266

A TREATISE ON MONEY

BE. rv

crease in the total deposits distributes itself betweenthe Savings-deposits, the Business-deposits and theIncome-dep osits.

Obviously, the first effect of a new loan by a bankis to increase the deposits of the borrower by theamount of the loan. Now it is uncommon for aborrower to borrow, not for any business or invest-ment purpose, but to meet his personal expenditure onconsumption ;—at any rate, bank loans of this kindare so small a proportion of the whole that we can ingeneral neglect them. Further, it would be unusual toborrow merely in order to add the money to the Savings-deposits, since the interest payable by borrowers alwaysexceeds the interest allowed to depositors; so that thiscontingency also we can neglect. Generally speaking,therefore, the proceeds of a new loan are added in thefirst instance to the Business-deposits.

Some part of this addition to the Business-depositswill probably find its way, more or less directly, intothe hands of entrepreneurs, who are encouraged bythe easier terms of borrowing, to be used by them tomeet an increased earnings-bill MjVi. This increasedearnings-bill—as we have seen above—may or may not

MjVi

be associated with an increase in

0

the rate of

efficiency-earnings. Thus a part of the new moneywill quickly find its way from M 2 into.M l5 the Income-deposits, and a corresponding part will remain in theBusiness-deposits A to look after the increased turn-over of the entrepreneurs corresponding to their in-creased earnings-bill. Some small increase in Business-deposits A may also be required as a result of theemergence of profits.

The rest of the addition to the Business-deposits—which may conceivably amount in the first instanceto the whole of the additional money—will fall intothe hands of speculators and financiers, i.e. of personswho wish to buy commodities or securities with bor-