non-tangible) assets. Bank money ("deposits") fit that pattern well: they are liabilities of the bank and assets of the account holder. The only difference compared to a non-monetary debt is that $1 or £1 isn't a name for a commodity any more: it's purely an abstract thing with no tangible form, existing only as the denomination of a debt. They can't be settled by transfer of the specified tangible asset (since there are no tangible dollars or pounds), but have to be settled in another way: by transferring a third-party debt asset (e.g. cash), by providing a mutually-acceptable alternative, or by mutual cancellation of debts (e.g. when repaying a loan).
I don't deny that money is often obtained in exchange for work, but that's not when money is actually created — unless someone is working for a bank! And even in that case, my whole approach to analysis is to split transactions into smaller "actions", each represented by an arrow, which can in principle occur independently of each other, and whose effects can be analysed separately. It's a very different approach from what I've seen other economists use. You can find the idea from first principles in this short article:
For the record, I note that Eve doesn't charge Alice interest on her "loan" of credit. That's not a real bank "loan".
It's not a normal bank loan, certainly. But real zero-interest bank loans do exist, and if your credit card is issued by a bank, spending with it (as long as you pay off the balance at the end of the month) is effectively obtaining a short-term zero-interest bank loan.
I think it's useful to look at the fundamental mechanics of lending (swapping one new debt for another, transferring the new money, recovering it, and ultimately writing off both debts) in isolation, before considering the effects of default and interest (which is discussed in part 2: https://economics21st.substack.com/p/money-and-banking-2).
No "zero-interest" bank loan exists there because the banks, cunningly, load the bank charges onto the vendor who accepts the card transaction. Some vendors offer incentives to cash-customers to avoid losing those bank charges on "credit-card" sales.
They certainly charge the vendors. I think there are different valid interpretations. You can either see it as a zero-interest loan for the customer and separately the bank charging the vendor for the payment service it provides (which is valuable for avoiding the cost and risks of banking the cash), or the vendor is paying the interest for the buyer, or some combination of the two. Or you could argue that it's people who don't pay their credit card balance in full each month who subsidise the people who do. I'm not sure there's any way to say that one of these interpretations is more correct than any other.
On the existence of zero-interest loans, there's UK tax law about firms lending to directors or employees interest-free, so I assume it has been known to happen.
I've just discovered that in the UK, it became illegal for vendors to charge differentially depending on payment instrument in 2018 (following some 2012 legislation). https://assets.publishing.service.gov.uk/media/5b2d09bae5274a55bb5790cb/payment-surcharges-guidance-update.pdf
That seems to me to be an implicit subsidy of banks and other payment processors at the expense of cash users. I think it was only in the 1980s that vendors in the UK were actually allowed to charge less to customers paying by cash (or more to card users).
Aldi (in Australia) does add the card fee to the docket. It seems to be optional here. Many traders don't.
I don't disagree with this simple explanation of how our money actually works. It does not seem to conflict with Graeber's discussion of its evolution, either.
However, what it actually represents is not the promise, debt, or thing in the possession of each. It is the work behind the thing. In the case of money, it is the work exchanged to obtain the money.
Thanks for the comment.
"It does not seem to conflict with Graeber's discussion of its evolution, either."
Yes, I'm no historian, so I'm neutral on the claims of the evolution of money. I just set out to describe a variety of solutions to the problem of trade in terms of what everyone owns, is owed and owes.
I'm not sure how you're concluding that the money represents work. If you look at how the balance sheet of the bank changes, money gets created when a bank writes an IOU, and gets destroyed when the holder of the money agrees to it being destroyed. These two events aren't associated with the performing of work, or its opposite (if that means anything!).
If we look at how money is created, used, and destroyed, and how it appears on a balance sheet, it works just like any other debt. Things which you owe are your liabilities. Things which you are owed are your (non-tangible) assets. Bank money ("deposits") fit that pattern well: they are liabilities of the bank and assets of the account holder. The only difference compared to a non-monetary debt is that $1 or £1 isn't a name for a commodity any more: it's purely an abstract thing with no tangible form, existing only as the denomination of a debt. They can't be settled by transfer of the specified tangible asset (since there are no tangible dollars or pounds), but have to be settled in another way: by transferring a third-party debt asset (e.g. cash), by providing a mutually-acceptable alternative, or by mutual cancellation of debts (e.g. when repaying a loan).
I don't deny that money is often obtained in exchange for work, but that's not when money is actually created — unless someone is working for a bank! And even in that case, my whole approach to analysis is to split transactions into smaller "actions", each represented by an arrow, which can in principle occur independently of each other, and whose effects can be analysed separately. It's a very different approach from what I've seen other economists use. You can find the idea from first principles in this short article:
www.economics21st.com/p/the-7-economic-actions
I'd be happy to hear more about the idea that money represents work if you want to make the case.