Author: moderator

  • Real Estate

    In 1879 Henry George published a book called Progress and Poverty in which he argued that people should own the value that they produce, but that land and natural resources should belong equally to all members of society. The book, which was apparently  the first popular economics text, was one of the most widely printed…

  • Financialization

    Even the textbook explanation of finance makes a distinction between “real investment” and “financial investment.” [see Samuelson p. 418] The term “financialization” has been coined to describe a fundamental change in the economy over the last 50 years.[ see Palley] It has been variously defined, but in its broadest sense it “refers to the increasing…

  • Risk Management

    There are a host of “financial products” in addition to shares of stock whose justification is risk management for investors and the generation of information about what investors expect to happen.  In reality they often serve only to permit speculation about price fluctuations in financial markets.  Even mainstream economists no longer hesitate to use the…

  • Liquidity

    To understand how a “credit crunch” or “liquidity trap” can threaten an entire economy and how a bank can be “too big to fail,” it is necessary to have a better understanding of what the “products” are in financial markets. Financial markets theoretically exist for two reasons: to provide liquidity for investments and to facilitate…

  • Finance

    The textbook explanation of how economic activity is financed is based on a simplified conception of the function of banks and the stock market. Banks theoretically use their depositors’ money to make loans to businesses, and the stock market enables businesses to raise money by selling “shares” to individual investors. Each of these ideas glosses…

  • Credit

    The term “credit” is derived from the Latin term for belief or trust. Perhaps the most common understanding of credit is “buy now, pay later.” It means that you can walk out of the store with something simply because you have given your word that you will pay for it when the bill arrives. This…

  • Debt Financing

    Consumer credit loans seem benign enough except for cases where people dig themselves into a hole by using credit card debt to finance everyday expenses until things take a turn for the better. Mortgages and refinance loans can also be a problem when people bet on their home’s value increasing dramatically, and student loans often…

  • Mortgage Loans

    The first question the average person is likely to ask in response to talk about eliminating interest-bearing loans is “How am I going to make the big-ticket purchases that are so important to me like a car, a house or a college education?” A car purchase is often financed by a loan with the car…

  • Compound Interest

    Keynes marveled at the way compound interest facilitated the accumulation of capital which made the modern era possible  [see Keynes, “Economic Possibilities for our Grandchildren“ ] What he was really talking about is the growth that is possible when profits from an enterprise are re-invested rather than spent on consumption. [see Growth] Adding unpaid interest to…

  • Usury

    Prohibitions against charging interest on loans seem to be almost as old as the practice of charging interest. The definition of usury has vacillated between prohibitions on any interest and prohibitions on excessive interest. Ancient Israelites were prohibited from charging interest on loans to fellow Israelites but not on loans to foreigners. Traditional Islam prohibits…