Or, the prisoners dilemma of borrowing and lending.
Two suspects are arrested by the police. The police have insufficient evidence for a conviction, and, having separated both prisoners, visit each of them to offer the same deal. If one testifies ("defects") for the prosecution against the other and the other remains silent, the betrayer goes free and the silent accomplice receives the full 10-year sentence. If both remain silent, both prisoners are sentenced to only six months in jail for a minor charge. If each betrays the other, each receives a five-year sentence. Each prisoner must choose to betray the other or to remain silent. Each one is assured that the other would not know about the betrayal before the end of the investigation. How should the prisoners act?
Rationally, each person should act to betray.
What has this to do with borrowing and lending?
Simply this - if you borrow you can purchase assets and then charge those who couldn't afford to buy the asset the interest via higher prices. It's rational therefore, to borrow when it is offered to buy assets. It's also rational to lend to people so they can buy assets up until the point where borrowings equal the sale value of the asset - one interest payment and a resale and a profit has been made.
A situation to consider -
John and Bob are both going to buy the same business, for example a water treatment plant. John has £10,000 in savings. Bob has £9,000 in savings. Other things being equal, John will purchase the water treatment plant over Bob because he can pay more for it. Let's introduce the banker, Jim.
Jim can lend both John and Bob money, he doesn't mind which one it is at all. If he loans Bob the money then Bob can buy the asset over John. What will almost certainly happen is that John will have to borrow an amount over and above his savings sufficient to keep Bob at bay. So if the bank was willing to lend £4,000 to Bob, then John will have to borrow £3,001 in order to acquire the asset. Consequently, the price of water treatment will have to go up to pay the loan off. (Or the water treatment business will fail because of the interest payments when otherwise it would have been fine.)
It's pretty obvious, therefore, that loaning inflates asset prices, it 's also obvious that the existence of someone making loans forces people to either borrow or lose the chance of ownership of assets and then spend their savings and wages on higher prices. While this might not be true for very flexible discretionary purchases, it's going to be a sliding scale according to the elasticity of demand for the asset in question, or the legislated inabilty to provide alternatives.
It's worth also pointing out that borrowing will increase until the level where it's as close as possible to 100% of asset value and interest payments are equal to 100% of earnings as everyone tries to borrow in a desperate attempt to own something before the next guy turns you into his serf via this debt mechanism. Once it's maxed out, then the whole system wll unravel because interest payments can no longer be made and all savings have vanished. under a fractional system this might take decades but is inevitable.
Once we have lending there are now two choices - borrow or pay higher prices to those who have. It's a prisoners dilemma and one in which the risky option is the right option to go for as an individual. This will increase systemic risks as "risk takers" prosper, putting "risk takers" in the decision making roles of society and the conservative non risk takers will get punished.
You can choose to be either smug or damned. You can choose to take risks on flaky business proposals or you can work in the factory or office of someone who has taken on stupid risks for ever diminishing wages while your efforts go towards paying their interest payments. You can choose to have a hefty mortgage or you can choose to pay someone elses hefty mortgage via rent.
Until it all collapses of course, at which point super-conservative behaviour will become the overwhelming force , those with gold, guns and a bunker full of beans will prosper. But, as has been said many times elsewhere - the market can stay irrational longer than you can stay solvent.
Still think that no one is forced to borrow?
Well, you are right. You are still going to pay the lender though, one way or another.