| Subject: | [socialcredit] more on "debt virus" fallacy | | Date: | Saturday, July 24, 2004 08:47:50 (-0700) | | From: | william_b_ryan <william_b_ryan @.....com>
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Usually the fallacy goes something like this: There
is only ten dollars existing in the world that arose
in the first instance entirely from a bank loan, that
must be repaid plus ten percent interest at the end
of one year. How is it possible to pay back the
borrowed principal without having to borrow the money
to pay the interest, thereby compounding the
underlying debt?
The simple answer is that there are many overlapping
loans in the real world, but to disprove the rather
trivial fallacy all we need to assume is there are
merely two loans that are recurring.
The loan granted at T-zero is in the amount of five
dollars, payable in one year at ten percent. The
second loan in the amount of five dollars is granted
six months later, at T-one/half, payable one year
after that at five percent.
At this point in time there are ten dollars in
"circulation," constituting the credit expansion
phase of the circuit, which is paid in wages to
employees during the course of time.
At the end of the first year $5.50 is due and payable
including principal plus interest to the banker,
which the entrepreneur pays, at the same time
collecting fifty cents profit for himself on his
transactions with consumers.
At this point, the employees have received income in
the amount of ten dollars, the banker has received
interest income in the amount of fifty cents, and the
entrepreneur has received fifty cents profit.
A third loan is granted at T-one, in the amount of
five dollars, payable, as before, in one year at ten
percent.
At this point there are nine dollars in the pockets
of the employees, fifty in the pockets of the banker,
and fifty cents in the pocket of the entrepreneur.
When the second loan comes due six months later at T-
one and one/half, the principal in the amount of five
dollars is paid to the banker, plus fifty cents
interest, plus fifty cents profit to the
entrepreneur.
At that point the transient period of the credit
expansion has ended and has stabilized.
Year after year after that, the banker will earn one
dollar in interest per year, the entrepreneur will
earn one dollar per year in profit, and the employees
will earn ten dollars in salaries and wages per year.
Total income per period being earned by the community
in its totality is twelve dollars per year, on loan
principal not exceeding ten dollars. The banker is
supplying financial services, the entrepreneur is
supplying entrepreneur services, and the employees
are supplying employee services to one another in the
cooperative community, year after year.
It is conceptually possible to devolve at this point
into some kind of "underconsumptionist" argument,
which would be in departure from steady-state--where
either employees, entrepreneurs or bankers do not
respectively spend all their income for some reason
or another.
This could however have nothing to do with interest
per se, in any respect that could distinguish its
effects from not spending from income from any
source.
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more on "debt viru
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