OWNERSHIP: Re: Moulton

["William B. Ryan" <w_b_ryan@yahoo.com>]

I'm just now into the first pages of Moulton's Journal
of Political Economy series.  It's familiar stuff to
anyone who has read Douglas or Kelso's plagiarism. 
It's clear that Moulton was in the leading edge of
advanced theory in his time.  See my notes from the
first pages below.

It also strengthens a point I've made many times
before, that Douglas was very well-read in the
contemporary literature.  Douglas was therefore in
that leading edge, but took it a very significant bit
further.

The A+B theorem is the product of genius; mankind has
the opportunity to benefit from such genius only
sporadically through its history.  Ignoring it is
opportunity lost.

It's not an easy concept to grasp.  Anyone who says it
is fooling himself.  He certainly doesn't understand
it.  That Moulton missed it is therefore not
surprising.
-------------------------------


Notes:

banking v. currency principle

The problem now before us is the relation of
"commercial" banking to capital formation.
6 of 111
489

Horace White2 states that a bank is "a manufactory of
credit and a machine for facilitating exchanges"; that
discounting is "the swapping of well-known credit for
less-known credit"; that the banker "enables the most
deserving persons in the community to get capital,"
and thus "performs a service to society by economizing
tools and materials."  It puts capital goods into the
most competent hands.
8 of 111
491

Holdsworth3 writes...Various incidental services are
also listed, and he adds that a bank is a manufactory
of credit.  "Business credit cannot be conveniently
used for current business transactions but bank credit
in the form of checks and drafts is widely
acceptable."
8 of 111
491

H. Parker Willis in a recent volume says that the
single dominant idea or function of a bank is that of
"guaranteeing the limited or individual credit of each
individual by accepting it and substituting in lieu
thereof of the bank's own credit.  When an individual
takes his own secured note, for example, to a bank and
discounts it, and then draws checks against his
account at the bank, he has simply substituted the
bank's credit of more general acceptability for his
own credit of limited acceptability.  The bank this
appears as an institution for the study of credit and
for guaranteeing its judgment on that subject."4
8 of 111
491

2 White, Money and Banking (3d ed.), p. 193

3 Holdsworth, Money and Banking, pp. 148-149

4 Willis, American Banking (1916), pp. 3-4
-----------------------------------

Davenport states it thus: "It follows from the
foregoing analysis that, in the main, banks do not
lend their deposits, but rather, by their own
extensions of credit, create the deposits; that these
deposits are funds which the deposit-creditors of the
bank can lend if they will, and that many men into
whose hands these deposits fall through transfer are
certain to use them as funds to be lent...Banks are,
in truth, mostly intermediaries between debtors and
creditors--but not in the sense of borrowing funds
from one class of customers in order to lend them to
another class, but rather in the sense of creating for
their borrowing customers funds which may be used by
these borrowers as present purchasing power."5
10 of 111
493

5 Davenport, The Economics of Enterprise, p. 263.
------------------------------

Taussig also recognizes that commercial banks do more
than act as financial intermediaries; they create
"money means," "command of capital," and this "without
cost or sacrifice on the part of the saver",3 they
thereby "promote the continuity of industry."

3 Taussig, Principles of Economics, I, pp. 357-58.
------------------------------

Deposits are largely created in the first instance
through the loaning process, the borrower taking the
credit granted by his bank as a deposit account and
checking it out to his own creditors, who deposit
these checks in the same or some other bank, with the
result that deposit accounts in the system as a whole
*tend* to be increased *pari passu* with the increase
of loans.4  The process of depositing checks and
writing new checks against the account thus created,
which new checks are in turn re-deposited, together
with the mechanism that has been developed for
clearing or canceling balances, has made it possible
for the commercial banks to maintain deposits payable
on demand many times the amount of the cash reserve.

4 There is much confusion of thought in this
connection, and if it is to be avoided one must think
in terms of the banking *system* and forget the
operations of any single individual bank.  A banker
will say that his deposits are loaned to borrowers. 
But the deposits which he receives, and which he
thinks he loans out, are largely claims against other
banks rather than specie--claims arising from the
extension of loans somewhere in the banking system.
15 of 111.
498
-------------------------------------

...the popular conception (including that of most
bankers and some economists) of the deposit item is
that it represents funds brought to the bank...
17 of 111
500
----------------------------- 


--- "William B. Ryan" <w_b_ryan@yahoo.com> wrote:

> Moulton's *Formation of Capital,* published in 1935,
> remains under copyright to Brookings.
> 
> The forward states:
> 
> "Foreshadowed by the author in a series of articles
> published in the Journal of political economy in
> 1918."
> 
> That series is in the public domain.
> 
> I have scanned the series into a 2.65 MB PDF
> document,
> which I will send to anyone who requests.
> 
> 


                
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