An Exchange

Lending consists of an exchange that helps to reallocate current resources. Lending transfers current resources from less productive uses to more productive uses. Although most people think of borrowing and lending in terms of money, the process operates the same way for borrowing and lending any economic good.

Lender

A lender has current goods that he is willing to exchange for a greater quantity of future goods. For money lenders that current good just happens to consist of a medium of indirect exchange used for the acquisition of other current goods.

Borrower

A borrower, on the other hand, wants current goods and is willing to exchange a greater quantity of future goods for those current goods. He acquires a medium of indirect exchange that he can use to acquire the current goods he wants.

Moneylenders aid the process of effective, efficient reallocation of resources by providing a current medium of indirect exchange to borrowers in need of current goods. The interest moneylenders receive provides them with a source of more of the medium of indirect exchange, with which they can acquire goods they desire.

Money lending plays an important role in resource allocation.