Reply To: Credit


Entrepreneurs will offer any financial product, which conforms to the rules of private property, that they anticipate will be profitable enough to justify their investment in it. If they think that savers’ time preferences are such that they will make nearly instantaneous loans at the lowest interest rate on the yield curve and that borrowers will take out and roll over extremely short term loans on such lending so that savers can be paid back without disruption, then they may choose to offer such deposits to savers. But these deposits are no different than any other certificate of deposit at longer terms on the yield curve. Banks are inter-mediating credit in all such cases. There is no credit creation in such inter-mediation. Moreover, such deposits would not be chosen by people at large in an unhampered market economy as a superior medium of exchange to money proper and money substitutes, i.e., 100-percent-reserve claims to money.