Productivity increases value. It creates real new wealth.
When someone loans money to a productive borrower, the repayment comes from the new wealth down the line. A farmer or industrialist sells his crop or product for more than he invested in it, and repays the loan (hopefully with plenty of money left over). Wealth isn't created from nothing, just moved from one time point to another.
The problem comes when governments borrow money. Governments produce nothing, and create no new wealth. The only way they can pay these loans back is by taxing wealth from others including from the very people they borrowed the money from. This is the equivalent of someone embezzling money from the bank to repay a loan to that bank, or borrowing from one credit card to pay off another one.
In this case, there is an artificially-inflated money supply.
An important distinction
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- No, that's not the whole idea.