The idea that banks can
The idea that banks can create money/credit out of thin air and then charge interest on it is more widespread than ever, eg Zeitgeist, the Occupiers but not just them. Here, then, are a couple of counter-quotes to theirs.The first is from Paul Samuelson whose textbook Economics has been and still is widely used all over the world:
Quote:
Most people have heard that in some mysterious manner banks can create money out of thin air, but few really understand how the process works.Actually, there is nothing magical or incomprehensible about the creation of bank deposits. At every step of the way, one can follow what is happening to the banks’ accounts. The true explanation of deposit creation is simple. What is hard to grasp are the false explanations that still circulate.According to these false explanations, the managers of an ordinary bank are able, by some use of their fountain pens, to lend several dollars for each dollar deposited with them. No wonder practical bankers see red when such power is attributed to them. They only wish they could do so. As every banker knows, he cannot invest money that he does not have; and money that he invests in buying a security or making a loan soon leaves his bank. (chapter 16, 5th edition, 1961)
The second is from Keynes:
Quote:
The notion that the creation of credit by the banking system allows investment to take place to which ‘no genuine saving’ corresponds can only be the result of isolating one of the consequences of the increased bank-credit to the exclusion of the others.(…) it is impossible that the intention of the entrepreneur who has borrowed in order to increase investment can become effective (except in substitution for investment by other entrepreneurs which would have occurred otherwise) at a faster rate than the public decide to increase their savings. (General Theory of Employment, Interest and Money, Chapter 7, section V)