Defining Money and Productive
(page 3A of 7)
(1, 2, 4, 5, 6, 7)

THE IMPOSSIBILITY OF INTEREST — AN ILLUSTRATION

10 people are on an island and agree to form a bank to exchange the products they produce. The bank loans each person 10 cents, but they have to pay back 11 cents (to pay the interest). Where does the extra cent come from? Obviously, some would have to default and go bankrupt. Or the bank has to create more money to create the 'interest' owed to the bank.

In other words, 'interest' represents a mathematical 'origins' impossibility; we might agree to allow the bank to produce a total money supply of 100% (100 cents), but with a bank loan of 10 cents, paying 10% (1 cent) interest becomes impossible unless the bank creates a money supply of 110% or 110 cents from the beginning.

"One cannot lend people $10 and demand repayment of $11 unless the borrowing of money continues to escalate and of course will ultimately end in loss of all assets by the borrowers." —Oran K. Johnson, Midas Economic Study, Edmonton AB, Oct. 1996 (from letter to editor, sent to Edmonton Journal)

Again, the invention of 'money' seemed like a brilliant solution to the problem of trading or exchanging my product for your product, until we had to do the actual mathematics of determining how much money to produce, and how to pay for the banking system.

(Related article - "the Magic of the Market")

Next ... Manly Mythology Defining 'Productive'