Quote from: hyperD on May 31, 2011, 10:45:13 PM

Quote from: barbarousrelic on May 31, 2011, 07:55:43 PM

Quote from: hyperD on May 31, 2011, 07:15:00 PM

Sure, but if 6 million BTC's or 21 million BTC's are to lent out where are the new BTC's going to come from to pay for the interest. Gold became unsutable for modern finance because of this scarsity, so fiat currency was created. how can an economy grow?

You do not need to have an inflationary currency to have interest-paying loans. This is not the reason gold stopped being the basis of currency.

I hear this objection every once in a while, but it doesn't make sense. Let's imagine an island with three people in it, Aaron, Bob, and Charlie, and only 10 credits of money, which will never increase.

Aaron lends Bob 5 credits at 5% interest. Bob buys a widget from Charlie. Bob now owes Aaron 5.25 credits. Where does this come from? Bob exchanges his services for it, from either Aaron or Charlie. Perhaps Bob has a job working in Charlie's widget store where he earns the 5.25 credits to repay his loan. Or perhaps he mows Aaron's lawn in exchange for the 5.25 credits he must repay. Or perhaps he sells some of his old DVDs to get the 5.25 credits.

The fact that Bob borrowed 5 credits and must repay 5.25 credits does not in any way require that the money supply on the island grow to more than its set 10 credits.

Let me get this straight, Aaron has all the credits, he lends Bob and Charlie 5 credits each at 5% interest each. Bob and charlie use the money to have fun and buy stuff from each other but they eventually have to pay these 10 credits back to Aaron, plus interest. Where is .5 of a credit going to come from?

Even if all money in existence was loaned from one person to another at interest, (which is an extreme example, but let's play along) this still wouldn't be a problem. The borrower can perform work for the person he borrowed from in exchange for the owed amount. Or sell him something worth the owed amount.

Some people are under the impression that there must be enough dollars/Bitcoins in circulation to match the value of all goods and services in existence in the entire economy. This is not so.