The Free Market Center
The Free Market Center
The grower can accomplish the feat of borrowing money and repaying with interest because the payment of interest does not come from the expansion of the quantity of money. It comes, instead, from the increase in the product in which he deals i.e. corn seed.
Transactions Summary | ||||
Grower | Dealer | Bank | Total | |
Dollars | $ 325 | $ (500) | $ 175 | $ 0 |
Corn Seed | 900 BU | 300 BU | 0 BU | 1200 BU |
Balance Summary | ||||
Grower | Dealer | Bank | Total | |
Money | ||||
Beginning Balances | $ 0 | $ 2,250 | $ 1,250 | $ 3,500 |
Ending Balances | $ 325 | $ 1,750 | $ 1,425 | $ 3,500 |
Change | $ 325 | $ (500) | $ 175 | $ 0 |
Corn Seed | ||||
Beginning Balances | 0 BU | 1200 BU | 0 BU | 1200 BU |
Ending Balances | 900 BU | 1500 BU | 0 BU | 2400 BU |
Change | 900 BU | 300 BU | 0 BU | 1200 BU |
The payment of interest in any monetary transactions has to do with the amount or value of the goods for which the money is traded, not the amount of money paid.
Note: By saying that the whole system gained by 1200 bushels of corn, I do not imply that the system as a whole has any ownership in those additional bushels. The owners may consume or exchange that corn on their own volition. In this scenario every actor has gained by a combination of the shift in resources and money. The only quantifiable measure of the gain to this economy consists of the 1200 bushels of corn.