Interest-Bearing Transactions
money is used to pay for the rental of real money in a
loan, then exactly the same difficulty arises with the interest payments
for the rented money as when land is used, in the corrected analogy, to
pay for the rental of land. That is, as interest payments continue,
it becomes increasingly difficult to obtain real money because more and
more of the limited supply of it is transferred to the lenders. Eventually,
all available real money will be transferred to the lenders and the payment
of interest on further loans of real money will become impossible.
The only way to avoid the problem is to continuously increase the supply
of real money. However, since the supply of real money is limited,
by definition, the amount of it cannot be continuously increased.
Thus, if the economy uses real money, it will eventually become impossible
to pay interest on loans. Indeed, it will become impossible to do
anything that requires real money because all of the available real money
will be in the hands of the lenders.
The economists have caused us to believe that the funds in general use
in our economy today are the same thing as money. However, the belief
is untrue. Rather, the economists have contrived various substitutes
for money, such as currency, phoney ledger entries, electronic funds, bank
loans that lack substance, and so forth. The Rules of Money assure
us that such substitutes aren't real money. The utility of the substitutes
for real money is that the supply of those substitutes can be increased
without limit. That prevents the transfer of funds to the lenders
from causing the depletion of the available funds. Thus, interest-bearing
transactions not only provide the excuse for the replacement of money with
substitutes for money, they make such replacement absolutely necessary.
0
| Gresham's law ....
The theory holding that if two kinds of money in circulation have the same
denominational value but different intrinsic values, the money with higher
intrinsic value will be hoarded and eventually driven out of circulation
by the money with lesser intrinsic value. [After Sir Thomas GRESHAM.]
— The American Heritage Dictionary of
the English Language
Third Edition
|
0
The availability of unlimited funds, in the form of the various substitutes
for money, provides a way to pretend that the problems caused by interest-bearing
transactions don't exist. That is, the supply of something that is
available in unlimited quantity cannot be depleted. Thus, no matter
how much of the available funds are transferred into the hands of the lenders,
additional funds will always become available. However, as the supply
of the substitutes for money increases, the value of each unit of the substitutes
decreases. Gresham's Law assures us that, increasingly, the substitutes
will drive any lingering real money out of circulation. After that,
the economy will function using only the substitutes.
As the value of each unit of the substitutes continues to decrease,
we must constantly strive to acquire more and more units of the substitutes,
just to avoid a net loss in the value of our funds. Since the decreasing
value of each unit of our substitutes causes us to struggle, just to stay
even, we will eventually be forced to borrow additional funds. Increased
borrowing will reinforce the trend.
| Page 2 |
 |
|
