118 BANKING THEORIES IN UNITED STATES
ring, on one occasion, to the deposits of banks of circulation as
¢createable at will.” ! He seems, however, to have freed himself
but partially from the current fallacy, when, in a later definition
of banks of deposit and discount, he failed to see that the loan by
the bank of money left with it subject to payment on demand
constitutes in itself an addition to the quantity of media of pay-
ment, inasmuch as both the original depositor and the recipient
of his money (or of the notes or deposit credit based upon it)
command purchasing power to the full extent of the money en-
trusted to the bank.”
Henry C. Carey recognized that deposits are created by the
banks and that the “loan that is based upon a deposit doubles the
apparent amount of currency — the power of purchase remaining
with the real owner of the money, while being exercised, and to
the same extent precisely, by him to whom the bank has lent a
Carey believed, as we saw earlier in the chapter, that it is the
deposits, rather than notes of banks, that introduce violent
changes in the volume of media of payment; and he criticized
Peel’s Act of 1844 upon this ground.* It is more important, he
thought, that the law prescribe an ample reserve against the
fluctuating element of bank credit, namely, deposits, than that it
do so against notes.’
Robert Hare, who objected strenuously to the theory that bank
loans are in essence the loans of the depositors of the bank to its
borrowers, was not deceived as to the character of deposits. The
latter, like notes, are the product of the bank itself.® Charles H.
Carroll agreed with Hare with respect to the origin of deposits,
although he differed completely from him in maintaining that
banks can serve only as intermediaries in their lending operations,
since the advance to customers of more dollars than were re-
1 Currency and Banking (1839), p. 71. See also, “Principles of Banking,” Free
Trade Advocate (July 4, 1829), ii, 3, 4.
2 Cp. Currency and Banking, p. 71.
3 H. C. Carey, Principles of Social Science (1858), ii, 421. See also, Past, Present,
and Future (1848), pp. 180 ff.
4 Carey, Past, Present, and Future, p. 180. 5 Ibid., p. 182.
6 Hare, “Do Banks Increase Loanable Capital?” Hunt's Merchants’ Magazine
(1852), xxVi, 703.
