Money

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Monograph

Identifikator:: 1819853969

URN:: urn:nbn:de:zbw-retromon-207464

Document type:: Monograph

Author:: Cannan, Edwin http://d-nb.info/gnd/118666916

Title:: Money

Edition:: 6. ed.

Place of publication:: [London]

Publisher:: King

Year of publication:: 1929

Scope:: XII, 120 Seiten

Digitisation:: 2022

Collection:: Economics Books

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Document type:: Monograph

Structure type:: Chapter

Title:: Part II. Further elucidations

Collection:: Economics Books

R 4 MONEY the announcement of a reduction of the rate allowed to depositors, instead of which it is always accom- panied by the announcement of a rise in that rate. The object of the rise of bank rate is not to reduce deposits, but to prevent advances growing faster than deposits : if it causes deposits to grow, so much the better. The discouragement to borrowing causes the borrowing class to diminish their expenditure and does not encourage the lending class (the depositors) to increase theirs, but rather to diminish it. The banks by this policy of encouraging the depositors and discouraging the borrowers very naturally tend to accumulate cash, which was just what they wanted. So, in consonance with the general theory of this book, there is an increased demand for currency, which tends to lower prices. The banks take some currency off the market by ‘“ increasing their reserves,” and, if we choose to put it in this way, we may say that they thereby, in so far, reduce the economy of currency effected by banking, an economy which becomes dangerous, and is, therefore quite properly reduced, when the bankshave lent or invested nearly 100 per cent. of what has been lent to them. This power of taking currency off the market, however, is of a very limited kind and is not likely to be exercised to the full. The banks could not keep more than a very moderate fraction of their deposits in currency without sweeping away their profits and beginning to lose by their trade, and they are not likely to throw away their property in what would be in the long run a hopeless struggle to stabi- lize prices. What they may reasonably be expected to do is to discourage borrowing when it is going so far as to threaten their own security. This is a useful service to society as well as to themselves: it prevents the agonies of financial crises by checking the booms which precede them. But it is preventive

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