A Popular Theory of Credit Applied to Credit Policy

A theory of mechanical or automatic fixation of interest rates through the unhampered operation of the forces of demand for and supply of capital (variously defined) makes untenable any concept of an independently initiated discount policy as a beneficent means of credit control. The sole aim of cre...

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Bibliographic Details
Published in:The American economic review 1922-09, Vol.12 (3), p.417-446
Main Author: Youngman, Anna
Format: Article
Language:English
Subjects:
Bank credit
Bank loans
Banking policy
Credit
Credit policies
Credit policy
Credit supply
Economic theory
Federal Reserve Bank
Loan rates
Purchasing power
Studies
Supply
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Summary:A theory of mechanical or automatic fixation of interest rates through the unhampered operation of the forces of demand for and supply of capital (variously defined) makes untenable any concept of an independently initiated discount policy as a beneficent means of credit control. The sole aim of credit policy in that case would consist in somehow determining the natural, competitively fixed rates and then making them a guide to conduct. As a matter of fact, however, underlying most discussions of discount and credit policy there is an assumption, tacit if not expressed, that banks (and central banks in particular) are formative institutions, not merely instruments for the automatic execution of certain processes of exchange over which they have no control. It is not necessary to attribute omnipotence to a banking system in order to conceive of it as an active agent in the direction, stimulation, oI repression of industrial processes. But if there is to be any recognition of a problem of credit policy, it is necessary to conceive of banks as something more than passive agents recording market decisions and merely responding mechanically to demands made upon them.
ISSN:0002-8282
1944-7981