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What's the Bourgeois rationale for the existence of compound interest as opposed to linear? (lemmygrad.ml)

submitted 7 months ago by yewler@lemmygrad.ml to c/comradeship@lemmygrad.ml

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I'm teaching exponential relationships to my class tomorrow morning and one of the applications of this understanding is obviously debt.

We just got finished discussing linear relationships last week, and it got me thinking: why is the accumulation of interest not linear? You've only borrowed the principal, so in my mind, if you're going to have interest, it would be proportional to the amount of the principal you haven't paid off yet.

Thinking like a lib (or maybe not since I can't understand the way it actually works), the lender would be unable to access a certain amount of money that they previously did have access to, and thus would be privy to a proportion of that amount. As you pay on the principal, that amount should go down because they have more access to the money they previously had access to.

What purpose does your interest creating more interest serve other than simply to siphon money from the ones that need to borrow and those that have enough to lend?

Obviously that is the reason, but I'm just curious if there's an actual reason they have, or if they really are just that blatant.

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[–] bennieandthez@lemmygrad.ml 11 points 7 months ago* (last edited 7 months ago) (1 children)

it's something that can be traced since Babylonia. Michael Hudson has a book specifically about this subject, the collapse of antiquity i think. I haven't read it tho but i remember him promoting the book once in a ben norton podcast.

IMO it adds pressure to pay the loan, a simple interest does not generate pressure. in typical fashion, banks pay bondholders simple interest (depends), but they charge compound interests on their loans.

[–] davel@lemmygrad.ml 10 points 7 months ago* (last edited 7 months ago)

I haven’t read them yet either, but that was the first book in the trilogy he’s writing, …and forgive them their debts. The second book, The Collapse of Antiquity, is about how antiquity’s wisdom of debt forgiveness was dispensed with.

It describes how the dynamics of interest-bearing debt led to the rise of rentier oligarchies in classical Greece and Rome. This caused economic polarization, widespread austerity, revolts, wars and ultimately the collapse of Rome into serfdom and feudalism. That collapse bequeathed to the subsequent Western civilization a pro-creditor legal philosophy that has led to today’s creditor oligarchies.

He’s working on the third book now, about the middle ages.