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nydus/The Legalized Crime of BankingPublic

Silas Walter Adams critiques the Federal Reserve Banking System, arguing that its monetary policies have significantly inflated the costs of war and national debt. The book examines the historical impact of private banking practices on the American economy and proposes a constitutional alternative for the management of the nation's money supply.

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Table of Contents

Chapter II Quotations From

and other forms of investment obligations. It may seem that it should be the other way around that bank loans and investments would be derived from bank deposits (to the credit of customers) instead of bank deposits being derived from loans and investments; and it is true that deposits would not grow out of loans if currency were to be used by the public for monetary payments to the exclusion of bank deposits transferable by cheque. But as it is, the public in general prefers to have its monetary funds — including what it borrows — on deposit in banks rather than in the form of currency in its own possession. The result of this preference is that the proceeds of loans go on deposit to be disbursed by cheques, and aggregate deposits are increased. “Suppose for example, that a man borrowed $1,000 from a bank and took his loan in currency. The bank would have $1,000 less currency than before and in its place a promissory note for $1,000. Its deposits would remain unchanged. (But when others returned the cash for deposit new deposits would be created.) But suppose that the borrower, preferring not to take the currency, asked for $1,000 deposit credit instead, it (the bank) would have $1,000 more deposits (also the note) in its books. The loan instead of decreasing the bank’s cash balance would have increased its deposits. “Or suppose that the bank purchases a $1,000 Government bond from one of its customers. The customer does not want payment in currency — he wants payment in deposit credit. Accordingly, the bank acquires a $1,000 bond and its deposits increased by $1,000. The bank’s currency is not involved in the transaction and remains what it was. “. . . when banks give deposit credits to their customers, they assume an obligation to pay the customers’ cheques. Consequently, they must have funds on hand for the purpose; though ordinarily the amount need not be more than a (small) fraction of the total deposit liability.” Foot Note, page 40: “As this and the preceding paragraphs indicate, a bank’s purchases of investments, i.e., notes, bonds, mortgages, etc., is an extension of credit just as loans are; and bank investments increase bank deposits just as loans do. For the sake of simplicity, the terms ‘lending and extension of

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