I recently read Heinlein's "For Us the Living", described as his "first novel", recently discovered among his effects and published. It's painfully obviously the first work of an author destined to go on to greatness, later, and commits the classic sin of reading more like a manifesto than a good story. And that's great, after all these years, because it reveals Heinlein's beliefs more clearly than his later works, in which his storytelling gift obscured his personal beliefs.

To the point: Turns out that Heinlein wasn't the free-market jingoist so many have extrapolated from the single datum of The Moon is a Harsh Mistress ("TANSTAAFL!"). He spends much of "FUTL" describing an alternative economic theory called Social Credit (link to Wikipedia article). When, in his later works, Heinlein refers in passing to his characters living off a "dividend" or "shares", he's talking about Social Credit.

I can't do Social Credit justice in a synopsis, so I recommend reading the article. I find alternative economic theories fascinating, myself, but even if you don't, it's relevant to this thread.

What I did want to bring up is that in FUTL Heinlein talks about the very point you raised: When banks are not required by law to maintain reserves to cover their loans, they are indeed granted a license to print money. Heinlein recognized that this is a hidden inflationary factor, and keeps us on the interest treadmill you describe. In his vision the government didn't outlaw private lending, it simply went into business in competition with banks, lending money for little or no interest, leaving banks to compete on other grounds, such as security, premium services, etc. That might seem like a losing proposition for government, but other aspects of the Social Credit system allow the government to make up the inevitable losses due to default, through profit-sharing with borrowing businesses, and then distributing its own profit (above lending losses) back to the citizens, to create that "dividend" of which he speaks.

It's an interesting concept, and not all that alien, really. In Social Credit the government acts in a role similar to that of a mutual fund, aggregating the capital from many small individuals into a fund large enough to be useful to business, and distributes the (hopefully) resulting dividends back to the individual investors. Not an inappropriate role for a government that belongs to "we the people", and perhaps even Tom might agree that that form of participation is likely to be less potentially destructive than one-sided regulation. It makes the government a stakeholder in business, not in the direct sense of nationalized business, but rather in the suitably at-a-distance mode of investment. Smart investors don't micromanage, and that's the evil Conservatives want to avoid.