Journal of Political Economy Vol. 20 No. 1 1912
The Aldrich Plan: A Possible Monetary Gerrymander
Abstract
With a gathering such as this it is unnecessary to take much time in the preliminary presentation of a currency argument because most of us understand pretty well the failings of our present system. But because of the different ways of phrasing the trouble and because I want to establish a premise upon which to work I must take a little time to place before you my understanding of the economic cause of the failure of our present banking machinery. This is more necessary because I believe that any speaker for the negative does only half his work when he tears down the ideas of the supporter of any question, leaving only a mass of antagonistic argument without any suggested reconstruction. Under our present system by far the greatest part of our circulating medium is no longer a government promise to pay-a hand-to-hand, hard money. About.go per cent of our business is transacted by a comparatively new money, check transfer of bank credit. The volume of this new money is very elastic and the clearing-house reports show how closely it fluctuates in accord with business activity, or the money demand. Therefore we may justly claim that about go per cent of our circulating money is already almost ideally elastic. If we analyze the combined statement of our whole banking system we see at once that two items bear a distinct relation to each other: the loans, on the asset side, and the deposits, on the liability side. This is the endless chain of our banking machinery. Loans made, in the whole scheme, create deposits; and the expansion or contraction of one is followed by an expansion or contraction of the other. Now the important thing to remember in this connection is that when a bank, a group of banks, or a whole banking system comes before us for its last analysis, we find that a demand liability has been created in exchange for a comparatively
- DOI
- 10.1086/251958
- Volume
- 20
- Issue
- 1
- Pages
- 41-48
- Language
- en
- Sources
- semanticscholar openalex crossref