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<p>[QUOTE=&quot;GeorgeM, post: 1251227, member: 28550&quot;]That&#039;s a pretty big assumption there. If a cattleman fails to pay off the loan, why would the banker still get paid? Plenty of banks failed in the late nineteenth century after making bad investments (railroad bonds were involved in a lot of those bad loans). Unless the cattleman had secured his loan with collateral, the bank would have to eat the loss on its balance books as a bad loan.</p><p><br /></p><p>The bank wouldn&#039;t lend the cattle driver $10,000 if it didn&#039;t think that there was a good chance he would pay it back plus interest. And, the interest rate isn&#039;t automatic profit for the bank. Interest rates are assigned based on risk - if you charge 10 people 10% interest on equal sized loans, how many of them have to default before you just break even? (hint: don&#039;t forget the principal) So, interest rates are determined based on risk. </p><p><br /></p><p>In the cattle drive example, you would have to convince a banker to lend money to you at 6% interest. Someone who had worked for years as a cowboy and had successfully run dozens of cattle drives might be able to do that (especially if they offered up their ranch as collateral). Someone who was fresh off the boat from Europe and had never gotten closer to a living cow than eating a burger probably wouldn&#039;t get the loan (or would get it on much steeper terms). </p><p><br /></p><p>You&#039;re still missing the point. The profit that the cattle driver makes and that the bank makes represent the creation of value. Without the bank to lend the money and without the cattleman to move the cows, there would have been less beef/tallow/leather where it was needed. Getting it there allowed businesses in Chicago/New York to leverage their efficiencies and produce more goods with less inputs. Thus, the currency that was created reflected the creation of value.[/QUOTE]</p><p><br /></p>

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