Douglas certainly wasn't the first to observe that loans create deposits, though he did much to promote the concept among his contemporaries. The "math" by the way is from Douglas not me. Most economists-- especially those who call themselves "Post Keynesian," now accept the concept.
A single bank in a multi-bank system does not create net new deposits by itself when it grants loans. The concept applies to the banking system acting in unified whole as if it were one big bank with many branches. Individual bankers can't see this because they themselves individually hold deposits with other banks that cover withdrawals from their individual banks. In the modern system those deposits are kept with the central bank. Earlier, a "country" bank might have kept its account with a "city" bank. Typically, when an individual banker receives payment on a loan, it results in a credit to his account at the central bank. To him the money therefore "goes somewhere" and is definitely not cancelled. So there is central bank credit and commercial bank credit. Central bank credit is sometimes called M0 or HPM--"high powered money." Commercial bank credit in checking accounts is simply called M1. It is all of it completely interchangeable and fungible bank credit that derives from loans (mostly but not necessarily) by the central bank and the commercial banks acting together. The concept is meaningful only as a rate--the rate of flow of loans in the aggregate as compared to the rate of flow in repayment in the aggregate. If the rate of loans is exceeding the rate of repayment-- money is being created by banks. It is not meaningful to say that an individual loan creates money and the repayment of that individual loan cancels money. --------- Original Message --------- DATE: Fri, 22 Aug 2003 14:10 +0 From: [EMAIL PROTECTED] To: [EMAIL PROTECTED] Cc: [EMAIL PROTECTED] >Dear William. > >Like most people that have been exposed to Social Credit ideas, and have not >rejected them, I accepted for a long time the statement you repeat that "Loans >create deposits, and the repayment of loans cancels deposits", meant that money, >after its creation, could be considered Un-created. > >Only after being challenged by John Tomlinson, a heretical practising banker, >another colonial, now living in civilised Oxford, did I come to accept that no >banker could face the prospect of having to write off his creation just because >some miscreant had the temerity to pay off their debt. > >John patiently stuck to his attempt to explain the reality to me, and to John Hotson >who he was in dispute with on this issue at the time. He explained that in point >of fact this was yet another deviation from the accounting norms that bankers >indulged in, and the returned debts were in fact not "destroyed", but placed >somewhere convenient to the banker awaiting revival as yet more money >creation. > >Now I do not know what this does to your maths. I for one believe that if it is >necessary to go into the realms of higher maths to attempt to refute what can be >clearly demonstrated by eye in any high street, that there is a deficiency of >effective demand, then there is something wrong in the forces of opposition to >change and progress in this world of ours. > >Ken. > > > ____________________________________________________________ Get advanced SPAM filtering on Webmail or POP Mail ... Get Lycos Mail! http://login.mail.lycos.com/r/referral?aid=27005 --^---------------------------------------------------------------- This email was sent to: [EMAIL PROTECTED] EASY UNSUBSCRIBE click here: http://topica.com/u/?a84IaC.bcVIgP.YXJjaGl2 Or send an email to: [EMAIL PROTECTED] TOPICA - Start your own email discussion group. FREE! http://www.topica.com/partner/tag02/create/index2.html --^----------------------------------------------------------------
