The War and Our Financial Fabric

One of the great subjects of controversy, on which it seems impossible to arrive at a common agreement, is whether the so-called loanable fund is elastic or inelastic. It is admitted, I think, in a general sense that in order best to help the trade of the country, it should be elastic, that is, should be able to meet all the needs upon it. This certainly should be the province of banking, and, what is more, it should be the province of Governments to provide sufficient money to meet the expansion of trade. It would be a foolish policy to shackle and bind trade, to arrest its growth, by restricting facilities for its growth. It would be like a foolish parent binding the limbs of his child to stay their natural growth and to keep him a dwarf and a freak, unable to do the work of a mature man.

As the banking system practically performs the duties which in its non-existence would have to be performed by a Government, then it devolves upon this system to feed and succour commerce and to give it every facility and every means for expansion. When I said in Chapter XI that the transforming machinery should work with a pace equalling the creation of wealth, it was tantamount to the view expressed by others that the loanable fund of Lombard Street should be elastic.