SIR,—Not being completely insane, I have never dreamt of denying that banks manufacture money. The point of my observation in my review of Professor O'Rahilly's book was that the decisions to manufacture or destroy this money are to a large extent forced upon them by the decisions of the long and medium term investor, in so far as it is the latter who ultimately determines the volume of business in conformity with which the hanks advance their loans.
Some confusion has arisen through the elasticity of meaning in the word " investor " and " investment." It was surely clear that I was using the word in the rerestricted sense in which it means the sinking of money in the purchase of a real asset. British banks do not sink money in this way, at least normally. When they purchase their gilt-edged investments these are usually bought upon the market and represent mere transfers of script from one holder to another, and there is no corresponding " real " investment at all. In exceptional times, such as the present ones, when the banks are taking up large chunks of Government loans, these transactions do, of course, reflect the purchase of new assets, namely, guns and aeroplanes, and in this sense the banks have become long and medium term investors, but this is not their normal function. That the money of the normal long and medium term investor had its origin in the action of a bank is a matter of historical interest but does not affect the present argument.
May I take this opportunity of drawing attention to a mistake in my review? I am twice made to talk about something called " chief money," which should obviously have been " cheap moneys" The mistake
may have been due to fact that the review was dictated and I was too busy to look over the MS. properly. I plead heavy pressure of war work and sincerely apologise both to you and Professor O'Rehilly, who certainly deserved better treatment.
J. L. RENVENISTI.
National Liberal Club, S.W.1.