Interest is the price paid for the use of money. Money is defined, narrowly, as cash (notes, coins) and demand deposits. Demand deposits form by far the larger of the two components. Create a list of industries and map them each to a payment pattern. Retail is cash and credit driven. Credit because of the use of credit cards. We take on debt for a month or so until we pay our credit card bills. I know one thing about payment patterns for sure. I get my paycheck every month. That gives me liquidity enough (just enough) to see me through the expenditures of the month. And there are many more like me. We spend what we get. There is an interest rate here also. For consumption loans in Bangalore the rate is Rs 100 per month on every Rs 1000 borrowed. (This rate I will check tomorrow with my informant.) The credit card can go into debt. Companies can be debt ridden and debt free. The retail sector is cash and carry. Thus compartment the industry list into retail and non retail. From the tills of the shop to the bank. From the tills of the shops to the wholesalers. From the wholesalers to the producers. From the producers to their factors. Their landlords, their workers, their raw materials suppliers (other shops),their financiers.. This is the industrial circulation. Incomes come in a distribution with a very long right tail. The top 1% gets a lot of the income. They have savings. (The flow into the capital markets) (There can be inflows from the industrial circulation as well, as provident funds and pension funds cumulate). And they get a substantial chunk of what we spend.

And what do the financiers provide? They provide the services of liquidity. So how much liquidity I need, depends on who will take cash and who will take credit. If none of my creditors asked for settlement (because they were getting credit for whatever thay needed) I would need no liquidity. If I had no creditors, and I was spending whatever I earned in a month, then I would turn my whole bank deposit into cash (notes and coin) by the end of the month. But I maintain a minimum balance in the bank account. And I have some nominal savings. So there is some lending my me to the bank. And since money is a means of final settlement of debt, and there are some people who wont give me credit, I need liquidity, or money. So I work and earn.
We spend what we get, and they get what we spend (Kaldor).

So the HNIs and pension funds supply savings at a varying rate into the capital market, and entrepreneurs borrow that in the hope of making profits. (Here analyze borrowing: C&I LOC, Credit card, Mortgage, School loans). This is the financial circuit. We deposit our salaries in the bank, thus giving the bank a certain pool of cash, and the banks lend it out to investing industry. The industry being expanded fulfils welfare needs of the populace. Us and them.

A part of profits is conspicuously consumed. The rest is returned to savings. Why don’t schools take payment for the education they have delivered, after the graduates have proved its value in the outside world?

Someone gave me fellowship to study economics at NYU grad school. Who was it? How did they evaluate the grant? Did I study for free? It was from Prof. Todaro’s grant I think I heard. Or was it UN money? It was financial aid, but whose money was it?


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