Banks don't reinvest savings. They loot their para-economic privileges and enrich the wealthy few.
I love any good exploration of the complex systems selling the fiction of our economy. Aaron's book is similarly concise as Yanis' Talking to my daughter about the economy that I read earlier.
Its main premise is the concept of para-economic privileges. Purely because of their enshrined and codified position in our global financial system, commercial banks can create profits with zero marginal cost. Contrary to the explanation that introduces most children to the concept of banks, a bank does not lend out its savers' money. Their ability to create money (i.e., "provide loans") is mostly a function of the lender's ability to repay a loan. And it's arguably highly unfair that such a select group can exploit this privilege for their own gains.
Somewhere midway, Aaron cites The network of global corporate control by Vitali et al. that uncovered a group of companies, with such high-density ownership ties that they're practically a super-entity, which together control forty percent of the transnational capital assets. These are precisely the keystroke rentiers.
Going into solving this inequality crisis, Aaron says of wealth redistribution schemes as "not drilling down into the engine room of capitalism" (though acknowledging that it's of course indispensable), because they leave the engine untouched: the unlimited credit supply. The social debate should be reframed to talk about who in democratic society should decide how much money is created and who should receive it. Aaron gives us two questions:
- Should banks be economized?
- Should money creation be democratized?
For (1), Aaron mentions sovereign money reform as a way to break the association between purcharsing power and debt. The economy relies on a constant supply of debt and thus will continue to be needed. With sovereign money reform, there would be no more credit only loans. Debts serve the function of distributing purchasing power.
For (2), Aaron imagines a central bank committee would decide how much purchasing power needs to be added to the economy and then parliament can spend this money. This breaks the asset inflation loop, because governments can ensure the fresh money isn't used in first instance to purchase assets. And it allows the governments' budget to be funded with fresh money instead of taxes, thus lowering burdens on citizens. But this trust in a small committee as authority is precarious.o Maybe governments should be able to fund its spending with credit it produces itself. But there are many historical precedents of this going awry. Then again, the risk of misuse is equally valid when private banks hold this privilege.
I read this book in december of 2024, but I'm writing the review in july of 2025. If rereading parts of it made me realize anything, it's that I'd love to read many more radical books on the economy.