Thus in 1980 it stood at 37 per cent while in 1999 the share fell to below 24 per cent. It is held that this fall raises the possibility that major contributors to the expansion of money supply might be non-banks. It is further argued that the non-banks potential to create money is almost unlimited. This process, it is held, can be repeated over and over implying that this makes non-banks a major contributor to inflationary credit. As convincing as this way of thinking appears, it is nonetheless flawed, for it fails to make the distinction between a credit and a claim transaction.
Credit always involves the purchase of a future good by the creditor in exchange for a present good.
As a result, in a credit transaction, money is transferred from a lender to a borrower. Thus when A makes a loan to B he in fact temporarily transfers his ownership over the money. Similarly, the individual A who invests in a stock or a money market mutual fund gives permission to these institutions to invest his money. Namely, the individual A temporarily transfers the ownership of money to these institutions. Since a credit transaction amounts to a transfer of saved funds from a lender to a borrower it does not result in the creation of new money but rather in new credit.