Lets look at interest as an example, but using spanners instead of money. I borrow a set of 10 spanners from you, in order to fix my bike. You didn’t produce the spanners, you got them for Christmas in 2012 and they were just laying around in your shed, so this was a non-productive exchange.
How many spanners do you expect back? I’ll hazard a guess that you’d expect all of them back - right? Since if I ‘lost’ one, then you’d be left with only 9 spanners, therein reducing your net worth.
But what if you decided to charge me an extra spanner for the privilege of borrowing them? Meaning that by borrowing your set of spanners causes me to become poorer.
I decide to do something to rectify that, so when John borrows my bag of ten screwdrivers I decide to charge him not one but two extra screwdrivers. Why? Well the first extra screwdriver was to offset the cost of the extra spanner you charged me, and the second was to gain an advantage by pulling the same stunt on John… meaning that I increased my net worth at his expense.
Later you ask John if you can borrow his golf clubs, there are 10 of those. John explains that he expects you to return 13, so now you’re up 1 spanner but down 3 golf clubs.
When I next ask to borrow your spanners you tell me that you need 14 back… and on and on it goes.
Here’s the thing: 10 spanners is worth 10 spanners, not 11 spanners. When you charged me an extra spanner was that an interest charge on those 10 spanners, or was it a rental charge on them? Would it be fair to say that interest is just a rental charge on money? That banks rent money?
What if you didn’t get the ten spanners for Christmas, but you produced them? The cost of making one spanner is the cost of the alloy plus the operating costs of the spanner making machine plus the depreciate on the spanner making machine plus your labour time (assuming you work efficiently). If you charge me the cost of 10 spanners then that’s fair - right? But if you charge me the cost of eleven then you’re inflating the price. You’re actually attaching some sort of weird premium equal in value to an additional imaginary spanner that was never actually produced. As with the interest/rent scenario, you are essentially just ripping me off. It’s not unreasonable to suggest that the interest ectoplasm, the rent ectoplasm, the profit ectoplasm and the tax ectoplasm are each just different colours of the same ectoplasm.
What happens then if you sell your ten spanners to a shop for the value of ten spanners but they retail those at the value of 11 spanners? Are they charging ectoplasm?
Not necessarily, since reselling is sorta productive in it’s own right, in that it is producing a hardware shop and jobs for workers. So provided the extra they charge only covers their own costs then they aren’t actually inflating the price at all. Yes I can obtain those more cheaply from you in simple terms, but what if I need to purchase a whole bunch of other DIY stuff? Well then it would cost me more to travel round umpteen producers than it would to visit my local hardware store.