Debt in general has very ugly side-effects and incentives, specially when it is levered, but banning interest altogether would basically destroy modern capitalism.
>It is not too old, but it is also certainly wrong
Even according to Marx money is only supposed to be a medium of exchange, the fact that it bears interest means that money isn't a neutral medium of exchange whatsoever. What interested me most about money is the fact that this problem isn't even new, founders of religions knew about the problem thousands of years ago. If anything this means they know more about money than we do today. The idea that they are wrong can only be justified by the fact that our method of eliminating liquidity preference is superior to theirs, e.g. because we run permanent inflation to erode exponentially growing debts.
>interest a very efficient way to lend capital.
Maybe in a growing economy but interest is only efficient when it is equal to the growth rate. In any other context the optimal interest rate is always zero because any higher than that prevents investments due to artificially high profitability requirements beyond what is available in the real economy.
>Banning interest is banning investment.
The good news is that neutralizing liquidity preference does not require banning it, anyone who has spent time thinking about liquidity preference knows that banning it is pointless. The obvious solution to neutralizing liquidity preference is to just eliminate the lower bound on interest rates. If liquidity preference is 3% and there is a zero lower bound of 0% you get positive interest even if the economy isn't growing which is highly inefficient and leads to artificial scarcity and underemployment or even unemployment if people pile up jobs onto fewer and fewer people. If the interest rate on cash were -3% or even -6% then the lowest possible interest rate would be 0% or -3% after accounting for liquidity preference.
This is just a floor, just because the interest floor is negative doesn't mean the interest savers get on their deposits must be negative, it just means they have to deposit their money in a less liquid form.
>but banning interest altogether would basically destroy modern capitalism.
Eliminating liquidity preference in the way I argued above would effectively result in the end of modern capitalism and would replace it with something better.
Interest existed for 100's of years before the fiat model.
Interest is not paid on money, its paid on time of allocated capital. If you dont have money you can still collect interest in the form of goods - I give you 100 seeds, you return 1000 seeds to me next year. Without interest there is certainly not lending, so the owner has to invest themselves or consume the capital.
It would definitely be better that investment were not issued as debt and were always equity to prevent many ugly side-effects, but thats not a configuration applicable to everything, so this is what you get.
> In any other context the optimal interest rate is always zero because any higher than that prevents investments due to artificially high profitability requirements beyond what is available in the real economy.
This is mixing macro-economics with micro-economics. Even in a contraction economy you have growing businesses, which mean there is demand for capital for production itself. 0% interest rate means there is no demand for capital, which is not true even in North Korea.
Interest is just a price, like any other good in the economy.