Conclusion - Model 1

Conclusion - Model #1

In the 100% reserve banking system the following has occurred:

The grower has made a profit of $325 plus 900 bushels added to his inventory.
The seed dealer has added 300 bushels to his inventory, which cost a net of $500—for an accounting profit of approximately $64 to $100 at current prices.
The bank has made $175 in interest.

The whole system has gained 1200 bushels of corn*, and...

All of these transactions occurred with no change in the quantity of money.

Next, we'll look at what happens to money in a 100% reserve banking system…

…when the grower has a significantly different outcome...

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.