A deposit is an asset for the customer, but a (pending) liability for the bank. The whole thing is a debt relationship – but not a means of payment.
In short: a deposit is an option right to instruct the bank (in the sense of an order) either to make cash withdrawals or to initiate a transfer of funds. The means of payment used for this purpose are on the bank's asset side (cash for withdrawals, reserves for transfers), thus deposits can never be a means of payment:
Although gold cannot be produced alchemically, there was an alchemist who discovered the recipe for so-called "white gold" – the discovery of the porcelain recipe by Johann Friedrich Böttger. This was a valuable discovery because the Chinese kept the recipe secret, and Europeans had to pay gold and other precious metals to acquire the porcelain from the Chinese. Seen in this light, this invention improved the European balance of payments somewhat because they could now produce the porcelain themselves.
The story of the growth imperative is often told, but it doesn't stand up to close scrutiny. It is possible to show theoretically that it can very well lead to a non-explosive trajectory if the interlinkages between investment and consumption are taken into account. While there is a need for "subsequent debtors," this simply means that economic activity is a so-called "ongoing concern" that ultimately ensures survival. Why should one stop economic activity?
Keynes once put it like this:
"If investment is proceeding at a steady rate, the finance (or the commitments to finance) required can be supplied from a revolving fund of a more or less constant amount, one entrepreneur having his finance replenished for the purpose of a projected investment as another exhausts his on paying for his completed investment." Keynes, J.M., (1937)
"The means of payment used for this purpose are on the bank's asset side (cash for withdrawals, reserves for transfers), thus deposits can never be a means of payment."
I think I see what you're saying here, Renée. From the bank's perspective, they're going to credit an asset on their books (and debit the deposit liability mentioned above) ONLY once they receive a payment instruction. You're saying THIS is the moment the money is created, not the moment the loan is issued. Am I picking up what you're putting down?
Additionally, I've heard that quoted Keynes passage used to defend the idea that the VELOCITY of money explains where the money to make interest payments comes from. To my eye, you appear to be making that exact point. Is there any daylight between what you are arguing here and the concept of the velocity of money?
Finally, this anecdote about porcelain is absolutely brilliant. Thank you for sharing it!
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A deposit is an asset for the customer, but a (pending) liability for the bank. The whole thing is a debt relationship – but not a means of payment.
In short: a deposit is an option right to instruct the bank (in the sense of an order) either to make cash withdrawals or to initiate a transfer of funds. The means of payment used for this purpose are on the bank's asset side (cash for withdrawals, reserves for transfers), thus deposits can never be a means of payment:
https://substack.com/@reneemenendez/p-136930534
Although gold cannot be produced alchemically, there was an alchemist who discovered the recipe for so-called "white gold" – the discovery of the porcelain recipe by Johann Friedrich Böttger. This was a valuable discovery because the Chinese kept the recipe secret, and Europeans had to pay gold and other precious metals to acquire the porcelain from the Chinese. Seen in this light, this invention improved the European balance of payments somewhat because they could now produce the porcelain themselves.
https://en.wikipedia.org/wiki/Johann_Friedrich_B%C3%B6ttger
The story of the growth imperative is often told, but it doesn't stand up to close scrutiny. It is possible to show theoretically that it can very well lead to a non-explosive trajectory if the interlinkages between investment and consumption are taken into account. While there is a need for "subsequent debtors," this simply means that economic activity is a so-called "ongoing concern" that ultimately ensures survival. Why should one stop economic activity?
Keynes once put it like this:
"If investment is proceeding at a steady rate, the finance (or the commitments to finance) required can be supplied from a revolving fund of a more or less constant amount, one entrepreneur having his finance replenished for the purpose of a projected investment as another exhausts his on paying for his completed investment." Keynes, J.M., (1937)
"The means of payment used for this purpose are on the bank's asset side (cash for withdrawals, reserves for transfers), thus deposits can never be a means of payment."
I think I see what you're saying here, Renée. From the bank's perspective, they're going to credit an asset on their books (and debit the deposit liability mentioned above) ONLY once they receive a payment instruction. You're saying THIS is the moment the money is created, not the moment the loan is issued. Am I picking up what you're putting down?
Additionally, I've heard that quoted Keynes passage used to defend the idea that the VELOCITY of money explains where the money to make interest payments comes from. To my eye, you appear to be making that exact point. Is there any daylight between what you are arguing here and the concept of the velocity of money?
Finally, this anecdote about porcelain is absolutely brilliant. Thank you for sharing it!