Posted by Christie Malry on June 10, 2012 at 12:22 pm
Zipcar creates cars out of thin air! No, really.
People might think that when they sign up for Zipcar, that a car is bought with their name on it. It isn't.
Instead what Zipcar does is a conjuring trick. They agree to provide you with a car when you want it. But at the point at which you sign up, they don't go out and buy another car. They merely create an account for you. Note that there are no cars involved in this process at all. It's just an accounting trick. Nothing more.
All that matters is that they can provide cars to those who need them when they need them.
Zipcar will charge you for the benefit of having opened an account for you. Even though there is no car as such, even thought you think there is. Because you can drive a car as if you really did own it.
Of course, they need some cars. That's necessary to ensure that those who do want to drive can do so.
And of course they can't repeat this trick forever because if they did people would realise that there was no substance behind the promise they made to you when you agreed to sign up to their service. That promise is that the car that's notionally "yours" can be driven by other people, and it's a promise that is only as good as their own efficiency. If they're unable to supply cars to people when they need one, confidence in their service will suffer.
But that's the confidence part of the trick. So long as people believe that Zipcar will provide them with a car, they don't actually need a car. They can just pretend they own one. When people don't have that confidence, they will find that they do need a car. The risk is that companies like Zipcar will bring in too many members for the number of cars that they have.
Well, by now you'll probably have seen through what I'm doing here. People instinctively understand what companies like Zipcar are trying to do. But when the company is providing money, not cars, people throw their comprehension out of the window.
Banks aren't doing anything magical or mysterious. They merely take money from people who don't currently need it and lend it to those who do, thereby stimulating the economy. They act as an essential intermediary between these two people, ensuring that the borrower repays and that the 'lender' can actually access his/her money if needs be.
This notion that banks create money out of nothing is bona fide idiocy of the highest order.