The Free Market Center
The Free Market Center
| Beginning | Transaction #1 | Transaction #2 | Transaction #3 | Transaction #4 | |
|---|---|---|---|---|---|
| Beginning Balance | Grower borrows $1,000 | Grower buys corn seed for $1,000 | Grower sells seed to dealer for $1,500 | Grower repays loan: $1,000 principal + $1,175 interest |
Notice that after each transaction the quantity of money and the amount of the bank’s deposit liabilities always equals $3,500. The system requires no new money to pay the interest.
The seed grower has managed to borrow $1,000, buy the seed, sell the seed from his harvest, and repay the loan with interest, all within a system having a fixed quantity of money.
This scenario requires no new money.