481. Harrod to J. M. Keynes , 8 October 1935 [a]
[Answered by 482 ]
Ch[rist]. Ch[urch, Oxford].
8 October 1935
A letter from Dennis  suggested this thought to me, which seems to me to be clearer than anything I have seen expressed so far.
Banks have 2 functions, one concerned with the circulating medium one with lending. After much controversy it has been well established--despite Cannan and the banks--that the banks can create money. With that the conclusion has been allowed to slip through unchallenged that they can also create new lending. Whereas in fact in the sphere of lending what Cannan and the bankers say is right--they can only lend what is lent to them. They are irretrievably middlemen. Is that a clear statement of the position?
- a. ALS, one page, in JMK GTE/1/409.
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