I still don't see what the problem is with the picture? That it's unenforceable? Surely not for a nationalised (retail) banking sector.
- Jake If you only spend 20 minutes of the rest of your life on economics, go spend them here.
So I think you're confusing hypothesis with reality. Your model looks good, but no real financial sector will ever be that clean. Even with a nationalised banking sector you'll still get turf wars and other power struggles between the interested parties, to the detriment of social productivity and effectiveness.
What's really needed is a mechanism which assesses trustworthiness realistically and also provides backstop support for projects, but isn't socially, politically or financially acquisitive - or at least is only as socially, politically and financially acquisitive as it's possible for an organisation to be.
Interesting challenge, that.
Once the advantages no longer exceed the disadvantages, the system should be dismantled in good order.
I don't think it's impossible to construct a working financial system on roughly the basis we had in the fifties and sixties... as long as one makes sure that the participants are convinced that the entire sector will be dismantled the minute it stops being a benefit to the real economy.
But I'm not convinced that the system back then is the best one to return to. Distributed financing, with strong regulation to prevent extortion and fraud but no central monopoly on finance seems like a more interesting idea.
There were still boom and bust cycles throughout the 50s and 60s. I'd be more interested in a system which was designed to be inherently stable and where growth is measured in the increase of innovative IP being created, with manufacturing taking second place. (After energy supply becomes sustainable.)
