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

230 Money, Bank Credit, and Economic CyclesMoney remainingin each bank’s vaultTABLE IV-2SYSTEM OF SMALL BANKS(k=0 and c=0.1)Credit expansion(Loans createdex nihilo)DepositsBank A 100,000 900,000 1,000,000Bank B 90,000 810,000 900,000Bank C 81,000 729,000 810,000Bank D 72,900 656,000 729,000Bank E 65,600 590,000 656,000Bank F 59,000 531,000 590,000Bank G 53,100 478,000 531,000Bank H 47,800 430,000 478,000Bank I 43,000 387,000 430,000Bank J 38,700 348,000 387,000. . . . .BankingSystem totals d=1,000,000 x = d(1 – c) = 9,000,000cd = 10,000,000cNote: The last three digits have been rounded.It is also true that a banking system composed of onemonopolistic bank (when k=1) is a unique instance within thebroader category of isolated banks which expand depositsand loans.To conclude, two particular cases lead to identical resultsregarding new loans created (9,000,000 m.u.) and the total volumeof deposits (10,000,000 m.u.). The first case is a bankingsystem made up of tiny banks, each with a k equal to zero. Thesecond is an isolated bank with a k equal to one. Given thatboth cases are easy to comprehend, they are generally chosenas examples in textbooks to explain the creation of loans andthe volume of deposits generated by the banking system.