If you follow the definitions of the so-called economic sciences , then
you end up
in a maze of smoke and mirrors and the matter never gains clarity. This
result is almost certainly by design! To achieve clarity, one must apply
critical thinking skills to the observable things, leading towards an
explanation / theory.
Successful investing is a successful process of aquisition of work
results, which is an exploitation of the counter-party. The investor
wants a return greater than what he "invested". 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
accepted "money" claim = an "ex-nihilo" (out of nothing) claim against
the public and places such "funds" at the disposal of the "investor". At
the same time, the bank 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 in return for wages.
The investor is free to determine the use of the labor (eg the
construction of a road ).
When the road is finished, the investor owns the rights to the road. In
order to fulfill his debt
contract with the bank, the investor demands a fee for the use of the
road from the workers
and those who have fed the workers in exchange for money ( the farmers )
during the construction. The farmers accepted the money because they
had to acquire some to pay their taxes to the state. They also saw
advantages to having access to a road. So the money is recollected
("reflux"), flowing back to the bank in the form of debt repayments.
This results in the bank-credit "money" being destroyed.
If things were to remain that way, the economy would collapse, as it
would be starved of "money"
while the demand for money necessary for paying taxes and fees to use
the work results continues. To ensure that this does not happen, the
bank must find other "investors" with credit-worthy projects toprovide
the workers work (and wages) and acquire the work results as described
above, to satisfy their central motif "More, more... MOAR" and their
credit contracts with the bank. But the scam works also without funding
productive work projects -- undertakings that are totally unproductive.
For example in an economy where all necessary roads are already built,
if the money created out of nothing is more and more allocated towards
speculation in the financial "markets" = unproductive redistributions in
zero-sum games which contribute nothing to the "real" economy.
The system is expansive by its nature, but at the same time it creates
highly concentrated ownership of the things (especially the 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 crisis
reveals the operation and its consequences), the economy grinds to a
standstill resulting in an inevitable deflationary collapse.
This article was first published in German 29. July 2015 here
Many thanks to Wesley Freeburg for editing and improving readability in Engish.