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Small debts lead to a borrower, while large debts invite an adversary.#

A fundamental characteristic of debt is that the debtor acknowledges their obligation. If they fail to repay the debts owed, they cannot incur further debts. In short, debts must be repaid; failing to do so is essentially a violation of rules. In contrast, debt derivatives allow counterparties to pay interest without requiring immediate repayment; in essence, this is true debt. This gives rise to a new form of debt, known as contingent liabilities, which are entirely subject to various factors that may or may not arise during the validity period of the derivative contracts.

Debt derivative contracts have led people to overlook the interest on contracts, focusing only on the net cash flows between the swap parties. The complex nature of swap contracts obscures the relationships between debtors, creditors, and the essence of debt itself. Nowadays, if interest rates change during the validity of a swap contract, the payer can become the payee. In the next phase, this situation may reverse again, and perhaps continue to fluctuate before the contract terminates. The certainty and urgency of debt have now devolved into a matter of probability, with many risk managers confident in their ability to predict accurately.

The Modigliani-Miller theorem is an important theory in financial economics, proposed by Franco Modigliani and Merton Miller in 1958. The theorem mainly explores the impact of capital structure on company value.

Core points of the MM theorem:

• Independence of firm value: Under the assumptions of no taxes, bankruptcy costs, and incomplete market information, a firm's market value is independent of its capital structure. In other words, a company's value is not affected by its debt-to-equity ratio.
• Cost of capital: When a firm increases its debt, shareholders may demand higher returns to compensate for the increased risk, but the overall weighted average cost of capital remains unchanged.
• Market efficiency: The MM theorem assumes that markets are fully efficient, and all investors have the same information.

Applications and limitations:

• Application: The MM theorem provides a theoretical foundation for understanding capital structure decisions, influencing subsequent research in financial management and corporate governance.
• Limitation: In actual markets, factors such as taxes, transaction costs, and information asymmetry exist, making the conclusions of the MM theorem not entirely applicable in reality.

In summary, the MM theorem laid the groundwork for the development of subsequent financial theories and sparked widespread discussion about capital structure.

The Black-Scholes Model is a very important option pricing model in financial engineering, proposed by Fischer Black, Myron Scholes, and Robert Merton in 1973. This model provides a theoretical basis for pricing European options.

Basic assumptions of the BS model:

• Market efficiency: The market is efficient, and prices reflect all available information.
• Constant risk-free interest rate: The risk-free interest rate remains unchanged throughout the option's validity period.
• Stock prices follow geometric Brownian motion: Stock price changes are random and follow a log-normal distribution.
• No arbitrage opportunities: There are no opportunities to profit from buying and selling options and underlying assets.
• No transaction costs: Buying and selling assets incurs no fees.

Main formulas:
The core formula of the BS model is used to calculate the theoretical prices of European call options and put options:

Call option price formula:

[
C = S_0 N(d_1) - Xe^{-rT} N(d_2)
]

Put option price formula:

[
P = Xe^{-rT} N(-d_2) - S_0 N(-d_1)
]

Where:

(C) = Call option price
(P) = Put option price
(S_0) = Current stock price
(X) = Exercise price
(r) = Risk-free interest rate
(T) = Time to expiration (in years)
(N(d)) = Normal distribution function
The calculation formulas for (d_1) and (d_2) are:

[
d_1 = \frac{\ln(S_0/X) + (r + \sigma^2/2)T}{\sigma \sqrt{T}}
]

[
d_2 = d_1 - \sigma \sqrt{T}
]

(\sigma) = Volatility of the stock price.

Applications and impacts:

• Wide application: The BS model is not only applicable to option pricing but is also widely used in pricing other derivative financial instruments, risk management, and portfolio optimization.
• Nobel Prize: Myron Scholes and Robert Merton received the Nobel Prize in Economic Sciences in 1997 for this model.

Limitations:
Despite its significant position in financial markets, the BS model has some limitations:

• Assumes constant risk-free interest rates and volatility, which may change in actual markets.
• Not applicable to American options (which can be exercised before expiration).
• Does not consider market frictions, such as transaction costs and taxes.

In summary, the Black-Scholes model is one of the cornerstones of modern financial theory, greatly advancing the development of options and other derivatives markets.

The emergence of this model coincided with the collapse of the Bretton Woods system. Since then, the earliest stock option models have expanded to other financial instruments. Merton gained fame for his empirical research on the efficient market hypothesis, which is the dominant theory analyzing how stock markets operate in the context of information asymmetry.

Interest comes in two forms—surplus interest and credit interest—both of which belong to sales transactions. The former refers to an increase in capital assets in a transaction, where the exchanged items are of the same kind; the latter refers to immediate payment, selling one item in exchange for another or a completely different item, with the amount exceeding deferred payment.

The term "sale" implies some form of profit. However, in Islamic thought, the relationship between interest and profit is not necessarily antagonistic, but they stand on opposite sides. Why is profit encouraged while interest is prohibited? For centuries, banks have considered interest as the profit from lending.

The construction of interest is not meant to allow both parties in a credit transaction to share the corresponding risks; there is no fixed amount, allowing one party to take advantage. Initially, the same prohibition extended to other financial products, such as futures contracts, which are seen as a form of risk. Any financial product involving zero-sum games is classified as gambling.

Debt capacity should be a straightforward financial concept: assets greater than liabilities indicate solvency; conversely, there is a risk of bankruptcy.
— Financial Crisis Inquiry Commission, 2011

The management of float reflects the traditional conflict between liabilities and repayment. Suppose a tenant's rent is due on the first day of the month, which happens to fall on a Saturday. Even if he does not have sufficient funds in his account, he can arrange to pay that day because the check deposited in the landlord's bank will not clear until the following Monday, and settlement may take at least two days. This means that the funds do not need to be deposited in the cash account before Wednesday; in other words, the payer has a five-day float period. From both sides' perspectives, the tenant wishes to extend the float period, while the landlord wants to shorten it as much as possible.

The ability to control this process depends on the structure of the banking system. If both the payer and the landlord's accounts are at the same bank, the settlement time becomes zero; if they are at two banks, both members of the Federal Reserve, the process may take several days; if one is a Federal Reserve member and the other a state-chartered bank, it will take even longer. Float management has become an art, especially on Wall Street. Many retail clients of brokerage firms withdraw cash from their accounts and often find that checks come from small banks located far away on the East Coast, typically from the Midwest or West (using "float"). Deliberately staggering settlements is aimed at maximizing the float period for the brokerage firm.

Corporate finance departments are well aware of the float period, but if individuals want to use the float period to pay bills, it raises an old question—are debtors allowed to postpone repayment, even for a very short time? There is an illegal practice known as "bad checks," where the issuer knowingly signs a check without sufficient funds, relying on some temporary transaction. In simple terms, the check is supported only by air.

Among various measures, electronic banking and electronic payments have reduced the number of checks that the Federal Reserve has to settle each year, significantly impacting unpaid float amounts. Direct deposits and online banking, once introduced, greatly reduced float, but one area of high interest for banks remains unchanged: payday loans still depend on the traditional check turnover. This again shows that financial services aimed at marginalized citizens still carry high-interest rates, often disguised as some form of fees.

Debt
Noun. 1. The total amount of money owed. 2. The state of owing money. 3. Gratitude for help or services provided by others.
— Oxford English Dictionary

If you owe the bank $100,000, then your property belongs to the bank. If you owe the bank $100 million, then the bank belongs to you. — America
"Debts must be repaid."
The power of this statement lies in the fact that it does not belong to the realm of economics but rather to a moral discourse. After all, isn't the entirety of morality built around the idea that people should repay their debts? Returning what is owed; accepting responsibility; fulfilling obligations to others, just as one expects others to fulfill their obligations to you. Is there a more straightforward example of evading responsibility than breaking promises made or refusing to repay debts?

Moral hazard is an economic term referring to the risk that one party to a contract may change their behavior to the detriment of the other party's interests. For example, when someone obtains insurance from an insurance company, the cost of that person's behavior is partially or fully borne by the insurance company, which faces moral hazard. If that person defaults and causes a loss, they do not bear full responsibility, and the insurance company often has to shoulder most of the consequences. At this point, the individual lacks the incentive to avoid default, relying solely on their moral self-discipline. They can change their behavior at any time, causing losses for the insurance company, which must bear this risk.

Consumer debt is the lifeblood of the economy. All modern nations are built on the foundation of deficit spending. Debt has become a core issue in international politics.

Throughout human history, specific debts and specific debtors have always been treated differently.

A joke elegantly expresses the same principle: One day, I was walking down the street with a friend when suddenly a guy jumped out of an alley, pointed a gun at us, and said, "Robbery!"
As I pulled out my wallet, I thought, "I need to minimize my losses." So I took out some cash and turned to my friend, saying, "Hey, Fred, this is the $50 I owe you."
The robber felt so humiliated that he pulled out $1,000 and forced Fred to lend it to me at gunpoint, then robbed me of that money.
In the final analysis, the one with the gun does not need to do anything they do not want to do. However, to successfully implement a mechanism based on violence, a series of rules must be established. The rules can be arbitrarily set. Sometimes, even the content of the rules is irrelevant. Or at least, it is irrelevant at first. The key is that from the moment people use the concept of debt to reframe the issue, they inevitably begin to ask who owes what to whom.

The debate about debt has persisted for at least 5,000 years. For the vast majority of human history, at least in the history of nations and empires, the vast majority of people have been told they are debtors.
The struggle between people is most often presented in the form of conflict between debtors and creditors—debates about the morality of interest payments, debt servitude, debt forgiveness, repossession, compensation, seizing sheep, confiscating vineyards, and selling the children of debtors into slavery.
Regularity begins in the same way: by destroying debt records—wooden tablets, papyrus, bills, and other forms of records that creditors might use at any time and place (after which rebels typically seek to obtain land ownership and tax assessment records). As the great classical scholar Moses Finley often said, all revolutionary movements have the same step: "Cancel debts and redistribute land."
Moral and religious expressions contain a considerable amount of terminology derived from these conflicts. Therefore, our tendency to overlook this point seems even stranger. Terms like "calculation" or "redemption" are the most obvious examples, as they directly borrow from economic terminology. More broadly, terms like "guilt," "freedom," "forgiveness," and even "original sin" can be said to originate from economic activity. In establishing the foundational expressions of human morality, the debate over who owes what to whom plays a central role.

Most people naturally hold the following two views: (1) Repaying borrowed money is a moral issue; (2) Anyone who has a habit of lending money is a bad person.

For the vast majority of people in the world, the two largest expenditures in their lives are marriage and burial. These two events require a significant amount of money and can only be financed through debt.
Religious traditions seem to address this dilemma in different forms. On one hand, all human relationships involve debt, and they all make moral compromises. Both parties may become guilty simply by establishing some form of relationship. At least if repayment is delayed, they are likely to become guilty.

On the other hand, if we say that some people's actions seem to indicate they "owe nothing to anyone," this statement does not praise that person as a moral model. In the real world, morality largely means fulfilling responsibilities to others, and people stubbornly imagine this responsibility as debt. Perhaps monks can escape this predicament because they are completely isolated from the secular world. The rest seem to be guilty, so they can only live in a world that is not very reasonable.

Deficit spending refers to relying on debt rather than taxes to meet expenditures.
If the obligation to pay taxes is viewed as a debt, then it becomes an absolute majority—and if there are no other factors, the two are closely linked. Because throughout history, the need to save money for taxes has often been the most common reason for falling into debt.

Who exactly owes what to whom?
This perfectly illustrates that once a person raises the question of "who owes what to whom," it indicates they have begun to adopt the creditor's perspective. It is as if if we do not repay our debts, then "being reincarnated as an ox or horse is our way of repaying." Therefore, if you are an excessively demanding creditor, you will also "repay again." In this way, even the justice of cause and effect can be simplified into a commercial transaction.

To be precise, what would it mean when our sense of morality and justice is simplified into a commercial expression? What does it mean when we reduce more responsibilities to debt? What changes occur when one person turns to another to borrow money? When our expressions have been shaped by the market, how do we discuss them? In a sense, the distinction between responsibility and debt is simple and obvious.

Debt is the responsibility to repay a certain amount of money. Therefore, unlike other forms of responsibility, debt can be measured precisely. This makes debt simple, cold, and devoid of personal feelings—consequently, it also makes debt liquid. If a person owes another person a favor, or even their life, then this indebted relationship is only valid for that specific person. However, if a person owes a loan of $4,000 at an interest rate of 12%, then it does not matter who the creditor is, nor do the creditor and debtor need to ponder what the other party needs, wants, or can do—if what is owed is a favor, respect, or gratitude, then both parties must engage in such contemplation. If what is owed is money, there is no need to consider human influence; one only needs to calculate the principal, balance, penalties, and interest. If the final calculation indicates that you need to leave your home and abandon your house, or that your daughter must go to a logging camp to sell herself, this is clearly unfortunate, but it is necessary for the creditor. Money is money, and transactions are transactions.

The distinction between debt and moral responsibility does not lie in whether there is a person holding a weapon to seize the debtor's property or threatening to break the debtor's legs to ensure the fulfillment of the obligation. In fact, the distinction is very simple: it lies in whether the creditor can quantitatively and precisely specify how much the debtor owes them.

However, if one looks a little deeper, one will find that these two factors (violence and quantification) are closely linked.
Violence, or the threat of violence, transforms the relationships between people into a mathematical game of behavioral change.

Financial products are almost entirely carefully designed scams.
Their operation includes: selling loan products to poor families, which are designed in such a way that they inevitably lead to defaults; betting on the time it takes for these products to default; bundling loan products and bets together, selling them to institutional investors (perhaps the retirement pension accounts of the holders of the loan products), claiming that they will make money no matter what happens, and allowing the aforementioned investors to transfer this bundled product as if it were currency; transferring the responsibility for paying off the bets to large insurance groups, which, once the final debt amount cannot be repaid (which is bound to happen), will have these debts borne by taxpayers (and those insurance groups indeed received emergency bailouts).

With the collapse of well-known capital financial institutions (Lehman Brothers, Citigroup, General Motors), advanced financial knowledge has proven ineffective. Everyone believes that, in terms of the essence of debt and credit institutions, at least a broader discussion needs to be restarted, rather than just a simple dialogue.

The collapse timeline of well-known capital financial institutions:

• Lehman Brothers: Filed for bankruptcy on September 15, 2008, marking a significant event in the financial crisis.
• Citigroup: Although Citigroup did not completely collapse, it experienced a significant financial crisis during the 2008 financial crisis and accepted government assistance in November 2008.
• General Motors: Filed for bankruptcy protection on June 1, 2009, becoming one of the largest bankruptcy cases in U.S. history.

(Here, "democracy" refers to "capitalism.") This is intriguing: those who feel responsible for the operation of the current global economic system.
Currency. The distinction between debt and responsibility lies in the fact that debt can be precisely quantified, and the process of quantification requires the use of currency to achieve.
The definition of currency functions typically has three aspects: medium of exchange, measure of value, and store of value. All economics textbooks define the medium of exchange as the most important function of currency. The following excerpt is from "Economics" edited by Case, Fair, Gärtner, and Heather (1996):

In complex societies, there are many types of goods for trade. If transactions were conducted through barter, the workload would become enormous and unbearable. Imagine walking into a store and trying to find someone selling all the items you need, while those people also happen to need the goods you can provide—how difficult would that be!
Some believe that the emergence of a medium of exchange (or payment method) eliminates the problem of double coincidence of wants.

Thus, the minting of currency was born. Indeed, issuing minted currency means that the government must be involved, as mints are typically operated by the government. However, in accurate historical terms, the government plays only a limited role—ensuring the money supply, and it always messes this up. Throughout history, unscrupulous rulers have often cheated on very simple economic principles: they reduce the value of minted currency, leading to inflation and various other adverse effects.

What is a favor? How can a favor be quantified? On what basis can you say that so many potatoes or a pig is roughly equivalent to a pair of shoes? Because even a rough estimate must have some way to determine that X is approximately equivalent to Y, or that the value of X is slightly lower or higher than Y. Doesn't this indicate that at least in terms of comparing the value of different items, something like currency has already existed in the sense of serving as a measure of value?

In most gift economies, there are indeed rough ways to solve this problem. You need to establish a series of graded categories for the types of items. Pigs and shoes can be considered roughly equivalent items, and you can exchange one for the other; while coral necklaces are another thing, requiring another necklace or at least another piece of jewelry for exchange—anthropologists refer to this as creating different "levels of exchange." This does simplify things to some extent. Once cross-cultural barter transactions become common, they will operate according to similar rules: specific items can only be exchanged (for example, exchanging fabric for spears), making it easier to calculate equivalences between items. However, this does not help us solve the question of the origin of currency; in fact, it makes the problem extremely tricky. If salt, gold, or fish can only be exchanged for certain specific items, then why do people still want to hoard them?

People are born with debts—gods, saints, ancestors, and others are all creditors. If a person offers a sacrifice, it is because they have owed a debt to the gods since birth... If a person recites a scripture, it is because they owe a debt to the saints... If a person wishes for children, it is because they have owed a debt to their ancestors since birth... If a person generously hosts strangers, it is because they owe a debt to others.
— "The Book of the Hundred Paths"

(Or using Smith's terminology—"divine will") the principle upon which things are arranged is that in a free market, people pursuing their own interests, as if "guided by an invisible hand," enhances the overall interests of society. According to Smith in "The Theory of Moral Sentiments," his famous "invisible hand" is the embodiment of divine will. It is, in fact, the hand of God.

Transactions between individuals and between nations can essentially be summarized in the form of barter. Others mention that "the veil of currency" obscures the essence of the "real economy" (where people produce actual goods, provide actual services, and then repeatedly exchange them).

Debt. In fact, a coin is a promissory note. Although traditional views hold that paper money is a promise, or should be a promise, to guarantee the payment of a certain amount of "real currency" (gold, silver, etc.), credit theorists believe that paper money represents a promise to pay something equivalent to an ounce of gold. But that is the entirety of the meaning of currency.

How did credit currency come into being?
For example, we can assume that Joshua is ready to give his shoes to Henry; and Henry's promise is not merely to owe him a favor, but also to promise that he owes Joshua something of equal value. [Henry gives Joshua a promissory note. When Henry has something useful for Joshua, Joshua can take the promissory note to redeem Henry's promise. In this way, Henry tears up the promissory note, and the matter ends. But if Joshua hands the note over to a third party—Hila, because he owes Hila something else (he can also use the note to offset his debt to a fourth party, Laura), now Henry owes Hila something of equal value to Joshua's shoes. This is how currency is born. This process has no end. Suppose Hila wants to buy a pair of shoes from Edith; she can hand the note to Edith and assure her that Henry will fulfill his promise. In principle, the note has every reason to circulate in the town for years—provided people have confidence in Henry. In fact, if the note circulates long enough, people may completely forget its original owner. Such things do happen. Even if Henry gives Joshua a coin instead of a piece of paper, the situation does not fundamentally change. A coin is also a promise, a guarantee of payment for something equivalent to the coin. After all, in reality, a coin itself has little utility. A person accepts a coin because they assume others will do the same.

In this sense, the value of a unit of currency is not a measure of the value of goods but a measure of a person's trust in others.

Of course, the element of trust makes everything more complicated. The process of early paper currency circulation is almost identical to what I described above. There is only one difference: like merchants, each recipient would sign their name on the paper currency to guarantee the legitimacy of the debt. However, in general, viewing this process from the perspective of chartalism (a term later recognized, derived from the Latin word "charta," meaning "token") is difficult because it raises the question of why people would continue to trust a piece of paper. After all, anyone can sign someone else's name on a promissory note, and there is no reason not to do so, right? Yes, this debt-token system may work in a small village where people know each other; or it may be used in more dispersed societies, such as among merchants in 16th-century Italy or 20th-century China, at least they have ways to know each other's movements. However, a similar system cannot develop into a fully mature currency system; and there is no evidence that those societies established a currency system. Even in a medium-sized city, providing enough promissory notes to ensure that everyone can use such currency and smoothly complete most of their daily transactions would require millions of notes. To guarantee all promissory notes, the amount of wealth Henry would need to possess would be unimaginable.#

Monetary nationalism is an economic theory and policy concept that emphasizes the sovereignty and independence of nations in monetary policy. It advocates that countries should formulate monetary policies based on their own economic conditions and needs, rather than relying on the international monetary system or the monetary policies of other countries.

National sovereignty: Emphasizes the independence of nations in issuing and managing currency, asserting that nations have the right to control their own money supply and exchange rate policies.

Economic self-sufficiency: Advocates promoting domestic economic growth and employment through controlling currency, reducing reliance on external economic fluctuations.

Protectionism: Often combined with protectionist policies, supporting the protection of the domestic economy by limiting imports and enhancing export competitiveness.

Opposition to the international gold standard: Criticizes traditional gold standard or fixed exchange rate systems, arguing that these systems limit the flexibility of national monetary policy.

Historical background:
Monetary nationalism gained more attention during the economic crises and Great Depression of the 20th century, as governments adopted more independent monetary policies to address economic challenges. Especially after the global financial crisis, this concept was reintroduced to emphasize national autonomy in responding to economic risks.

Impact:
Monetary nationalism may lead to currency competition and trade friction between countries, affecting international economic relations. At the same time, it may also promote more flexible and targeted measures in monetary policy to address specific economic challenges.

Why do they want the public to pay taxes?#

This is not a question we often ask, as its answer seems self-evident. Governments require the public to pay taxes because they want to lay claim to the wealth of the people. But if Smith is correct, that through the natural operation of a market completely independent of government, gold and silver can become currency, then for the government, the most important and urgent action is to control the gold and silver mines. In this way, the king would possess all the wealth he needs. In fact, this practice was common among ancient kings. If they had gold and silver mines within their territories, they would typically control these resources. Refining gold, marking the gold bars with someone's portrait, facilitating the circulation of currency among those under someone's rule, and then demanding that those subjects return the gold through taxation—what is the point of doing all this?

This is indeed puzzling. But if currency and markets do not arise spontaneously, everything makes sense. Because among the many ways to create a market, this is the simplest and most effective.

Let’s take an example: suppose there is a king who wishes to support an army of 50,000 men. In ancient or medieval times, maintaining such a force would face severe challenges. Unless these armies were already deployed, hiring nearly an equal number of laborers and animals to find, procure, and transport necessary supplies would be required. [Additionally, if the king simply distributed coins to soldiers and announced that every household in the kingdom was obligated to return those coins to the king, he would turn his entire kingdom into a massive machine to support soldiers, as every household would have to find a way to provide the goods soldiers needed and then exchange them for the coins held by soldiers. The market, then, would emerge as a byproduct of this process.

This is somewhat like a plot in an animated film, but the rapid growth of markets around ancient armies is a clear and undeniable fact. Just flip through Kautilya's "Arthashastra," the Sasanian "Circle of Sovereignty," or China's "Salt and Iron Debate," and you will find that many ancient kings spent considerable time contemplating the interrelationships between minerals, soldiers, taxes, and food. Most people concluded that the markets created in such circumstances not only facilitated the supply of armies but were also very practical in other respects. Because it meant that officials no longer had to directly requisition goods from the populace or find ways to produce them in royal lands or workshops. In other words, although liberals stubbornly believe (a legacy of Smith) that the existence of government and market is antagonistic, historical records indicate that the reality is quite the opposite. An anarchic society typically lacks a market.

Kautilya's "Arthashastra" is an important political and economic theory work from ancient India, primarily authored by Kautilya (also known as Chanakya). Here are some key points about this work:

Main content:

• Governance and power: The book discusses how to acquire and maintain power, emphasizing the importance of strategy and cunning.
• National governance: Emphasizes the role of government, discussing effective administrative management, legal systems, and the selection and supervision of officials.
• Economic management: Explains the acquisition and management of national wealth, proposing tax policies, trade, and economic development strategies.
• Military strategy: Contains strategies regarding war and peace, emphasizing the balance between defense and offense.
• Diplomatic relations: Discusses relationships with other countries, including alliances, confrontations, and negotiation strategies.
• Morality and pragmatism: Explores the relationship between morality and pragmatism in power struggles, advocating for flexible strategies when necessary.

Historical impact:
"Arthashastra" is considered a classic in political science and economics, having a profound influence on later rulers, politicians, and scholars. Its theories are still studied and applied today, especially in strategy and governance.

"Education tax" or "civilizing tax." In other words, the purpose of designing this tax—using modern terminology—is to educate locals about the value of work. Because the "education tax" is levied shortly after the harvest season, the simplest way for farmers to pay taxes is to sell a portion of their rice crop to Chinese or Indian merchants, who soon settle in various villages across the country to reap profits. However, it is evident that the harvest season is when rice prices are at their lowest. If a person sells too much grain, it means they do not have enough surplus for their family to eat for a year. Therefore, they must repurchase the grain they sold from the same merchants a few months later in the form of credit, but at a much higher price. As a result, farmers quickly fall into a desperate debt trap (the number of usurious merchants doubles). The simplest ways to repay debts are to either find some cash crops to sell, such as coffee beans or pineapples, or send their children to the city or to plantations built by French colonizers across the country to work for money. It appears that the entire process resembles a greedy mechanism that exploits the labor of farmers, but it actually has deeper significance. It is necessary to leave farmers with some money of their own, and the colonial government is well aware of this (at least from the records of internal political documents, they are aware of this). This ensures that farmers can purchase some small "luxuries"—sun umbrellas, lip balm, biscuits, etc. It is crucial that farmers can cultivate new tastes, new hobbies, and new expectations, as these form the basis of consumer demand.

For the government—monetary theorists, this issue is particularly critical. The story of rulers using taxes to establish markets on conquered lands or using taxes to fund military expenditures and other government functions is not enlightening.

Individuals sign contracts with each other, borrowing debt and promising repayment. Therefore, the government is the first to be born, its role being legal authority, ensuring that the repayment of goods corresponds to the names or descriptions on the contracts. Additionally, when it claims the right to decide and announce which goods correspond to which names and can change its announcements from time to time—essentially claiming the right to rewrite the dictionary—the government plays a dual role.

Currency is a product created by the government to fully realize... Now, all currencies used by civilizations are undoubtedly products of chartalism. This does not mean that the government must create currency. Currency is credit, which can arise through private contractual agreements (such as loans). The government merely enforces agreements and formulates legal terms.

Therefore, Keynes arrived at another impressive judgment: banks create money. The banks' own capabilities enable them to do so. Because no matter how much money banks lend, the borrower has no choice but to deposit the money back into a bank. Therefore, looking at the banking system as a whole, the total number of borrowers and lenders has always been equal, offsetting each other.

From birth, humans are in debt. They are born for death, and only after sacrificing themselves can they redeem themselves from death. Therefore, sacrifices (those early interpreters were themselves the priests of sacrifice) are referred to as "tribute paid to death." Or this is the way of expression. In real life, priests know better than anyone else that sacrifices are made to all gods, not just to death—death acts as an intermediary. However, expressing things this way immediately raises a question. As long as someone adopts this perspective on human life, this question will always arise. If human life is equivalent to debt, who really wants to repay such a debt? Living in a state of guilt means being guilty, signifying incompleteness in life; but completeness means destruction. From this perspective, the sacrificial "tribute" can be seen as the interest paid. The life of the animal sacrificed is used to temporarily replace the true debt owed to the gods—namely, humanity itself—humans ultimately sacrificing themselves is inevitable, while sacrificing animals merely postpones this outcome.

"The Sociocultural Nature of Money: Insights from the Transition to the Euro," published in 1999 in the Journal of Consumer Policy, can be taken as an example.
At the moment of currency's birth, we have a "representative relationship" of death. This is an invisible world that exists before life is born and beyond life—this representation is a symbolic product applicable to all humanity, viewing human birth as an original debt triggered by supernatural forces from which humanity is born.
The repayment of this debt can never be completed in the real world (its repayment has exceeded the realm of reality) and can only be repaid through sacrifice. Sacrifice supplements the credit of the living, making it possible to extend life and, in certain specific circumstances, to join the ranks of the divine and achieve immortality. However, this initial declaration of faith also accompanies the birth of sovereign power. The legitimacy of sovereignty lies in its ability to represent the original supernatural whole. It is these sovereign powers that invented currency as a means of resolving debt—this abstraction allows it to resolve the paradox of sacrifice, that death is a permanent means of protecting life. Through this mechanism, faith also transforms into currency, bearing the portrait of the ruling sovereign—currency begins to circulate, but its recovery is arranged by another mechanism, namely the taxation/solution of life debt. Thus, currency also assumes the function of a means of payment.

This clearly indicates how different the standards of debate in Europe are from those in the North American world. You cannot imagine any economist from any school in North America writing something like this. However, the author here provides a very clever summary. Human nature does not push us toward "transactions and barter." It ensures that we create symbolic signs, such as currency. This is how we view ourselves in the supernatural surrounded by invisible forces; we are all supernatural debts.

Of course, this clever approach brings us back to the theory of state currency—because Tre is writing about "sovereign power," he is actually referring to "the state." The original rulers were all sacred kings, either gods themselves or privileged intermediaries standing between humanity and the ultimate power of the supernatural. This gradually makes people realize that our debt to the gods is, in fact, a debt to society, and it is society that makes us what we are today.

Taxes are a means#

to measure how much debt we owe to society. However, this does not explain how this absolute life debt transforms into currency, while the definition of currency is to measure and compare the value of different items.

The banking paradox. To illustrate with a highly simplified example: suppose there is only one bank. Even if this bank does not base itself on any form of assets it possesses, it offers you a loan of one trillion dollars, you will ultimately deposit the money back into the bank. This means the bank has a claim of one trillion dollars and has one trillion dollars in operating assets, both perfectly corresponding. If the bank charges you more in interest than the amount it provided as a loan (which banks often do), it will create profits. If you spend one trillion dollars, the same applies—no matter who ultimately receives the money, they will deposit it back into the bank. Keynes pointed out that as long as bankers can cooperate, the existence of multiple banks does not change this situation. And in fact, bankers have always done so.

The banking paradox usually refers to a phenomenon discussed in economics and finance, mainly related to the role of banks, deposit insurance, liquidity, and financial stability. Here are some key points:

1. Basic concepts

• The role of banks: Banks act as financial intermediaries, facilitating the effective allocation of funds and economic development by accepting deposits and providing loans.
• Liquidity issues: Customers can withdraw deposits at any time, but banks typically use these deposits for long-term loans, creating liquidity risks.

2. Manifestations of the paradox

• Trust and panic: When banks face liquidity crises, depositors may collectively withdraw their funds out of fear of bankruptcy, leading to panic behavior that can put otherwise healthy banks in jeopardy.
• Deposit insurance: The deposit insurance system aims to enhance public trust in banks and prevent bank runs. However, this can also lead to "moral hazard," where banks may take on riskier investment strategies because they know losses will be covered by insurance.

3. Impact

• Financial stability: The existence of the banking paradox threatens the stability of the financial system, requiring policymakers to take measures such as improving regulatory frameworks and enhancing transparency to maintain public trust.
• Economic cycles: The health of banks is closely tied to the overall economy. During economic downturns, banks face increased risks, which can trigger broader economic issues.

A deeper exploration of several key aspects of the banking paradox, including its theoretical foundations, real-world cases, influencing factors, and coping strategies.

1. Theoretical foundations

• Liquidity and maturity mismatch: Banks profit by converting short-term deposits into long-term loans, which can lead to liquidity crises when facing large withdrawals.
• Trust and bank operations: The operation of banks heavily relies on public trust. Once trust is threatened, depositors may act quickly, leading to runs that put banks in greater jeopardy.

2. Real-world cases

• The Great Depression of 1929: In the U.S., many banks failed due to economic collapse and subsequent public panic, leading to massive deposit losses and exacerbating the economic downturn.
• The 2007-2008 financial crisis: The banking sector faced severe liquidity crises, with many financial institutions on the brink of collapse. Governments and central banks took emergency measures, such as injecting liquidity and providing guarantees, to stabilize the financial system.

3. Influencing factors

• Regulatory frameworks: Strong regulation can enhance banks' resilience to risks, reduce moral hazard, and increase public trust.
• Deposit insurance systems: While deposit insurance can mitigate run risks, poorly designed systems may lead banks to engage in overly risky behavior.
• Market environment: External factors such as economic cycles, interest rates, and market sentiment can influence banks' stability and public trust.

4. Coping strategies

• Enhancing transparency: Banks should improve financial transparency, regularly publish audit reports, and allow the public to understand their financial health.
• Effective crisis management mechanisms: Governments and central banks need to establish rapid response mechanisms to address sudden liquidity crises and ensure market confidence.
• Improving deposit insurance design: A well-designed deposit insurance system should balance protecting depositors with preventing moral hazard.

New payment methods and banking models are continuously emerging, which may pose new challenges and opportunities for traditional banking operations and risk management.

The organization of the world consists of a series of compressed modular units called "societies," and everyone knows which module they belong to, making the concept of "society" so deceptive. The things of "society" are debts we owe to it, and the government can represent it; it can be seen as a kind of deity in real life—born or awakened during the French Revolution. In other words, it was born alongside the emergence of the concept of modern state power.

Our birth carries various responsibilities—to our ancestors, to our descendants, and to our peers. After we are born, these responsibilities accumulate until we are able to repay others with our services. So, on what basis can the concept of "rights" be established?

"Religion" and "society" are actually the same concept.
The problem is that for centuries, people have simply assumed that the guardians of our debts and the legitimate representatives of the invisible society that allows us to become individuals must be the state. Almost all socialists and socialist systems have ultimately been influenced by some version of this view.

Everyone is born with debts that can never be fully repaid. We have always been told that the state and the market are antagonistic, and that there is only the possibility of humanity between them. But this dichotomy is incorrect. The state creates the market, and the market needs the state; without each other, neither can be sustained—at least not in the form we currently recognize.

The front of a coin reminds us that the state guarantees currency, and currency initially represents the relationships between individuals in society, perhaps as a symbolic sign; the back indicates that the coin is also an object, with a definite relative relationship to other objects.

The nature of currency always oscillates between commodity and debt tokens. This may be the reason why coins (small pieces of gold and silver, which are already valuable commodities, but become more valuable when stamped with the insignia of local political authority) are still regarded as the most typical form of currency. Coins perfectly embody the dual definitions of currency. Furthermore, the relationship between these two definitions of currency is a source of ongoing political debate.

In other words, the war between the state and the market, the war between government and merchants, is not inherent to human nature.
Humans see themselves as beings that measure value; they believe they have value and can measure it, being "animals that can evaluate themselves." Buying and selling, along with their psychological attributes, are even older than any form of social organization or social group. In the most primitive personal rights of humanity, the nascent consciousness regarding exchange, contracts, guilt, law, responsibility, and compensation first transformed into the roughest and most primitive public groups (compared to other similar groups), while simultaneously forming habits of comparing, measuring, and calculating different rights, from which the market also originated. The desire for transactions and the desire to compare values make us wise beings, distinguishing us from other animals. Society then forms—this means that people's understanding of responsibility is first formed under strict commercial conditions.

When society begins to take shape, people start to view their connections to society in this way. Tribes guarantee peace and protect people's safety, thus people owe debts to the tribe. Following the tribe's laws is a way of repaying that debt (which is another form of "repaying your debt to society"). Nietzsche said, but this debt is also repaid in the form of sacrifice: within the original tribal community—here referring to primitive times, current living people always believe they owe responsibilities to their ancestors, especially to those who established the tribe... The prevailing view is that the existence of the tribe entirely relies on the sacrifices and achievements of the ancestors, thus people need to repay them with sacrifices and achievements. The ancestors may have passed away, but they still exist in the form of powerful spirits, continuously providing new benefits to the tribe and generously lending their strength to the tribe's people.

Thus, the debt to ancestors continues to grow. Were the actions of the ancestors selfless? However, in the primitive, "spiritually impoverished" era, there was no concept of "selflessness." What could people use to repay them? Sacrifices (initially, people believed food was a sacrifice), celebrations, churches, symbols of glory, and most importantly, obedience—all customs were established by ancestors and became rules and laws for future generations to follow. Can people repay this debt? This doubt always exists and continues to grow.

Moreover, it is precisely because of the sense of indebtedness to ancestors that people abide by the laws set by them: it is also because of this that we believe society has the right to act "like an angry creditor," and once we break the law, society has the right to punish us. From a broader perspective, people form a humble feeling that they can never repay their debts to their ancestors, and no sacrifice can truly satisfy this (even if people offer their firstborn as a sacrifice, it is still insufficient). We fear our ancestors, and as society grows stronger, the ancestors also grow stronger, until finally, "the ancestors inevitably become gods." As society evolves into kingdoms, and kingdoms evolve into larger empires, those gods continue to evolve, displaying majestic and boundless power, ruling over heaven, capable of unleashing lightning—ultimately becoming the God of Christianity, the supreme deity, inevitably "stimulating the greatest sense of indebtedness that exists in the world." Even the image of humanity's ancestor Adam is not a creditor but a rebel, thus he is a debtor. The burden he bears is also passed down to us in the form of original sin.

People are rational calculating machines; the self-interest of commerce precedes the birth of society, and "society" itself is a way of imposing some temporary constraints on the conflicts that arise from it. In other words, Nietzsche starts from the ordinary bourgeois assumptions and pushes these assumptions to a degree that can only shock the bourgeoisie.

The world's religions are filled with similar contradictions. On one hand, they strongly protest against the market; on the other hand, they wish to express their opposition in commercial terms—as if to argue that transforming human life into a series of transactions is not a very profitable deal.

The problem is that, unlike the identity differences of hierarchical societies or slavery, the boundaries between the rich and the poor are not clear. You can imagine how a farmer would react when he walks into his wealthy brother's house, carrying the assumption that "people help each other," asking to borrow money, and then a year or two later, watching his vineyard being seized and his children taken away.

Legally, insisting that borrowing is not a form of mutual assistance but a commercial relationship can legitimize such behavior—contracts are contracts (this also requires a reliable connection to higher powers). However, it brings a strong sense of betrayal. Moreover, framing this as a breach of contract effectively means describing it as a moral issue: both parties were originally equal, but one party failed to uphold the honor of the transaction. Psychologically, this makes the humiliation suffered by the debtor even harder to bear, as it allows others to say that it is the debtor's own downfall that deprived his daughter of her future. But this only makes the motivation to retaliate with moral slander even more irresistible: "Our bodies are the same as our brothers' bodies; our children are the same as their children." We are all the same people, and we have a responsibility to care for each other's needs and interests. So why does my brother treat me this way?

From George Homans' "Social Exchange Theory" to Claude Lévi-Strauss' structuralism. Lévi-Strauss held a position akin to a knowledge deity in the anthropology community, proposing an extraordinary view that human life can be seen as composed of three spheres: language (composed of the exchange of words), kinship (composed of the exchange of women), and economy (composed of the exchange of goods). He argued that these three spheres are all composed of the same basic principles.

**In summary, the principle of reciprocity is the foundation of social life. Therefore, viewing all human interactions as some form of exchange is the best way to understand these relationships. If this is the case, then debt is indeed the root of all morality, as it occurs in situations where some equilibrium has yet to be restored. However, can all justice really be summarized by reciprocity? It is easy to find forms of reciprocity that do not seem just. "Do unto others as you would have them do unto you" appears to be the perfect foundation for ethics, but for most of us, "an eye for an eye" does not evoke justice but rather malicious violence. "Reciprocity is delightful," but "you take care of me, and I will take care of you" is a subtle expression of political corruption. Conversely, there seem to be relationships that clearly align with moral requirements but have nothing to do with reciprocity. The relationship between a mother and child is the most frequently used example. Most of us learn our sense of justice and morality from our parents. However, it is extremely difficult to view the relationship between parents and children as reciprocal.

This is one reason why there is no known code enforcing this principle—punishment is always exchanged for other forms.

Moral principles serve as the foundation for the formation of economic relationships. In any human society, these three principles will appear, referred to as: communism, exchange, and hierarchy.

Communism is defined as any form of human relationship based on the principle of "from each according to their ability, to each according to their needs." The basic framework of communism is consistent: the core of communism is collective property; "primitive communism" did exist long ago, and perhaps it will return one day in the future.

Bottom-line communism can be seen as the raw material constituting human sociability, recognizing the ultimate interdependence of humanity, which is the essence of social peace. However, in most cases, the lowest bottom line is not enough. A person's behavior is always more aligned with certain people, and the foundation of certain customs is cooperation and mutual assistance. Among these customs, the most important are those we love, with the mother being the embodiment of selfless love. Others include close relatives, spouses, lovers, best friends.

The core of exchange is equality. It is a reciprocal process involving both parties, where one party's contribution and gain are equivalent.
There is a paradox: in each case, each party tries to suppress the other, but unless one party is ultimately defeated, it is easiest to temporarily halt the whole affair when both parties believe the outcome is basically fair. When we exchange material goods, we also find similar tensions. Generally speaking, exchange always contains competitive elements. Even if this element is absent, the possibility of it arising always exists. However, at the same time, both parties have a concept of accounting (which differs from communism, which always carries some degree of eternal concept), and the entire relationship can be offset, allowing either party to request a halt at any time.

The term "bargaining" means "to make a deal through struggle," and it is a source of joy.

The formal equivalent gift exchange, or nearly equivalent gift exchange, has countless variations. The most familiar is gift exchange: I treat someone to a beer, and they will treat me to another. Complete equivalence implies equality. But let's look at a slightly more complex example. I invite a friend to a fancy restaurant for dinner. After a reasonable interval, he takes me to a fancy restaurant for dinner. As anthropologists have long pointed out, this custom (especially the feeling that one really should repay someone) implies formal equality or at least the possibility of achieving true equality. This is precisely why kings find it difficult to accept equivalent exchanges.

In contrast, relationships with explicit hierarchical nature (i.e., relationships between at least two parties, where one party is considered superior to the other) do not tend to favor reciprocity. This is hard to see because the notion of reciprocity often legitimizes such relationships ("farmers provide food, landlords provide protection"), but the principles on which they operate are entirely opposed. In practice, hierarchy operates through precedent logic.

The principle of hierarchy is entirely opposite to reciprocity, which is what is meant. Whenever the boundaries between superiors and subordinates are clearly defined, and the framework of such relationships is recognized by all parties involved, and we are no longer simply facing unrestricted power, allowing this relationship to continue fully, then this relationship will be seen as managed by a web of customs or habits. Sometimes, people believe this situation originates from certain foundational decrees during the conquest process; or it may be viewed as customs passed down from ancestors, thus requiring no explanation. However, regarding the issue of gifting to kings or any superior, it introduces another complex factor: there is always the risk that it will be treated as a precedent, thus joining the web of customs governing it, and therefore in subsequent days, it will be seen as an obligation.

In a fictional hierarchical society, where priests pray for everyone, nobles fight for everyone, and farmers provide food for everyone, no one thinks to determine how many prayers or what level of military protection would be equivalent to a ton of wheat, nor does anyone think to make such calculations.

The rulers of nations almost universally present themselves as protectors of the homeless, supporters of widows and orphans, and defenders of the poor. The genealogy of the modern redistributive state (its most notorious tendency is to promote identity politics) can be traced back to any form of "primitive communism," but ultimately points to violence and war.

Or they claim that since we live in a market system, everything (except for government intervention) is based on fairness: our economic system is a large network of reciprocal relationships, where ultimately all accounts will be settled, and all debts will be repaid—this leads to problems.
The "abilities" and "needs" of different people are extremely mismatched. A truly equal society would be acutely aware of this and would establish extremely complex safeguards to prevent certain individuals (such as an exceptionally skilled hunter in a hunting society) from rising too high in status—just as they are suspicious of anything that might lead to one member of society feeling indebted to another. If one member attracts attention to their achievements, they will become the object of ridicule.

What is debt?#

Debt is a very specific thing that arises from very specific circumstances. First, it requires a relationship between two people, both of whom believe they are not fundamentally different from each other, at least there is a possibility of equality between them, and both are not currently in an equal state—but there exists some method for both parties to resolve this issue.

A debt is an unfinished exchange. Debt strictly belongs to the product of reciprocity and has nothing to do with other moral forms (communism and its demands and capabilities, hierarchy and its customs and nature).
Exchange encourages a special way of conceptualizing human relationships. This is because exchange implies equality, but it also implies separation. When money changes hands, and the debt is canceled, the identity of equality is restored, allowing both parties to walk away, with no further connection in the future.

Debt lies in between: both parties cannot leave each other because equality has not yet been restored. However, the execution of debt also carries the shadow of eventual equality. Because achieving that equality would destroy the reason for maintaining the relationship, anything interesting can happen in between.
In the "human economy," the primary and most important use of money is to arrange marriages. The simplest and perhaps most common way to achieve this is through what was once called "bride price": the male suitor's family presents a certain amount of teeth, shells, brass rings, or any form of currency used locally to the female's family, after which the female's parents hand over their daughter to the suitor. It is easy to see why this process is understood as purchasing the woman.

Marriage is entirely different because, generally speaking, the responsibilities that a husband owes to a wife and those a wife owes to a husband are equivalent in quantity. Therefore, the payment of money is a way of rearranging the relationships between people. Additionally, if you truly purchased a wife, you could sell her. Ultimately, the true meaning of the payment process concerns the identity of the children born to the woman: if the male's actions are seen as a purchase, he has the right to call the children born of the woman his own descendants. Ultimately, the argument won, the "bride price" was renamed "dowry" in a way that better reflects reality.

According to the logic of the "human economy," this is absurd. A person's equivalent can only be another person. In the case of marriage, we are discussing something more precious than a person's life; thus, the situation is even more so: we are discussing the ability to give birth to new life.

The core of the human economy is that the only source of wealth is people, not things. The production and consumption behavior of people realize wealth. The role of things in economic development is decreasing, and resource accumulation is a curse.

The financial crisis of 2008 was a significant event that revealed the vulnerabilities of the financial system. The crisis originated from the collapse of the subprime mortgage market in the United States, which was fueled by excessive risk-taking and speculation in the housing market. The crisis led to widespread defaults on mortgages, resulting in significant losses for financial institutions and investors.

In summary, debt is a complex and multifaceted concept that plays a crucial role in the functioning of economies and financial systems. Understanding the nature of debt, its implications, and the dynamics of credit markets is essential for navigating the complexities of modern finance.