Growth of Money to Pay Interest


Using fallacious and convoluted math, some people argue that the money supply must grow in order to pay interest on borrowed money.

Somehow, the idea that the supply of money must grow perpetually to pay the interest on money debt has found popular support on the Internet and other media. In fact, the quantity of money can remain fixed, as it should, while borrowers continue to pay the interest on their money loans. Even within a fractional reserve banking system—with no commodity money "backing"—the payment of money interest does not generate a need for an ever increasing quantity of money.

With this presentation I will use four simple models to demonstrate how borrowers pay interest on money loans without an increase in the quantity of money. Then I will identify some important economic concepts overlooked by the advocates of this notion of perpetual money growth.

Note: This page summarizes extensive information provided in the presentation on Money Growth to Pay Interest but does not replace the detail. I encourage you to spend the time—now or in the future—to study the full presentation.

Proceed to the Introduction to the presentation about the fallacy of creating money to pay interest.

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A Related Fallacy:

Money = Debt: Fiction (& Some Truth)

Many people seem to make a connection between the perpetual money growth hypothesis with the fiction that money equals debt to banks. I have addressed these myths separately, but, for those who see a connection, I have provided a link to the articles in which I deal with that fiction.