Posted: Feb 09, 2017 1:26 am
by Thommo
  • People don't live forever.
  • Economies grow.

The first one is the key. Companies that lend distribute profits to people. Any person who accrues a lot of wealth by judicious lending will die within a generation or two, at which point their estate is taxed and what's left is divided up among beneficiaries, of which there is frequently more than one.

If humans lived forever the loss of this safety valve would be a serious concern (and not just regarding lending, any profitable economic activity that uses capital investment is subject to the same feature) and the system would tend towards the steady states, which will be all the wealth being in the hands of few (or ultimately one) individuals. As long as there's a safety valve of inheritance taxes/estate division the dynamics of the system are different though.

In theory the "live forever" concern would apply to an institution which simply functioned to accumulate capital (say a nation state using an exponentially growing sovereign wealth fund), but in practice political solutions would no doubt be found if such a case were to arise - along the lines you suggest of default.