Victor, there is very little real disagreement between us. We differ mostly in definition and terminology. I wrote on June 20:
-->Let's say that a loan comes due with accrued interest not yet paid. That interest does exist in the form of assets somewhere in the economy. Whether you personally have the equivalent to them or not is a separate issue. Assets are not limited to money but in a rationally constructed system can readily be turned into money as needed. That is the use for financial services and the providers of financial services deserve to be paid for their services. <--
You replied the next day:
-->That's where we differ. I claim that the interest does not exist and certainly not in the form of assets. Assets are not only not limited to money but money is not an asset. <--
It is true that assets are not limited to money but it is not true that money is not an asset. Money is an intangible in that it is a contract, whereas a "thing" that is tangible is something in your possession upon which you place a "valuation" in your books. A contract that conveys benefits to you is an asset, or rather, the benefit is the asset. For example, the leasehold that you carry on your books is an asset that permits you to occupy certain premises for a defined period of time. The countervailing liability is your obligation to pay rent. You may have pre-paid rent in which case there is only the asset that you carry in your books.
Now we get back conceptually between steady state (or quasi-steady state) and the real world. In steady state everyone always has sufficient assets to fulfill his obligations. If you are a business you fulfill your interest obligations from your gross profit. In other words, you share your profit with your banker.
The problem arises when there is long-term deviation from steady state, such as from labor displacement.
Entrepreneurial profit derives ultimately from sales into final consumption.
If your sales are falling in respect to your costs, it becomes impossible to fulfill your obligations.
Deviations through time between assets and liabilities within a firm's accounts are accommodated through the firm's capital (or equity) account which makes everything balance internally within the accounts of the firm.
The false assumption of conventional theory--as pertains to the economy as a whole--is that the accounting costs of the firms sector that flow into prices remain equal (or proportionate) through time to the salaries, wages and dividends paid to consumers.
They do not but can become so through the establishment of the national credit account.
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