Interest is a concept that plays an important role in banking and economics. Yet, most people misunderstand interest. Many believe that interest is only the addition of periodic payments to money. This is not true. In addition to periodic payments, interest is calculated by the length of time a loan lasts. Essentially, interest is any form of reward given to someone for doing something useful. Simply put, interest is any feeling of reward or compensation for acting in a certain way.During the classical period, philosophers experimented with the ideas of interest and money. One such philosopher was Thomas Aquinas. He believed that money itself evolved from barter. When someone received something in exchange for something else, a new currency arose. Over time, this currency gain popularity and eventually became money. In this way, people who receive money or rewards for lending it act morally and morally corrupting them into gain.Today, we know that interest creates money out of nothing. Banks create new money through issuing loans- an operation known as monetization. Most people think that banks create new money through lending; however, they actually create new money through printing press. During monetization, a bank increases its capital by acquiring another institution's capital- assets and liabilities. After acquiring other institutions' capital, banks create new money out of thin air and reward their customers for acting responsibly. Not only does interest create money; it also creates enough money to cover the entire world GDP in bank notes twice over.Interest is a powerful concept that can help us achieve various goals in life. The ideas explored by philosophers throughout history have now led us to understand how interest creates money out of nothing. Today, we know that focusing on your personal interests helps you create value for yourself and your loved ones.
