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

The Credit Expansion Process 247These accounting entries reflect the fact that the banker issure he will never have to return the sum of the bills, since hisbills circulate as money. The bank’s balance sheet will look likethis:(58) Bank ABalance SheetAssetsLiabilitiesCash 1,000,000 Banknotes 1,000,000Loans 9,000,000 Profit (equity) 9,000,000Total Assets 10,000,000 Total Liabilities 10,000,000From this balance sheet we can conclude that once thebanknotes have acquired the nature of monetary units, no onewill ever return them to the bank to withdraw the moneydeposited, since the bills circulate freely and are consideredmoney themselves. Only 1,000,000 of the banknotes issued arerecorded in the Liabilities column, because 10 percent is sufficientto comply with ordinary requests for conversion. Hencethis balance sheet amounts to an acknowledgment of thefraud the bank commits when it issues bills for an amountexceeding the sum of money deposited. Bankers have neverthus recorded in their account books the issuance of unbackedbanknotes, as it would fully reveal the fraud they commit. Bytheir deceitful actions they harm third parties, whose moneydrops in value due to the increase in the money supply, not tomention economic crises and recessions, an effect we will considerlater. Nonetheless this last balance sheet is clearly morehonest, in the sense that at least it demonstrates the banker’smaneuver and the fact that the issuance of unbacked bills constitutesan endless source of financing which permits bankersto appropriate a very large volume of wealth.The reader will surely have noticed that records (54)through (56) are identical to ones we studied with respect to