Especially if you’re young, you’re probably worried about debts – credit cards, student loans, car loans; and if you want to buy a house – which for most people means taking on even bigger debts – how will you ever be able to afford it? For many the debt crisis isn’t just something out there they’ve read about. Politicians may have spun the idea of ‘a nation of owners’, but ‘a nation of borrowers’ would be more apt.

Debt, and more specifically interest on loans, needs closer examination. It’s the second major form of unearned income. It’s a more complex case than rent, but it has much in common with it too. Where rent derives from controlling assets such as land and property, for interest, the relevant asset here is money that can be lent out to others. In fact, political economist Ann Pettifor calls interest ‘money’s rent’. It assumes a huge importance in neoliberalism. Particularly in the middle of a debt crisis of unprecedented proportions that threatens economies and ordinary people’s lives, we need to be clear about the nature of interest. It’s common to think that charging interest on loans is only fair, and also a good way of encouraging people to lend. But in many ways it’s economically dysfunctional, and arguably socially unjust: indeed, the two problems are linked.

What’s more, it’s widely assumed that when we borrow from banks or use our credit cards, we’re borrowing existing money that others have deposited there. Actually, as we’ll see, this is far from the truth, for the money the banks lend is created by them, out of nothing – yet of course they still charge us interest on it. The media and most conventional economists are quick to criticise when a state-controlled central bank ‘prints more money’, and to raise the alarm about stoking inflation, but they either don’t know or don’t want to admit that most new money is routinely created by private banks, with little regulation and public accountability. But more of that later. First, we need to deal with interest itself, assuming for now that the money being lent already exists.