To start off on a related topic: Tobold, labor is a cost. The cost is easily seen if you imagine what labor buys with wages. In that way you can view TVs and food as input costs for manufacturing, but the point is that labor cannot be ignored as a cost.
Moving on from that, the problem is still, as I commented, the existence of an 'investor class'. At first glance they seem necessary. After all, projects need capital, whether public infrastructure, research and development, or machinery for manufacturing. But what is capital? It is money. And what is money? It's an abstraction of labor or material goods, a way to generalize them to make them easily interchangeable. Is a dollar valuable? By itself, no, but it can give access to labor or products which are valuable.
Investment capital is essentially a way of regulating labor. It is a way to bring the labor of miners, engineers, welders, carpenters, and everyone else needed to one place. It pays them and is in turn paid back, plus interest, from the fruits of their labor.
Note that while the investor is essentially passive, since he does not build, gather, or even organize, he does still add value. That capital is needed to get things rolling. But is he needed? No.
Try this for an imperfect alternative: government using inflation to create a loan to the business, which is then gradually paid back. There is no need for interest, in fact that would be counter-productive, since it makes little sense to take extra money from productive companies if it (the money) isn't adding value (to distinguish it from the money we take from companies for salaries and taxes).
Here are the benefits: lower consumer prices, greater employment, redirection of intellectual labor to more productive pursuits, and a reduction in the dangerous concentration of capital.
Lower consumer prices:
What goes into the cost of a product? There are the obvious ones of labor and materials. Included in those are research and development. But then there's that strange thing called profit. Where does that go? It doesn't go to the workers, managers, or suppliers*, but instead is an added amount that is siphoned away by investors. It is a perpetual tax. By removing investors, companies would no longer need to run net profits. They would of course build up and drain capital for projects, but would not need to constantly shovel out money, money which they get by charging more than the real cost of a product (labor and materials). With the no-interest loan, companies could instead charge a slightly higher amount, temporarily, to pay off the loan, and once that is completed, lower their price, or perhaps pay workers more, either one of which could offer a competitive advantage in gaining customers or quality workers.
Since interest is a cost to the company, and since higher costs discourage economic activity, it is obvious that interest is harmful to employment. Even worse, consider that to hire a worker may mean also buying equipment for them to use, which with interest is even more expensive, causing productive labor to be idled. Eliminating the interest effectively lowers labor costs (since the equipment is attached to the labor)
Reduction of dangerous concentrations of wealth:
Why do we desire representative government? Because it is safer than non-representative government. One reason is how it distributes power, taking some of the power of government and giving it back to the greater population. Wealth is a source of power, so concentrations of wealth are also concentrations of power, which are potentially dangerous. Now consider the specific power-holders, the investors, whose immediate interests are directly opposed to those of workers. Workers need money (or to fit with labor being a cost, TVs and food), while investors want profit, which draw from the very same pool of incoming money. But investors have a great deal more power in this situation. Unions used to counter this, by creating their own dangerous concentrations of wealth; Reagan dealt with that, but failed to finish the job by taking down the investor class as well.
Redirection of intellectual capital:
Supposedly investors are intelligent. Actually I'm fairly confident they are, based on their ability to accumulate massive personal wealth and power through little work and often without even needing to break the law, too much. So in theory they are also useful. Currently they are, but in an industry which could be replaced, much like telephone operators who were very good at what they did, but could be replaced by computers. They found other productive work, enriching other industries with their mental and physical deftness. Perhaps investors could do the same, turning toward directly productive activities, such as anything else.
Of course no one likes losing their job or seeing it happen to their friends or family, so I doubt this will be a popular idea. It's certainly imperfect and would need a lot of details to work out. But despite the disruption, the new system would be beneficial in the long run. Isn't that the creative destruction they love to glorify?
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