Grower Borrows $1,000

Grower Borrows $1,000—Model #4

Again, the grower borrows $1,000 from the bank to buy seed.

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Grower	Dealer	Bank	Money/Deposits
Receives $1,000 from loan.	Not involved.	Bank does not use any of its own money to fund this loan.	Bank adds $1,000 to grower's account by simply creating an additional liability for the Bank.
Account Balance: $1,000.	Account Balance: $2,250.	Account Balance: $1,250.	Total Money: $4,500. Deposit Liabilities: $4,500.

Grower

Dealer

Bank

Money/Deposits

Receives $1,000 from loan.

Not involved.

Bank does not use any of its own money to fund this loan.

Bank adds $1,000 to grower's account by simply creating an additional liability for the Bank.

Account Balance:
$1,000.

Account Balance:
$2,250.

Account Balance:
$1,250.

Total Money: $4,500.

Deposit Liabilities: $4,500.

In this fractional reserve system the bank does not need to use its own money to buy notes (i.e. make loans). It just adds to its liabilities.

Notice: The bank has created $1,000. Money that did not exist before.

Not knowing the future—as we do—the grower proceeds to buy corn seed...