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"Twice-Lent Money" page 3
Interest is not the mathematical problem some people think it is

Banks charge interest (I) which means that the total amount of money the so-called borrower (actual money creator) must pay the bank exceeds the Principal amount (P) created.

This is represented by the inequality P < (P + I).

This leads many people to believe that interest is the fundamental problem that makes the economic system mathematically unstable because "obviously" there isn't enough money created to pay both Principal and Interest.

The many variations of this stranded on a desert island fable purport to prove that interest is mathematically impossible to pay from the original principal alone.

Please follow this link if you continue to believe this misconception.

stock and flow

The chapter on Interest from Money as Debt III

Here is an animated demonstration illustrating how a total of $1100 Principal + Interest can be paid back to the bank with just the original $550 Principal. Flow multiplies stock.

• The green line indicates the bank spending the interest back into circulation. This is the flow that allows the same money to be earned and paid again and again.

• The red flash is Principal being extinguished upon repayment to the bank.

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RIgorous Attempt Proves Only the Obvious
The link below is to a rigorous mathematical attempt to prove that interest is the destabilizing element in our system. And, while the authors continue to insist that interest is the root problem, their honest conclusion, after 22 pages of inquiry, simply restates an obvious truism (emphasis added).

"Therefore, to the extent to which the loan models herein have been analyzed, instability is identified for any of the cases where either part of the principal loan or the interest on that amount CANNOT BE PAID whatever the reason, in which case the debt will continue to grow towards infinity." read the full paper (pdf)

They failed to prove anything but the obvious fact that UNPAID loans at interest grow exponentially.

Fortunately, the authors and I are in agreement that we need to move away from the concept of money as a "quantity", a thing-in-itself. The "medium of exchange" can be replaced by a "means of exchange".

back / next ~ Interest isn't the Problem... It's the Principal!

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