In his book "Money, Bank Credit and Economic Cycles' in chapter 4 subchapter 5 he writes on page 223 (second english edition, .pdf version - http://mises.org/books/desoto.pdf) that: "ds1 represents Bank A’s secondary deposits and equals 1,219,512 m.u", while (if I correctly understand the definition) I would argue that Bank A's secondary deposits equal 1 097 560 money units and 121 952 of primary deposits (pp 218-219). Do I err or he errs?
+ I have a second problem: on p. 239 author introduces the term 'gross deposits' without defining it, the same goes for 'net deposits', the term that he only gives formula for but again no definition.
I tried to derive those definitions inductively by simulating the credit expansion in bank's book entries in spreadsheet (akin to the table on p.230). I compared the sums in rows with result of numerical example [40] on p. 241, but they do not match, as they should given the formulas. Anyone, please?
I don't have an access to University Economics by Alchian&Allen, which Huerta de Soto cites.
page 196:
. Of this amount, 1,000,000 m.u. correspond to physical monetary units; that is, to primary deposits. The other 900,000 m.u. reflect fiduciary media created from nothing; in other words, derivative or sec- ondary deposits.
page 219:
Bank A
Balance Sheet c=0.1 and k=0.2 Assets Cash 121,952 Loans 1,097,560 Total Assets 1,219,512
Clearly, you are right.
My humble blog
It's easy to refute an argument if you first misrepresent it. William Keizer
Gross Deposits is what he used to call Deposits, meaning the sum of the amounts appearing as "Deposits" in the Credits Column [and the Liabilities Column] of the bank's Balance sheets.
Net Deposits is defined by the formula. There is no better definition than a formula.
I tried to derive those definitions inductively...
I'm not sure if there is a language problem here. You cannot derive a definition by simulating the credit expansion of something. The definition is something the author makes up in his head, and it is a short way of saying a lot of words.
...(akin to the table on p.230). I compared the sums in rows with result of numerical example [40] on p. 241...
Numerical example [40] is talking about a single bank. The table on 230 is talking about a series of banks. Of course the results won't be the same with one bank and a series of banks.
...because the first deposit in the bank is not of 1 000 000 m.u. but 150 000 less: of 850 000 m.u.
I totally agree. He's assuming 150K is going to be taken out of the bank, so those 150K cannot be a "reserve" for fractional reserve banking, leaving only 850K.
Glad it straightened out.
I have a question if you don't mind
Are there any situations where fiduciary media does not equal a secondary deposit or a derivative deposit? Do these terms all mean the exact same thing in all cases or are they applied differently?
Many thanks
http://irishliberty.wordpress.com/