Vic, there's no simple reply to this. These are arbitrarily concocted discrete transactions. Where is the "rate" that Douglas talked about? You allow only the banker to make a profit. Where are the consumers? Where is the flow of time? Dynamic *processes* have to be looked at *statistically*. There are many overlapping transactions that are occurring CONTINUOUSLY.
More realistically, take your "banker" to represent the financial sector, your "trader A" to represent the manufacturing sector, and "trader B" to represent the retail sector. The manufacturing and retail sectors may be aggregated as Douglas did in his "double circuit" depicted in the attached diagram, also archived at http://www.geocities.com/socredus/compendium .
B depicts the financial sector, M the manufacturing sector, and C the consuming sector.
There are two primary circuits: From B to M to B; and from M to C to M.
L depicts the flux of loans and R the reflux in amortization.
W depicts the flux of salaries, wages and dividends, and P the reflux in sales into final consumption.
In dynamic steady state, L = R and W = P ALWAYS. It is the very definition of steady state. Notice I avoid the term "equilibrium."
So if R includes interest, which it most certainly will, L includes not only principal but the disbursement of financial sector expenses, such that the expenses disbursed by the financial sector to the rest of the economy exactly equals the receipt of interest--ALWAYS.
If there is deviation from steady state such that there is EXPANSION, L is greater than R and W is greater than P--ALWAYS.
The differential is represented by net flow into account balances represented by i, for interest, p, for profit, and s, for saving--which are HOMOLOGUES.
Virtually the same argument the cranks make against interest can be, and has been, made against profit and saving.
The cranks zero in on interest, the socialists zero in on profit, the Gesellists zero in on saving--but they are the same fallacious argument. It's just that they don't realize it. And this includes the majority of credentialed economists.
Douglas did realize it, and that's what makes him a genius--for being the first to realize it. That's why you will never find in anything that Douglas wrote or said an argument to abolish interest, profit or saving--because they are each necessary elements of the market system.
We cannot control or improve the system unless we understand it.
If we don't understand it we are likely to make things worse.
---original message--- From: Victor Bridger <[EMAIL PROTECTED]> Date: Mon, 14 Jul 2003 17:12:50 +1000
Hi Bill, I think there has been a digression away from the central simple statement re interest. I am not concerned with any effects that may arise because of the interest factor on a borrowing and the expenditure of the debt which goes into prices and the interest which also must be added to price. The recovery of price and any profit does allow the original borrower to repay his loan, but unless there is a continuance of borrowing the money received from the one who provided the profit must obtain a profit which would include the interest charge other wise his debt could not be repaid.
A simple example:
There exists a bank. There exists two traders.
Trader A borrows from the bank $1000 @ 10% and producers goods which he sells to Trader B at cost%. the selling price must be $1000 plus $100 i.e., $1100 Trader B borrows $1100 from the bank @ 10% to purchase from Trader A who repays his bank $1100 . Trader B now has a debt of $1210 . Trader A has no money. Trader B has a debt of $1210 and unless someone borrows more so that he can recoup his borrowing plus interest there is insufficient money for him to do so. The debt of course has increased. I reiterate, that interest can only come from subsequent creations of credit, i.e., bank lending, and when this does occur there is an increase in debt.
I find this in line with your comment re Douglas below: "Douglas's point about "B" was that it is on the way back to the banks; it is not available for the payment of interest or principal without furthering borrowing." Vic
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