r100 from hand-to-hand
YOUR “AGEING correspondent” doesn’t miss anything – he’s too sharp for that. I believe Stephen Mulholland ( Finweek, 23 October) didn’t want to spoil readers’ puzzling out the solution by providing it himself.
So let me try. The four businessmen were caught in a relentless credit trap. Even if all four were sitting around a table together, with each one ready to receive his R100 and then pass it on to the next person he owed it to, that was simply not possible as none had the money to start with.
A possible solution could have been a reverse stream in kind. In other words, instead of paying R100 cash, the owners offered one night of free accommodation (or liquor) to the baker; the baker R100 of bread to the butcher; the butcher, R100 of meat to the garage; and the garage then delivering R100 of fuel to the boarding house, free of charge.
However, an arrangement such as that might not have satisfied the parties’ needs. For example, the baker may have wanted fuel rather a night’s free accommodation. The situation would, of course, not have arisen if each one had paid cash originally.
But that didn’t happen and the mutual debt relationship continued until the salesman turned up. His R100 was the trigger allowing every individual to pay his debt. Unknowingly, the salesman had acted as a moneylender or banker. His R100 didn’t disappear but was repaid after it had served as an “advance” and the owner of the boarding house had used it (like an investment).
In fact, the role of the R100 as a loan is so obvious that the salesman could rightly have demanded free drinks during the three-hour period he sat in the bar – as interest on his loan. The SA Revenue Service would no doubt argue the point about it being non-market-related interest and launch an inquiry.
Mulholland’s story offers two valuable lessons: the essential role of banks (despite their faults and, of course, at a price) in the current business world and, second, since the salesman offered the R100 before he’d received the service it was in fact a saving that made the advance possible.
Finally: note that the multiplier effect really played a major role here, in that the salesman’s + R100 was responsible for the -R400 (-R100 x 4) being converted to a final value of zero.
Apologies for spoiling a really good story with facts.