in a maze of smoke and mirrors and the matter never gets clear. This is wanted so
almost with certainty! To get things clear, one must think from the observable things towards an explanation / theory.
Successful investing is a successful process of aquisition of work results, wich is a exploitation of the counter party. The investor wants more back compared to what he gave. To achieve this goal the investor (an entrepreneur or the State for example) goes to the bank and takes out
a loan. The Bank creates money = a refined to Umlaufaehigkeit claim = a generally
accepted claim = a claim against the public out of nothing and makes such available to
the investor at his disposal. At the same time it creates a specific agreement with
the borrower for repayment of the money / the debt = the credit contract.
With the money made available to him the investor buys labor from workers against wage.
The investor is free to determin the use of the labor (eg the construction of a road ).
When the road is finished the investor owns the road. In order to fulfill his credit
contract with the bank, the investor asks a fee for the use of the road from the workers
and those who have feeded the workers in exchange for money ( farmers ) in the mean time. The farmers accepted the money because they had to acquire some to pay their taxes to the state. They also saw the advantage when there would be a road for them.
So the money is recollected and flows back to the bank and there the credit is repaid = the money destroyed.
Would things remain that way, the economy would collaps, because it would be starved
and without money while money demand for paying taxes and fees to use the work results still exists. To ensure that this does not happen, the bank must find other
investors with credit worthy projects that give the workers work and acquire
the work results as described above, to satisfy their central motif "More" and
their credit contracts with the bank. But the scam works also without work and therefore totally
unproductive. For example in an economy where all roads are build , if the money created out of nothing is more and more used for speculation in the "markets" = unproductive redistributions in zero-sum games.
The system is expansive by its nature, but at the same time it creates highly
concentrated ownership of the things (for example means of production) in the hands of those who were deemed by the Bank as credit worthy and successfully "invested" the loan in the way described above. If the money creation / lending process stops and thus the
investment = aquisition / exploitation process for whatever reason
(eg, binding of money creation to gold, investors run out of ideas, a crises that
reveals the operation and its consequences) the economy grinds to a standstill and in an inevitable deflationary collapse.
This article was first published in German 29. July 2015 here