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

The Credit Expansion Process 195The difference between the Anglo-Saxon and the continentalsystem lies in the entry the English-speaking bankermakes upon deciding to grant a loan to Z, and hence to makeself-interested use of 900,000 m.u. the banker holds in hisvault in excess of his security reserve. In Anglo-Saxon bankingpractices, an entry is made to record the loan under Assets,and at the same time a checking account in favor of the borroweris opened under Liabilities for the sum of the loan(900,000 m.u.). The entry looks like this:Bank A(18) Debit Credit900,000 Loans granted Demand deposits 900,000Thus, in this respect the English custom is much morestraightforward and appropriate to the actual economic eventsthan the continental custom. Anglo-Saxon accounting practicesdistinctly reflect the ex nihilo creation of 900,000 m.u. whichresults when demand deposit funds are loaned to Z. After theloan is granted, the bank’s balance sheet appears as follows:Bank ABalance Sheet(19) Assets LiabilitiesCash 1,000,000 Demand deposits 1,900,000Loans 900,000Total Assets 1,900,000 Total Liabilities 1,900,000In keeping with the English custom, this balance sheetclearly reveals that the moment the bank grants a loan of