Conclusion—Model 4

Conclusion—Model #4

Again, as with model #2 (in the 100% reserve banking system), we have seen a significantly different set of outcomes resulting from the growers crop failure:

The grower has neither gained nor lost anything, because he had nothing at risk.
The seed dealer has realized a monetary gain of $1,000, at the cost of giving up 500 bushels of corn seed.
The bank has lost the $1,000 that it lent to the grower; it has also had to forgo the $175 in interest it anticipated.

In the aggregate this system has again lost 500 bushels of corn seed*; however...

All of these transactions, even in the case of economic loss, occurred with no change in the quantity of money.

This concludes the full set of models.

Go to the next page to see a summary of corn prices...

Notes:

* To say that the system as a whole either gains or loses as a result of any economic activity does not connote that the system has any ownership in the economic goods either produced or consumed. In a free market system only individuals realize gains and losses of specific economic goods, for only individuals (including legal entities) can own economic goods. The gains and losses for individuals, however, do represent gains and losses to an economic system of interconnected individuals through comparative advantage and exchange. The gains for individuals become available to all other members of the system, if they have the desire and capacity to exchange for the additional production. The losses for individuals deprive all other members of the system of the opportunity to exchange for economic goods formerly available.

A detailed discussion of this important point remains beyond the scope of this presentation.