by Taimur Akbar Interest is used for economic calculation in commercial loans in

by Taimur Akbar

Interest is used for economic calculation in commercial loans in that that money is going towards expanding the productive capacity of the market, and it is a matter of reciprocity for the borrowers in commercial loans to give “dividends” to the lenders in the form of interest, as well as to signal to the market the profitability and risk inherent in said investments, allowing for credit to shift the interest rates towards equilibrium in calculation of risk/reward, leading to sustainable credit markets and production lines.

Then, with consumer loans, all that is happening is that the family wants to use their future income to make purchases now, and it is a matter of consumption vs a matter of investment, so the financial sector engages in a conflation between constructive and consumptive lending, when consumption and investment should not be treated the same as they serve different functions. The treatment of consumption and investment as one then allows predation if one accepts the act of extension of a loan as the key ingredient rather than the purpose of the loan.

So one should regard the purpose of the end funds rather than the extension of the funds as the operation.