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Message:: [QUOTE="GeorgeM, post: 1250648, member: 28550"]You seem to understand the concept of a zero sum equation, but fail to grasp that there are other situations (and they occur all the time in economics). In practice, most people who take out a loan expect to make more than the amount of money they pay in interest from the loan. For example, let's look at a hypothetical cattle drive in the Old West. A cattle herd is a big investment - way more than someone could probably pay out of pocket. So, the people running the cattle likely had to borrow money to purchase them (say, $10,000 for a large herd). They would pay short term interest to do that (say, $500 for 1 month - or, a 6% annual rate). The only reason someone would do this again and again is if they made a healthy net profit after paying off the cowboys and any other costs. Let's say an organizer for a cattle drive had a net profit of $100 after paying all his bills (pretty good money for a month or two of work back in the 1880's). Beyond that, we're not just talking about shuffling commodities around. Driving the cattle from point A to point B created add-on value - in a place like New York (where land was scarce) the existence of cattle driven in from out of state meant that cow products were much less expensive (steaks, beef tallow, leather, etc). Cow products that were better than their substitute goods (ie; leather gloves vs. cotton gloves) made people more productive (fewer instances of frostbite or injuries when laying bricks, for instance). So, the $100 paid to the cattle drive organizer was a manifestation of that increased productivity. The cities were economic engines that turned out cheaper horse tackle / clothing / rope / etc for the cattle drivers, in a positive feedback loop.[/QUOTE]

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