The Free Market Center
The Free Market Center
After his growing season, and a successful harvest, the grower takes 800 bushels of corn seed and sells it to the dealer for $1,500. He receives a price of $1.88 per bushel. He receives a lower price than he paid to buy the seed, because the additional seed on the market has caused the money price per bushel to decline.
Similar to when the grower purchased seed from the dealer, when the dealer purchases the new seed from the grower, the dealer transfers a promise from the same bank from himself to the grower.
| Grower | Dealer | Bank | Money/Deposits |
|---|---|---|---|
| Sells corn seed for $1,500. | Pays $1,500 to grower. | Not involved. | No change in quantity of money. |
| Account Balance: $1,500. |
Account Balance: $1,750. |
Account Balance: $1,250. |
Total Money: $4,500. Deposit Liabilities: $4,500 |
(Price: $1.88 per bushel. More seed on the market drives the price down.)
From the money he has, the grower must repay the loan from the bank to him, with interest.
As a result of this transaction the grower now has $1,500 in his bank account. The seed dealer, who paid the grower, now has $1,750 in his account and the bank continues to have $1,250.
Note: From the sale proceeds the grower must repay his loan from the bank.