BANKS AND PRICES
£1
situation of the world would be different. We must
beware of any assumption that the amount of the
economy is indicated by the magnitude of the aggre-
gate of bank deposits. Even if the aggregate of
bank deposits excluded all double reckonings by
which it may be swelled beyond the net amount
due to persons who have credit balances, it would
probably be greatly in excess of the amount which
those persons would hold in currency if no banking
facilities were available. If the facility were not
there, each of us would set about devising means for
making our incomings coincide more nearly with our
outgoings rather than keep in the house sums of
currency as large as our present bank balances.
A still worse error, which has, unfortunately, been
countenanced by many high monetary authorities in
recent years, is to suppose that the aggregate of
deposits is a kind of money (sometimes it is called
‘“ bank-money *’) which should be added to the actual
stock of coin and notes existing at any moment.
The individual, no doubt, finds “money in the
bank ”” much the same as ‘‘ cash in the house,” but
the aggregate of all the individuals’ balances at their
banks is only an amount which the bankers are
liable to pay, but which they could not possibly pay
in cash all at one moment. A liability to pay cash
is certainly not cash : both debtors and creditors are
painfully aware of the fact. When additional
currency is put on the market by some one who has
the power of issuing it, prices are raised, because the
issuer’s offer of money in exchange for goods and
services is additional, the power of nobody else to
spend money having been reduced. When, on the
other hand, a person increases his balance at his
bank he increases the bank’s power to lend only at
most by the amount which he forgoes, so that the
aggregate money-spending is not increased.
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