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lected the redistribution of purchasing power attending the
process of diffusion.
In some measure, probably, the confusion may have been incidental
 to the fact that banking theory emerged out of the doctrines
 built upon government coins and government paper
money. If a government finances its needs by the simple resort
to the printing press, the added monetary units enter the general
circulation and raise prices without a great and direct increase in
the relative purchasing power of any particular individuals. At
least there is no such direct shifting of purchasing power as when
banks add to the media of payment by lending. In this latter
process, certain individuals receive claims upon the community’s
wealth which are added to the preéxisting claims. This was commonly
 recognized. But the result, it was argued, is that each
claim must be assigned a smaller segment of the unchanged
amount of national wealth, so that there might just as well have
been fewer claim checks, each more highly honored. The error in
this objection lies in its overlooking the fact that the borrowers
of the banks now hold a larger proportion of the total number of
checks than they did before. The aggregate purchasing power of
the whole body of claimants may be unchanged, but its distribution
 among the several members of that body has been altered.?
! Of course, changes in relative purchasing power do result indirectly; e. g., there
is the familiar maladjustment of incomes that accompanies alterations in the price
level. Moreover, the seductive ease with which the printing press pays for public
expenditures may cause certain lines of industry to prosper more than they otherwise
 would.
* Even to this day it is probably not an unjust criticism of many textbooks on
banking to say that they hail the economical creation of media of payment as one of
the great advantages of commercial banking and leave it to the student to wrestle
with the apparent paradox that he is elsewhere insistently warned that multiplication
 of the media of payment signifies merely depreciation of the standard. With
reference to our own thesis that a measure of involuntary saving on the part of the
community is involved, through redistribution of purchasing power favoring producers
 at the expense of consumers, it is, of course, to be observed that such benefits
accrue only when bank expansion is properly limited. Briefly, the productive capacity
 of a country is relatively inelastic, so that indiscreet expansion of bank loans
tends to be absorbed to an increasing degree by higher prices rather than by enlarged
 production. Stimulus is then being given less to productive industry and
trade than to unwholesome speculation. Furthermore, ill-advised bank expansion
tends to bring about such abrupt gold movements, in consequence of rising prices,

SUMMARY