THE END
Money doesn't make the Earth turn on its axis. But the offer to pay money motivates people and activates the real productive economy. Money makes the economic world go 'round.
Advocates of microfinance -- that makes a supply of money available to peasants, whose buying and selling of stuff from each other "for money" will supposedly increase their economic prosperity -- gush over the life-enhancing possibilities of introducing a supply of money into peasant economies. Peasants with no access to money borrow and lend "stuff" among each other. But they have no money to "buy" stuff from each other. So their opportunity to exploit the economic benefits of trade are limited by their simple barter economic system in which loans of stuff are repaid "in kind".
A peasant who borrows rice, repays the loan "in rice", after he harvests his rice crop. He doesn't repay the loan "in money", after he sells his rice harvest for money. This borrowing and repaying stuff, according to the financial gushers, is woefully inefficient. The peasants are not nearly as wealthy as they "could be", if only they had a supply of money to use buying stuff from each other, rather than borrowing stuff from each other.
I read an article re spreading the word about the availability of $200 microfinance loans with a 50 week repayment term. The article is about networking, "spreading the word". The author uses microfinance as a no-brainer benefit the peasants would embrace if only we could get the word out to the peasants about the marvelous benefits of having a money economy rather than a self-sufficient barter economy.
The networking researchers journeyed into peasantville and observed who borrows rice and kerosene from whom, and they asked local leader-types, From whom would the peasants be willing to borrow money? I'm interested in the perverse arithmetic of money finance, not so much in networking, and I stopped reading (and started writing this article) as soon as I saw the author does not understand the absolute difference in outcomes between people borrowing goods from each other, and later repaying with the same kind of goods they borrowed; and people borrowing and repaying money from a microfinance banker.
The people themselves produce -- or acquire by trade of goods for goods -- the rice and kerosene, so if one peasant borrows rice he can grow rice and repay his debt with rice he produced himself. The people produce rice and kerosene that have economic use-value and economic trade-value to the people. But none of the people "produce money".
That's the whole point: the poor peasants are deprived of money, and microfinance will provide their local economy with a supply of money to use. Let's stick around and watch the peasants' lives light up as they discover the marvelous benefits of money finance!
The banker lends $200 into their economy, at 5% interest, which is $10 in interest. The micro-loan plus interest is payable in one year. So for one year the economy has a $200 supply of money to use buying stuff from each other, and when the year is up, the economy has to pay the banker $210.
No problem, right? With all the increased economic production motivated by the prospect of producing stuff "for sale", and earning the money by selling the stuff, the economy produces a wealth of "sellable" economic value, easily enough additional economic value to repay the banker's loan plus interest.
But wait one rice producin' minute. There is only $200 "of money" in their entire economy, all of which was "loaned" to the peasants by the banker, and all of which is "owed" to the banker as loan principal repayment. Producers get money by "selling" rice for money, not by "producing rice". It doesn't matter how many times the money changes hands selling rice and kerosene to each other. There is still only $200 of money in their total money supply. Producing economic value adds no "money" into the peasants' local economy. All of the money that exists in their economy was "loaned" into the economy by the banker. Now the loan is due and he wants ALL of his money back, with interest.
So the peasants repay the $200 loan principal to the banker. Now their economy has no money, but the economy still "owes" the banker $10 interest.
The banker will not accept payment in "economic value". The people offer to pay the interest in rice and kerosene, but the banker tells them he doesn't want their economic value. He wants money, which he plans to accumulate as his "capital".
The banker is, after all, a "capitalist" who "saves" the money that he earns. Capitalists squirrel away money as their capital. Capitalists do not save up money to fund their retirement spending. Capitalists use their money savings as "capital", to earn even more money. "You can spend your interest, but never touch your capital", is advice capitalists teach their children. Capitalists get money incomes by "owning" stuff: stuff like money that can be loaned at interest, or that can be used to buy dividend-paying ownership shares in profitable businesses.
{Disclaimer: I do not want to destroy capitalism and the capitalist profit motive that encourages vast productivity and all kinds of socially and economically beneficial innovations. I do not want to destroy the capitalist money system that drives the capitalist economic production system. I want to encourage minimal monetary system reforms to save capitalist economic production from the banker money monopoly that is choking the productive world to death, and is going to destroy the banks again, and our money savings, soon.}
Capitalists do not get rich "in economic value", by saving up granaries full of rice and barrels full of kerosene. Capitalists get rich "in money"; and by owning fields that produce rice and refineries that produce kerosene.
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