120 BANKING THEORIES IN UNITED STATES
»
ing of paper, precisely as does the issue of bills.” ' “Discounts
create deposits, curtailment destroys them,” was the terse summary
 of George Opdyke.?

In the last decade before the Civil War, then, the fact that
bank deposits are not merely the result of the actual lodging of
cash with the bank was beginning to receive definite recognition.
Such, of course, is the accepted theory to-day, due in no small
part, probably, to the writings of Henry Dunning MacLeod in
England, and of Charles Franklin Dunbar in America. The older
view is not without its advocates, however. Professor Cannan
furnishes us with its most notable recent statement.® The chief
difficulty with this conception of bank deposits is that it fails to
perceive that the loan of a sum of money payable upon demand to
its depositor, or the extension of credit (whether in the form of
notes or deposit account) upon the basis of such a sum, in itself
constitutes an addition to the previously existing media of payment.
 So long as a bank lends no more than the funds actually
received as capital and time deposits, it is returning into the circulation
 no more than it has drawn out of the circulation. But
the same thing cannot be said of a bank that lends cash received
in exchange for a checking account, or extends a deposit credit
upon the basis of such cash used as reserve. In this case the
original depositor has not decreased his immediate command of
purchasing power (as he would have done in making a time deposit),
 but will continue to exercise it by the transfer of his claim
upon the bank through the writing of checks. If, upon the basis
of the cash it has received, the bank finds it possible to assume
another like liability to pay cash on demand, the volume of media
of payment is to that extent increased. For both deposits, the

1 Report (1860), p. 130. Their predecessors of three years before entertained a
different view.
2 “New Views on the Currency Question,” Bankers’ Magazine (1858), xiii, 420.
3 Edwin Cannan, ‘Meaning of Bank Deposits,” Economica (January, 1921), i,
28-36. Cannan reverts to the earlier theory and denies that deposits are created or
that banks can lend more than they receive from patrons. He seems hardly to appreciate
 the early date at which the doctrine that deposits are created by the bank
itself made its appearance.