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The banks do create money

on Wednesday, 01 July 1959. Posted in Social Credit

There are still a large number of people who refuse to believe that the banks create money; among them a number of individuals who should know better, namely, those who work in banks.

The following quotation is a definite answer to the question, do or do not the banks create money. It is from an article by no less a person than the Secretary of the Treasury of the United States, Robert B. Anderson. The article was published in the Commercial and Financial Chronicle of April 23, 1959. This quotation as it stands was used by the Canadian federal representative from Richelieu-Vercheres, Lucien Cardin, in replying to the Minister of Finance, Mr. Fleming on April 28, 1959.

"'The fact that fiscal matters are little understood, even by some prominent and otherwise well informed people, was brought home to me one day when a visitor in my office remarked: "You talk of the dangers of monetization of the debt, Mr. Secretary. You know, I just don't believe there is such a danger, probably because I don't quite understand what monetization means." I said this to my visitor: "Now suppose I wanted to write cheques of $100 million starting tomorrow morning, but the treasury was out of money. If I called up a bank and said, will you loan me $ 100 million at 3½ percent for six months if I send you over a note to that effect, the banker would probably say, 'Yes, I will'".

Where would he get the $100 million with which to credit the account of the United States Treasury? Would he take it from the account of someone else? No, certainly not. He would merely create that much money, subject to reserve requirements, by crediting our account in that sum and accepting the government's note as an asset. When I had finished writing cheques for $100 million the operation would have added that sum to the money supply. Now, certainly that approaches the same degree of monetization as if I had called down to the bureau of engraving and printing and said: 'Please print me up $100 million of greenbacks which I can pay out tomorrow.'".

So now we know that the banks do create money. Mr. Anderson's little parable is an epitome of modern financing methods. It parallels very closely the example used in the pamphlet A Primer of Social Credit, by Louis Even. A man is supposed to have asked and obtained from a banker the amount of $100,000 with which to build a new factory. The following dialogue ensues:

— Mr. Banker, have you any less money in your vault after having lent me $100,000?

— I haven't gone near my vault.

— Have other accounts been decreased?

— They remain exactly as they were.

— Then, what was decreased in the bank?

— Nothing was decreased.

— Still, my account has been increased. From where did the money you lent me come? It didn't come from anywhere. Where was it when I came into the bank if it didn't exist. And now that it is in my account it exists. So we can say that it was created?

— Certainly.

— Who created it and how?

— I did, with my pen and a drop of ink when I inscribed $100,000 to your credit at your request.

— Then you make money?

— The bank makes book money. That's the modern money which puts into circulation the other type by keeping business on the move.

And let's hear what the bankers themselves have to say: In this case we quote Mr. Reginald McKenna who said as Chairman of the Midland Bank of England:

"The amount of money in existence varies only with the action of the Banks in increasing or diminishing deposits. We know how this is effected. Every bank loan and every bank purchase of securities creates a deposit and every repayment of a loan and every bank sale destroys one.".

The banks do create money and credit. Money and credit are vital to the well-being of society for without them there can be no adequate conjunction between the production system and society's needs. Therefore, it is a perversion of right order that a small group of men (the financiers) should control credit and charge society for its use so that with every issuance of new money there also comes forth a new debt which the people must bear. The people produce real wealth — goods. Why should they be plunged head over heels into debt because they wish to use the wealth they produce? Until the control of the financial system is returned to the people in the agency of its duly elected government, there can be no hope of ever leveling the mountain of debt under which all society groans.

Earl MASSECAR

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