Financial Intermediaries and the needs of the Financial and Industrial Circulations

In a modern, non-commodity money economy, financial intermediaries and the banking system play an involved and unique role which can permit the installation of productive capacity and the expansion of output at a rate which would be virtually impossible in a commodity money world. These financial institutions permit and can even encourage firms to mobilise the value (in excess of the firms’ revenues) of services of resources which otherwise might either produce consumer goods or even lie idle. The creation of bank money either may permit entrepreneurial investors to outrace (or outbid) some income recipients in accepting offer contracts and thereby force the latter to refrain from consumption (particularly at or near full employment) or it may permit investors to obtain immediate command over resources even when savers do not wish to give up such potential command (liquidity) for store of value purposes. Accordingly, the presence of a banking system and the associated financial institutions provide the potential to contribute significantly to economic growth. If a society is fortunate to have both Enterprise and such financial institutions, then at time of confidence it may be doubly-blessed, while in uncertain times it may be doubly-cursed.