The Theory of Multiple Expansion of Deposits: What It Is and Whence It Came
نویسنده
چکیده
Beginning students of banking must grapple with a curious paradox: the banking system can multiply deposits on a given base of reserves yet none of its member banks can do so. Let the reserve-to-deposit ratio be, say, 20 percent and the system can, by making loans, create $5 of deposit money per dollar of reserves received. By contrast, the individual bank receiving that same dollar on deposit can lend out no more than 80 cents of it. How does one reconcile the banking system's ability to multiply loans and deposits with the individual bank's inability to do so? Fully answering this question required the intellectual efforts of at least six economists writing in the period 1826-1921. The story of their contributions is the story of the evolution of the theory of the multiple expansion of deposits.
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