The creation of money profit

by means of credit moneyBy Renée Menéndez

The basic setting

Unlike before we have five sectors: Central Bank,Commercial Banks, Entrepreneurs and Householdswith say labor input and capital input (landlords)It does not matter which input exists, everyexample will fit.

The money creation step

We have the chain from CB to E where two loanswere granted from CB to B (C-B) with liability (D-CB)and from B to E (C-E) with liability (D-B). Theamount of money equals 800 units.

 

The attraction of resources

Equipped with money M the entrepreneur is able tobuy the means of production from the households.Note that total investment is shared between thelabor HH and the capital selling household CS.

 

The production step

Production results in creation of output, where athird of capital is used up. Therefore the output Gcauses costs of 400 money units.

 

The market stepE sells the output G with a mark-up of 25%,therefore he gets back a money amount of 500 units,which he must share with the bank, because interestpayments fall due of 10%, so he has to pay 80 forinterest and 200 for used capital, i.e. 280. Note thatmoney revenues equal M+C/I where C/I is interestpayment plus capital repayment = 80 + 200 = 280.S marks gross profit, so it includes interest payments.

 

The debt consolidation step

E pays interest and capital liabilities and ends upwith income P = 20. CB and B end up with lowercredit / debt balances but earned 40 units of income,which must not be consolidated, because they comefrom income flows (80). E has additional 200 moneyunits to continue production, so the fund for payinglabor is sufficient.

 

The next production step

E buys another time labor power 200 and generatesanother 400 output. E ends up with 200 capitalleft M 20 left but with 400 output.

 

The next market step

E sells his output as bevor for 500. This time CB, Band E can consume as well (40+40+20). HH pays200, CS pays 200 and CB, B and E pay another 100.Income positions vanish therefore from the balancesheets at CB, B and E, leaving room for net wealth.

 

The next consolidation step

As bevor E pays 260, 60 interest and 200 loanrepayment. E ends up with P 40, B with Y 30 andCB with Y 30. HH got goods 200 and CS as well.

 

The next production step

As bevor E pays 200 for labor and produces 400in goods. Note, that the G 20 refers to net wealthand not to the amount of newly produced goods.

 

The final demandAs bevor E tries to have a revenue of 500 but nowwill end up with sales of only 400. HH spends all 200,CS all remaining 100 and CB, B and E 30+30+40which sum up to 400 only. L is the stock of unsoldgoods, that is no inventory investment, it means loss.Capital is used up and has no value any more.

 

The final outcomeThe final result can not be different as in any otherenvironment, where someone has to pay more moneyhe ever got. That is not surprising. What is interestinghere is the market and consolidation process.This will be further discussed in the paper.