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

The Credit Expansion Process 193If we suppose the bank performs the cashier and bookkeepingservices described earlier, which are typical of checkingaccounts and generate an operating cost of 20,000 m.u. inour example, then by covering these costs with interestincome it is even able to provide these services free of charge.The following entry is made to record the operating costs:Bank A(14) Debit Credit20,000 Operating costs Cash 20,000of servicesAlthough the bank would be completely justified in continuingto charge 30,000 m.u. (3 percent of the amount deposited) forits services, and although it may offer these services free to itsdepositors to attract more deposits and to pursue the more orless covert objective of using these deposits to grant loans, it stillmakes a very large profit, equal to the 135,000 m.u. it receives ininterest, minus the 20,000 m.u. it pays in operating costs.In fact the bank’s profit of 115,000 m.u. is more than doublethe legitimate profit it would make as a mere financial intermediarybetween lenders and borrowers and more than tentimes what it would bring in by charging its customers forcashier and bookkeeping services. 16 The bank’s income statementwould hence appear as follows:(15) Bank AIncome Statement(During the year)ExpensesRevenuesOperating costs 20,000 Interest received 135,000Net Income 115,000Total Debit 135,000 Total Credit 135,00016 See footnote number 25.