Amsterdam Quote by John Kenneth Galbraith
“Then came the second Amsterdam discovery, although the principle was known elsewhere. Bank deposits...did not need to be left idly in the bank. They could be lent. The bank then got interest. The borrower then had a deposit that he could spend. But the original deposit still stood to the credit of the original depositor. That too could be spent. Money, spendable money, had been created. Let no one rub his or her eyes. It's still being done-every day. The creation of money by a bank is as simple as this, so simple, I've often said, that the mind is slightly repelled.”
About This Quote
Source Economic lecture: Basics of fractional reserve banking and money creation
Explains that banks create spendable money by lending deposits, a process that repeats and expands the money supply.
In simple terms: Banks turn deposits into new money by lending.
Key Takeaway
Understand how lending expands money supply.
Themes
economics
money creation
banking
finance
Mood
analytical
educational
Type
explanatory
informative
When to use this quote
- personal finance
- business loans
- policy debates
- economic education
Key Concepts
fractional reserve
liquidity
interest generation
Questions to Reflect On
- What are the risks of unchecked money creation?
- How does this affect inflation?
A Different Perspective
Simplifies complex banking regulations and risks.
![“[People] have seen the credit market seize up. They're worried about money market funds, although the latest proposition from government should take care of that. They've seen eight percent of the bank deposits in the United States get moved very skillfully, I might say, within the last couple of…” quote by Warren Buffett](https://sms4smile.com/quotes/img-quotes/cf1/warren-buffett-183_care_people-have-seen-the-credit-market-seize_628648.jpg)
