122 BANKING THEORIES IN UNITED STATES

an addition to the aggregate bank reserves of the country would
not, to be sure, permit that particular bank to undertake a manifold
 expansion of loans. But after the cash had been more or less
stably distributed among the different banks of the country, it
would be found that the banks taken together had been enabled
to extend their deposits, through loans, to as many times the
original deposit as the prevailing reserve ratio of the country
would indicate. Regarded from the standpoint of the banking
system as a whole, Professor Phillips’ analysis of the limited
extent to which a single bank can make the receipt of cash the
basis of loan expansion does not deny that a given cash deposit
makes possible bank loans to perhaps ten times its amount, but
merely explains the mechanism by which this process works itself
out. The placing in a bank of a stated sum of specie newly imported
 into the country permits the bank receiving it to undertake
 further demand liabilities to approximately (we have assumed
 it to be exactly) an equal amount. For, as a result of the
influence of the expansion of its deposits upon the clearing balances
 of the bank, most of the freshly acquired reserves will
normally be withdrawn into other banks. But each of these other
banks, as it thus receives some of the reserve newly introduced
into the system, will in turn find it possible to expand its loans to
the amount of this accession. This will tend to render necessary
a further readjustment among the banks — and so on, until the
original deposit will have enabled the banks to expand their deposits,
 by making loans, to several times its amount.
So much for the banking system as a whole. But the thesis that
a given deposit pérmits the particular bank to increase its loans
by only an equal amount in no wise contradicts the theory that
deposits are created, even from the point of view of the individual
bank. For we may grant that before a bank can undertake to
increase its demand liabilities it must receive from a depositor an
equal amount of cash (including checks upon other banks), and
still we can protest the fallacy of regarding bankers as mere
brokers, whose sole function is to enable borrower and lender to
find each other.! The mere passing on to a borrower of a sum of
1 See. for example, Irving Fisher, The Rate of Interest, p. 324.