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

212 Money, Bank Credit, and Economic CyclesFollowing the example of Bresciani-Turroni, 26 and assumingall payment transactions are carried out between customersof the same bank (given that it is monopolistic, orbecause certain circumstances exist which produce this situation),we will now use accounting records to show the processleading to this result.We will now follow the traditional continental system (asopposed to the Anglo-Saxon) in which all payments are registeredin the cash account. The following represents the journalat moments t 1 , t 2 , t 3 , . . . t 9 , etc., and reflects the bank’s practiceof repetitively granting its own clients loans for an amountequal to 90 percent of the funds it receives in cash. The clientswithdraw the full amount of the loan, but because they haveno account in any other bank (or there is no other bank in society),they ultimately deposit the money they receive back intothe same bank. This permits the bank, in turn, to grant newloans and generate new deposits, and the process is repeatedagain and again:(30)Bank A(Journal of the year’s operations)DebitCreditt 1 1,000,000 Cash Demand depositsmade by Mr. X 1,000,000t 2 900,000 Loans to U Cash 900,000Let us suppose that U withdraws the entire amount of hisloan and pays his creditor, A. A is also a customer of U’s bankand deposits the 900,000 m.u. he receives. The followingentries result:26 Bresciani-Turroni, Curso de economía, vol. 2: Problemas de economíapolítica, pp. 133–38.