The Costs of Compounding: Exploitation and Collapse

by Koenraad Priels

The global financial system operates like a cancer, metastasizing throughout our economy and society. Its malignant core is a simple yet devastating formula: P_L – P_R + I,  principal loaned – principal repaid + interest = an escalating debt trap that necessitates economic growth. This equation is familiar to anyone who has taken out a loan. It demonstrates the fatal flaw in our financial architecture, which makes a steady state economy impossible by design.

Most of us don’t bat an eye at this formula, but it transforms banking into a Ponzi scheme, ensnaring the real economy in a web of ever-growing, interest-bearing debt. The stock market and financial products further inflate claims on the real economy. This creates a socio-economic operating system that is ecologically unsustainable and ethically indefensible.

Until we crack this global finance code, a steady state economy will remain elusive. We must reform the following growth drivers: interest compounding, the stock market, and proliferating financial products. Only by excising these financial cancers can we hope to create an economy that operates within Earth’s ecological limits and respects human rights.

How Compounding Crept into Society

The beast of compounding entered human societies around five thousand years ago in ancient Sumer. These late Bronze Age societies were organized around “palace economies” with centralized authorities that regulated economic activity. They developed credit accounting systems, including the accumulation of costs to be settled at harvest time.

From these credit practices emerged the charging of interest and compound interest. These wealth-concentrating mechanisms would haunt humanity for millennia. At the core of a financial system geared toward exponential growth, they gave rise to our contemporary predicament.

Ancient Sumerian societies, however, practiced a crucial policy that set them apart from later creditor-dominated civilizations: debt cancellation. When harvests failed or debts grew too large for the real economy to service, these societies would cancel excessive debts. (When money wasn’t warranted, in other words, neither was debt.) This practice prevented escalating poverty, avoided debt slavery, and restored economic balance.

In stark contrast, Greek and Roman societies fully unleashed the power of compounding interest. This shift led to rampant debt slavery, colonial expansionism to fuel economic growth, and the accumulation of profits to service interest-bearing debts. The transition from debt cancellation to enforced collection of debt marked the beginning of a long history of systemic violence and exploitation. Though these societies’ unwieldy debt imperatives eventually contributed to their collapse, their legacy continues to shape our global economy.

Money’s Misrepresentation: The Devil Is in the System

“Money, being naturally barren, to make it breed money is preposterous and a perversion from the end of its institution, which was only to serve the purpose of exchange and not of increase… Men called bankers we shall hate, for they enrich themselves while doing nothing.” – Aristotle, Politics

The misrepresentation of money is at the heart of our economic malaise. It occurs when we treat money both as a measure of value and as a commodity (for example, when we charge interest on a loan), leading to contradictions that undermine its effectiveness. Recent work by systems scientists Marc Gauvin and Sergio Dominguez highlights that these two roles are mutually exclusive. Just as one cannot possess a “kilo of kilos,” conflating money’s functions creates a fundamental error in our understanding of value.

This conflation has significant consequences. It incentivizes contemporary banks to generate money “from nothing,” as interest-bearing credit. This interest creates claims on real value without producing any actual goods or services. In an interest-based financial system, the world must produce ever more—mine deeper, harvest more, build bigger—not to repay lenders the value that was borrowed, using money as a measurement, but to pay for the money itself, as a commodity. The borrowing majority must service increasing claims issued by a predatory rentier minority.

This weaponization of the monetary system for systemic exploitation illustrates how money’s misrepresentation enables global rentier capitalism. This system enables and rewards wealth accumulation for a small minority, perpetuating ecological overshoot. To achieve a steady state economy, we must utilize limited time, energy, and resources efficiently to promote well-being for all within ecologically sustainable limits. Yet the current system, in which economic growth primarily serves the obscene wealth accumulation of a rentier class, is inherently inefficient.

The architecture of global rentier capitalism resembles a casino built atop a bottomless pit. The casino’s foundation is the banking system, which creates most of the money supply through loans. Factor in the stock market, and the casino becomes a skyscraper. The stock market operates as an institutionalized mechanism for plundering resources and dividing profits among the wealthy. It fuels privatization and corporatization that dispossesses the public majority of natural resources, effectively transferring property rights to shareholders.

And financial products, such as derivatives, securitized products, and synthetic financial instruments, are the casino’s adornments. They are the lush furniture and precious artwork that fill its room. These products represent fictitious capital, causing claims on the real economy to inflate unchecked. As we face mounting global tensions fueled by debt and resource scarcity, it is crucial to question how such an exploitative system can be deemed legal or acceptable. We must renovate—or rebuild—our financial architecture to promote transformative justice and steady statesmanship .

Correcting Money’s Misrepresentation: Financial Stability for a Steady State Economy

Money is supposed to be a means of exchange, a unit of account, and a store of value. Without interest, money would be purely representational, eliminating the ability to create value claims “out of nothing.” If governments outlawed interest, the fundamental equation would shift from P_L – P_R + I = necessary growth to pay interest, to P_L – P_R = 0, where principal remains balanced without interest accumulation. Financial institutions could charge a small administrative fee to sustain themselves.

This approach would promote the use of money strictly as an annotation of value, not as a tradable commodity. It would facilitate fair exchanges without wealth concentration. At the same time, outlawing interest would prevent exponential debt growth. It would remove the need for perpetual economic expansion and enable a genuine steady state economy that supports human well-being within planetary ecological limits. Implementing such a system requires radical but necessary changes: reforming banking regulations, restructuring financial markets, and renegotiating existing debt structures.

We have normalized exploitation in our financial systems. Because of this, we look on complacently as inequalities deepen and the environment is degraded. We possess the potential for transformative change, but the first step is to acknowledge the flaws in financial mechanisms—interest-bearing loans, the stock market, financial products—that we’ve grown to see as natural and inevitable. Only then can we seek alternatives.

The path forward requires open dialogue and collective action. We must together assess how we arrived at this point and what steps we can take to challenge the status quo. The current system may seem entrenched, but history shows that change is possible when people unite in pursuit of justice and sustainability.

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Koenraad Priels is a social-ecological activist and independent researcher.