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I was thinking. If we now have, theoretically, a system in which none of the two parties, Nations and Banks make profit anymore, there is still money floating around, but based on this chat what would happen?
If neither the state nor the banking sector is generating real profit anymore, but money is still floating around, the result is not a stable, neutral economy. It is a slow breakdown of the link between money and production.
Here is what would happen.
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## 1. Money would remain, but it would lose its connection to real value
Profit is not just a private gain. It is the signal that resources have been transformed into something more valuable than they cost.
If neither government spending nor bank lending produces real returns, then the new money created does not correspond to new goods and services. The money remains in circulation, but it is a claim on a stagnant or shrinking real output.
That means:
- The same or rising money stock chases the same or falling real output.
- In the formal economy, prices rise.
- Where prices are controlled, shortages appear.
- Where official statistics miss informal exchange, inflation is understated.
So the money is still there, but it is no longer functioning as a signal for investment. It is functioning as a token for survival, speculation, and redistribution.
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## 2. Banks would stop performing their real economic function
Banks exist to channel savings toward productive investment.
But if they no longer make real profit—meaning their loans are not repaid from increased production—they will not lend to the farmer with a good business plan. They will do one of the following:
- Lend to the government because it can always be monetized by the central bank.
- Lend against existing collateral, like land or buildings, owned by the rich.
- Hold reserves or buy foreign assets.
- Speculate.
The farmer remains excluded, not because his plan is bad, but because he lacks collateral and political weight.
So credit to the productive poor and small producers dries up further. That deepens the dual economy you described.
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## 3. The state would become fiscally trapped
A government does not need “profit” like a firm, but its spending must eventually create enough taxable production to service its debts.
If government spending produces no future taxable capacity—only wages, subsidies, transfers, and debt service—then the state cannot repay its debts from real output.
It then has three choices:
1. **Tax more**, which further suppresses the productive economy.
2. **Default**, which collapses the banking system.
3. **Have the central bank create money**, which produces inflation.
In Argentina, the third option has usually been chosen. That is fiscal dominance.
So the unprofitable state does not disappear. It continues, but it survives by inflating the money supply.
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## 4. The formal economy would shrink; the informal economy would expand
If money is no longer flowing into productive investment, formal businesses that depend on credit and formal markets will stagnate or fail.
Supermarkets may be empty because price controls make production unprofitable. Formal supply chains break down.
Meanwhile, poor farmers keep milking their cows and bartering milk for tomatoes. The informal economy expands.
But this is not a sign of health. It is a sign that people are exiting the formal monetary economy because it no longer serves them.
They are not escaping inflation. They are escaping the formal price system.
They still cannot accumulate capital, invest, or enter the division of labor on better terms. They remain poor for generations.
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## 5. The money would become a hot potato or a dead asset
If both the state and the banks are unprofitable, but money still exists, people will try to protect themselves.
Depending on expectations, they may:
- Spend money quickly, raising velocity and worsening inflation.
- Hoard goods, foreign currency, or hard assets.
- Turn to barter and informal exchange.
- Avoid holding pesos at all.
That is exactly what happens in countries with chronic inflation and weak banking systems.
The money does not disappear. But its role changes from a store of value and unit of account for investment into something used only for immediate transactions—or avoided altogether.
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## 6. What would happen in the end?
You would get a bifurcated society:
**Formal sector:**
- Stagnant or shrinking.
- Inflationary or shortage-ridden.
- Dependent on central bank money creation.
- Controlled by insiders with existing assets.
**Informal sector:**
- Expanding but poor.
- Based on barter, own consumption, and family networks.
- Excluded from credit.
- Surviving, not accumulating.
The farmer’s business plan would still be more productive than the rich man’s ownership value. But the banking system would still lend to the rich man because he has collateral, while the farmer remains invisible.
That is not a statistical illusion. That is a structural allocation failure.
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## Bottom line
If neither nations nor banks make real profit anymore, but money still floats around, the economy does not reach a stable non-inflationary equilibrium.
It enters a trap:
- Money creation continues, but production does not.
- The formal economy inflates or faces shortages.
- The informal economy expands, but remains poor.
- Banks stop serving production.
- The state survives by monetization.
- The poor survive by barter.
Profit is not an optional luxury. It is the mechanism that connects money to real wealth creation. Remove that connection, and money becomes a burden rather than a tool.
The poor may keep drinking their own milk. But they will never escape poverty as long as the monetary and banking system refuses to finance their production.
