Chapter Six.qxp
8/4/2008
11:38 AM
Page 79
Loan Banking
79
Assets Cash
Equity & Liabilities $10,900 Equity
Total
$10,900
Rothbard
$10,900
Total
$10,900
FIGURE 6.3 — THE LOAN
AS
PAID
other the ownership of existing cash balances which we have saved by not consuming. My loan bank has channeled savings into loans, the loans have been repaid, and at no point has the money supply increased. Loan banking is a productive, noninflationary institution. The loan to Joe did not have to be made for business investment. It could have been a loan for consumption purposes, say, to enable him to buy a new car. Joe anticipates having higher income or lower expenditures next year, enabling him to pay back the loan with interest. In this case, he is not so much making a monetary profit from the loan as rearranging the time pattern of his expenditures, paying a premium for the use of money now rather than having to wait to buy the car. Once again, the total money supply has not changed; money is being saved by me and my firm, and loaned to Joe, who then saves enough of the existing money supply to fulfill his contractual obligations. Credit, and loan banking, is productive, benefits both the saver and the borrower, and causes no inflationary increase in the money supply. Suppose now that my loan bank is flourishing and I expand the firm by taking in a partner, my brother-in-law, who contributes another $10,900 in cash to the firm. The Rothbard Loan Bank now looks as follows: