In Jesus Huerta de Soto’s discussion in chapter 4, section 5 regarding the ability of the banking system as a whole to expand the money supply, he uses the following variables:
d: the money originally deposited in the bank’s vault;
d1: the money or reserves which leave the bank as a result of loans it grants;
x: the bank’s maximum possible credit expansion starting from d;
c: the cash or reserves ratio maintained by the bank, in keeping with the banker’s experience and his careful judgment on how much money he needs to honor his commitments; and
k: the proportion of loans granted which, on average,remain unused by borrowers at any given time.
He then proceed to discuss the ability of the banking system as a whole to expand the money supply (with only one bank initiating the credit expansion).
The discussion (beginning at page 248 of the pdf and 218 of the book) presumes that in the banking system of “normal” banks k=0.2 and c=0.1.
He then states that at then end of the process 9,000,000 new monetary units have been created out of nowhere. My question is simply this: given that he states 9,000,000 new m.u. have been created when k=0, and that 9,000,000 m.u. are also created when k=0 or k=1. Does the value of k not matter when considering the ability of the entire banking system to expand?
It seems to me that the answer is yes and yet this seems somewhat odd to me. In any case thank you for any answers.