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Bank Credit and the “Creation” of Deposits

Author

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  • Schumpeter J. A.

    (Harvard University)

Abstract

It is much more realistic to say that the banks “create credit,” that is, that they create deposits in their act of lending, than to say that they lend the deposits that have been entrusted to them. And the reason for insisting on this is that depositors should not be invested with the insignia of a role which they do not play. The theory to which economists clung so tenaciously makes them out to be savers when they neither save nor intend to do so; it attributes to them an influence on the “supply of credit” which they do not have. The theory of “credit creation” not only recognizes patent facts without obscuring them by artificial constructions; it also brings out the peculiar mechanism of saving and investment that is characteristic of full-fledged capitalist society and the true role of banks in capitalist evolution. With less qualification than has to be added in most cases, this theory therefore constitutes definite advance in analysis.

Suggested Citation

  • Schumpeter J. A., 2016. "Bank Credit and the “Creation” of Deposits," Accounting, Economics, and Law: A Convivium, De Gruyter, vol. 6(2), pages 151-159, July.
    • Handle: RePEc:bpj:aelcon:v:6:y:2016:i:2:p:151-159:n:4
    DOI: 10.1515/ael-2016-0012
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    References listed on IDEAS

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    1. F. A von Hayek, 1932. "A Note on the Development of the Doctrine of "Forced Saving"," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 47(1), pages 123-133.
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