When President Lincoln printed "greenbacks to help pay the cost of the Civil war, bankers howled, with rage. They said such "printing press" money would cause inflation. Yet, according to an Associated Press article written by Frank Cormier, bankers themselves are "inflating the money supply just as surely as if the U. S. Treasury were printing greenbacks".
Cormier quotes Treasury Secretary Robert B. Anderson as explaining that bankers manufacture money in the following way:
"The Treasury borrows a million dollars from a bank. The Treasury gives the bank a piece of paper which says Uncle Sam has borrowed the million and will repay it in so many years at a fixed rate of interest. The bank sets up a new deposit of $1 million, against which the government can write checks to pay its bills. Mr. Anderson asks: Where did the bank get this million dollars? The answer is that it got the money from no one. It created $1 million dollars worth of credit on the strength of the Treasury's I. O. U."
"That's just like printing greenbacks," the article points out, and then adds:
"As soon as the government writes checks against that deposit, money, which did not exist before, goes into circulation. This is inflation of the money supply."
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