THE NATURE OF BANK DEPOSITS 121

original one and the additional one which it has made possible,
serve their respective holders just as well as would the cash which
has been left in the bank. Where one person commanded a dollar
of purchasing power before, two do so now.
The reader need hardly be cautioned that we are here concerned
primarily with the operation of the banking system as a whole
rather than with the individual bank. The significance of this
distinction, long familiar to economists, has recently been thoroughly
 elaborated for us by Professor C. A. Phillips.! With reference
 to the individual bank, it is true that its ability to lend is
contingent upon its receipt of deposits in the form of lawful
money, bank notes, and checks upon other banks. Moreover, in
a system of many banks, with highly developed clearing arrangements,
 the securing of an additional deposit permits the particular
bank to extend new loans to little, if any, more than the amount
of this deposit. Should all the banks receive additional reserves
more or less simultaneously (as would tend to be the case, for
example, during a period of general rediscounting with the central
bank), each could gradually extend its loans to many times the
amount of the fresh reserves. Care would have to be taken,
simply, that the equilibria of clearing balances among the several
members of the system should not be disturbed. But of this
manifold expansion on the part of any one bank, the bulk would
be feasible in consequence, not of its own initial receipt of reserves,
but of the credit items it would be able to present at the clearing
house as a result of the expansion of neighboring banks. The enlargement
 of its own reserve would in itself permit the bank to
expand loans to only about a like sum. (For convenience of exposition
 let us in fact assume an exact one-to-one ratio between
deposit received and loan of credit rendered possible on the part
of the single bank.)
At first glance this would seem to invalidate my contention that
bankers create deposits and perform a service beyond that of
acting as middlemen. Such is not the case, however. In the first
place, we are dealing here with the banking system as a whole.
The acquisition by a bank of a given sum of money representing
1 Bank Credit (1919), especially chap. 3.