The Edmondson Blog

Economic Theory

An occasional explanation of modern Economic Theory, Part 72 - England.

It is April. In a small pretty tourist town out in the shires the holiday season is in full swing, but it is drizzling so there is not too much business happening.

Everyone is heavily in debt.

Luckily, a rich Russian tourist arrives in the foyer of the small local hotel. He asks for a room and puts £100 in banknotes on the reception counter, takes a key and goes to inspect the room located up the stairs on the third floor.

The hotel owner grabs the banknotes and rushes to his meat supplier to whom he owes £100.

The butcher takes the money and races to his wholesaler to pay his debt.

The wholesaler rushes to the farmer to pay the £100 owed for pigs he purchased some time ago.

The farmer triumphantly gives the £100 to a "lady" who gave him her services on credit.

The "lady" goes quickly to the hotel, to pay what she was owing for her room she rents by the hour to entertain clients.

At that moment, the rich Russian comes down to reception. He informs the hotel owner that the proposed room is unsatisfactory. He takes back his £100 and departs.

There was no profit or income. But everyone no longer has any debt and the small townspeople look optimistically towards their future.

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