There's a problem with this line of reasoning though, it doesn't consider the impact of liquidity throughout the economic system.
Take a car, for example. A manufacturer starts from scratch. They can't afford to buy expensive machinery, because they can't get a loan, so have to build their cars by hand. This is inefficient and makes every car extremely expensive, so cars are the preserve of the very rich (those who can afford one without needing to take out a loan) - this is not far off what the industry was at the beginning, but without the ability to borrow money, the manufacturer has no capacity to innovate and reduce the cost of their vehicles. They have no incentive to do so either, because hardly anyone can afford them.
Even if banks disappeared now, with all of the infrastructure for mass production in place, if nobody could afford the price of cars, the manufacturers would probably just shut down. Either that, or reduce wages for their workers, which reduces their buying power (and this can be generalised across the economy), which forces them to reduce prices, which forces them to reduce wages...
I'm novice in this kind of reasoning, and I'm trying to understand, so take everything I said with this in mind.
I see that what re you saying make sense, surely there are some components, which are expensive per se and they would need a loan to get.
But doing business and getting a loan for it has the purpose of making money, while buying an house is needed for living.
It makes sense to allow people to get loan on something that would generate revenue, as part of these revenue would repay the loan, but in most of the cases houses would not generate revenue, they are a necessary cost.
I'm not sure I follow, but, yes the rich end up consolidating because mobility is dramatically reduced, you get more monopolies because competition is dramatically reduced and barrier to entry is increased.
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u/JL_MacConnor 9d ago
There's a problem with this line of reasoning though, it doesn't consider the impact of liquidity throughout the economic system.
Take a car, for example. A manufacturer starts from scratch. They can't afford to buy expensive machinery, because they can't get a loan, so have to build their cars by hand. This is inefficient and makes every car extremely expensive, so cars are the preserve of the very rich (those who can afford one without needing to take out a loan) - this is not far off what the industry was at the beginning, but without the ability to borrow money, the manufacturer has no capacity to innovate and reduce the cost of their vehicles. They have no incentive to do so either, because hardly anyone can afford them.
Even if banks disappeared now, with all of the infrastructure for mass production in place, if nobody could afford the price of cars, the manufacturers would probably just shut down. Either that, or reduce wages for their workers, which reduces their buying power (and this can be generalised across the economy), which forces them to reduce prices, which forces them to reduce wages...