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Quote:

Take a balanced monetary system with no inflation (or deflation.) As soon as lending begins the persons doing the lending will seek to profit. As such they will charge an interest rate that reflects (1) time value of money, (2) the inflation rate (zero in this case) and (3) the risk of not being paid plus (4) a profit.

Time value is of course real, and this means that in aggregate the lending is "overpromised."

I am rarely the only one to not understand something, so pursuing...

I understand how lenders won't lend at a lesser rate than risk free securities, which I believe is the time value of money for a given term. But what drives the TVoM? Is it natural productivity gains?

As in -
Island uses stones as a currency.

On year 1, it produces 100 trouts, 1000 apples and 10 units of labour.
On year 2, it produces 102 trouts, 1020 apples and 10 units of labour.

Is the extra productivity gain what determines the time value of money?

And if so, then productive lending will simply accelerate that natural increase in productivity and lenders get paid in stones that buy more apples.

Last modified: 2011-11-22 21:18:43 by maurevel
Reason: expanded

2011-11-22 21:14:50


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