Chapter II Quotations From

plays a vitally important part in modern economic life. As a source of bank deposits transferable by cheque, it provides the funds with which the bulk of monetary payments is effected. It is always interchangeable with legal tender money, but for the most part it is not derived from legal tender money, nor does the volume of bank credit bear any . . . relationship to the volume of legal tender money. If the volume of loans that banks could make and of deposits they could accept were limited to the volume of currency in existence, bank credit would not have the utility (inexhaustibleness) in our economic system.” (Bank would be stymied.) Page 85: “Reserve Bank credit resembles member bank credit in general, but under the law it has a limited and special use — as a source of member bank reserve funds. It is itself a form of money authorized for special purposes, convertible into other forms of money convertible therefrom, and readily controllable as to amount. (This is the genesis of created money-bank deposits.) “Federal Reserve Bank credit, therefore, as already stated, does not consist of funds that the Reserve authorities ‘GET’ somewhere in order to lend, but constitutes funds that they are empowered to create. (By writing a cheque against no funds. — the author.) The process of creation is one of giving the promise of the Federal Reserve Bank — in the form of Federal Reserve notes and reserve deposits — in exchange for the promise made by others to the Federal Reserve Banks, the reason for the exchange being that the Federal Reserve Banks’ promises are recognized by law as having a particular monetary utility not possessed by the promises of individuals and institutions. That is, Federal Reserve Bank promises — or ‘liabilities,’ as they are commonly called — serve in the form of Federal Reserve notes as the principal element of the circulating medium. . .” Page 94: “ A striking feature is the abrupt increase in the gold stock in 1934. This reflects revaluation of the dollar by which the price of gold was raised from $20.67 to $35 an ounce.” Page 106: “. . . the surplus of the Federal Reserve banks is now (1938) about $149,000,000. This, with their capital of about $135 million gives them capital and surplus combined