John comes to your home one day and tells you he wants to share it with you. You already share your home with other people, family and friends, but you have some room to spare. You don’t mind too much — or maybe you do. Either way, as long as everyone respects one another, it should work out all right.
But shortly after John moves in, you regret ever having opened the door to him.
In addition to eating everyone’s food, using everyone’s toothpaste (leaving the cap off, of course), and using up all the hot water in hour-long showers each morning, John’s telling everyone that he’s devised a fair system to ensure everyone gets an “equitable share” based on their contribution around the house. Nobody really understands what this means, especially coming from John, who would appear to be the least likely to benefit from any such scheme. Nevertheless, he insists that this is the rational way to do things and that this would be how things would run going forward. John is 6 foot 5 inches, 280 pounds of muscle, shaved head, and tattoo. He’s made a compelling case, so everyone agrees to adhere to his system.
In John’s system, he is responsible for managing access to the food and the utilities. So, if you need bread, you need to buy it from John. True, you made the bread yourselves before John arrived, but the problem is, it was not being exploited efficiently, which means there was some waste occurring and there was no way to benefit from it (other than receiving satisfaction from a full belly, which apparently means waste). Now, with proper management in place, everyone has fair access to the bread, and value can be created.
Unfortunately, not everyone can afford the 1 JohnDollar/slice price. John says this is not the fault of the system. It simply means that those people without sufficient JohnDollars need to be provided with opportunities to earn JohnDollars. Now, John has some JohnDollars, which he’s offering in exchange for performing various administration and security duties, because it’s important to keep track of inventory and finances and to ensure nobody tries to steal the bread that’s not rightfully theirs. (Also, note that John is selling your delicious bread to his rich friends for the equivalent of 2 JohnDollars/slice, so really, you’re getting a good deal here.)
So, John is generous, but he can’t hire everyone into administration and security services. He can’t afford that, because although he could make as many JohnDollars as he wants (using your construction paper and scissors), that doesn’t create value, it doesn’t contribute to growth. So, in the interest of creating value and providing growth opportunities for everyone, he’s offered to lend people JohnDollars to start their own businesses. (Of course, interest payments on those loans need to be made in a timely manner.)
Incidentally, John has also laid claim to the house and the land on which it was built. Apparently, he’s now good friends with the neighbors (after some run-ins in the past) and they’ve acknowledged him as the owner of the house, so it’s pretty much settled. Anyway, it’s all clearly laid out in the paperwork he’s drafted and had notarized, perfectly legal as per John’s system. As John is now the homeowner, he’s entitled to charge rent to those inhabiting it: 25 JohnDollars per person per month. Your business is basically catering to John. It earns you 30 JohnDollars per month. You have 5 JohnDollars left to pay the interest on your loan (4 JohnDollars) and buy food…
If you were in this situation in the real world, you might think you’d be able to appeal to some civil authority. Or perhaps you’d all get together and physically remove John from the house. Unfortunately, it is the real world. The authorities cannot help you. Physically throwing out someone like John, well, easier said than done… Millions of people are living in this situation today. If you are living it, your situation is called “poverty”.