Monday, 9 May 2011

The money supply is not independent of bank activities

All government credit is a form of money so then banks do print money.

If the word ‘money’ is used to mean only narrow notes and coins (or even only central bank deposits), and does not include broader government guarantees then banks do not print money. But that is not a useful measurement of (or a definition for) money. (A useful definition of) money includes bank credit.

It is not useful to exclude bank credit from a definition of money.

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