Grower Buys Seed

Grower Buys Seed—Model #3

When the grower pays the seed dealer for the seed, he has no idea that he does not transfer a commitment for "real" money to the dealer. He transfers the promise of the bank.

Next, the grower buys 500 bushels of corn seed from the seed dealer for $1,000. (Price: $2.00 per bushel.) That leaves the grower with no money again, but he has seed to plant.

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Grower	Dealer	Bank	Money/Deposits
Pays $1,000 for seed.	Receives $1,000 from grower.	Not Involved.	No change in quantity of money.
Account Balance: $0.00.	Account Balance: $3,250.	Account Balance: $1,250.	Total Money: $4,500. Deposit Liabilities: $4,500.

Grower

Dealer

Bank

Money/Deposits

Pays $1,000 for seed.

Receives $1,000 from grower.

Not Involved.

No change in quantity of money.

Account Balance:
$0.00.

Account Balance:
$3,250.

Account Balance:
$1,250.

Total Money: $4,500.

Deposit Liabilities: $4,500.

The seed dealer sees no problem with accepting from the grower a check drawn on the bank because this deposit liability consists of an additional promise from the same bank where the dealer already has his account. This money should work as well as that which the dealer had before selling the seed to the grower.

After his harvest, the grower sells a portion of his corn seed to the dealer to raise money to pay his loan.