Here's a related blurb I was working on a while ago. I'm sure it's got some logical errors and it could benefit from a rewrite for succinctness and clarity. Does it make sense?

Flying out in 15 hours or so.

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The Mud Pie Model

There are ten people in the Mud Pie community.

Each person has ten bills, with each bill being worth $1.00, so there are a total of one hundred bills in the community equaling $100 dollars at the start of our simulation.

Each person contributes to the production of Mud Pies. Some of them provide the molds, some the mixes, etc. in a free market setting. Person #2 owns the Mud Pie factory that actually creates the Mud Pies.

One day, Person #1 learns how to print more bills and becomes a money printer and lender.

Person #2 wants to borrow ten more bills so that they can increase production, so they go to Person #1.

Person #1 agrees, and prints ten more bills and lends them to Person #2

There are now 110 bills in the community, so each person's bills have been devalued to roughly $0.91 per bill.

So now, person #1 has a little more than $18 (upon repayment) plus whatever interest they are charging Person #2, while everyone else has gone from having $10.00 to now just having $9.10 even though they were not involved in the transaction between Person #1 and #2. There money was devalued by Person #1, with 90% of the devalued wealth being transferred to Person #1. (Need to check that last figure...)

Going Deeper

It could rightly be argued that Person #2 is using that printed money to increase productivity. Before the loan, they could only make 10 mud pies per day, but now they can make 11 mud pies per day. So the 'GDP', in a sense, has increased by a whopping 10%.

Before their loan, each mud pie sold for 1 dollar, and before the loan, each person had bills that were worth $1 each, so they could buy 10 mud pies.

But after the loan, Person #2 can lower the price of their mud pies to $0.95, and still make a bigger profit.

BUT, the bills the others are holding are now worth only $0.91, so they can only buy 9 mud pies with their 10 bills. The cost of the mud pies has gone DOWN but their money has been DEVALUED. It's not inflation that is making prices go up as we're being told, it currency devaluation. Inflation happens when there's a lack of product due to, say, a natural disaster or some other unusual imbalance in supply and demand. What's happening now is not inflation. It's currency devaluation.

Also, as the currency is being devalued for everyone, even Person #2 will eventually have to spend more to run their business, and the cost of the mud pies will soon be above the original cost.

This increasing reliance on debt results in the wealth of the community being centralized with Person #1. Sound familiar?

Consider that if no additional money had been created and Person #2 had secured financing via straight loans from others with the understanding that Person #2 would share in profits (or increased productivity rather), the increase in GDP would have resulted in a real price drops. Any increase in production efficiency will always result in price drops when real money is used. Deflation is the norm and it's a good thing.

The problem with deflation for Person #1 is that it means that they can't just sit back and live off the work of others. They actually have to be productive. That's why they print money -- so that we have to keep working long hours and they don't have to work at all.

Going Even Deeper

Let's Assume Mudville was using real money.

Let's also assume that Person #2 managed to convince the others to invest some of their dollars into Person #2's Mud Pie factory with the understanding that investors would receive free Mud Pies for life or whatever.

In any case, no money is printed to expand Person #2's Mud Pie production capacity.

Mud Pie capacity increases from 10 to 11 Mud Pies. Person #2 can still lower the price to $0.95, which means that each bill everyone is holding, relevant to Mud Pies, is now worth $1.05. They can buy the Mud Pies for less in real terms. Everyone has MORE because production, GDP, has increased. As it is now, GDP is increasing, and people have less. That's because the money is being devalued -- Person #1 is stealing the productivity of others through money printing.

If money were real, a growing GDP would always result in continually lower prices, which means we wouldn't have to work so fucking hard. But the ORG can't have that, can they?

This benefits everyone except Person #1 in that they can no longer sit back and get richer on others' labor. It benefits Person #1 to the same degree that it benefits the others, but now Person #1 has to be productive in some way. They can't steal others' money by printing it.

Prices continue to go down, and everyone can WORK LESS. But that's not good for Person #1 who fears loss of control.