Money, Bank Credit, and Economic Cycles - The Ludwig von Mises ...

The Credit Expansion Process 185European accounting system, this economic event would berepresented in the following way: 8When Mr. X makes the demand deposit, a book entryidentical to number (7) is made, though this time it is not considereda memorandum entry.Bank A(10) Debit Credit1,000,000 Cash Demand deposit 1,000,000(made by Mr. X)Once the bank yields to the temptation to appropriatemost of the tantundem, which it should keep on hand andavailable to the depositor, the following entry is made:Bank A(11) Debit Credit900,000 Loan to Z Cash 900,000At the moment the banker appropriates the money andloans it to Z, an economic event of great significance occurs:900,000 m.u. are created ex nihilo, or out of nothing. Indeed, Mr.X’s essential motive for making a demand deposit of 1,000,000m.u. was the custody and safekeeping of the money, and withgood reason he subjectively believes he retains the completeavailability of it, just as if he had it in his pocket, and in a sensebetter. To all intents and purposes, Mr. X still has 1,000,000 m.u.8 The description of the different accounting systems (the English andthe continental) and how they ultimately bring about identical economicresults is found in F.A. Hayek, Monetary Theory and the Trade Cycle(Clifton, N.J.: Augustus M. Kelley, [1933] 1975), pp. 154ff.