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The article falls into two parts. The first takes issue, within the framework of the Keynesian system, with the point made in much of the literature on monetary theory that the total volume of money is determined almost exclusively by the monetary authorities. The author reasserts his own view that an important influence is exerted by the behaviour of the public. The second part describes the methodology and results of a statistical investigation of Italy establishing the weight in the determination of the volume of deposits of three elements: the behaviour of the public as regards the credit it extends to the banking system; the conduct of the banks as regards the credit they extend to the public; and the policy of the monetary authorities regarding the creation of claims on the Central Bank. The author concludes that the results confirm the view that the amount of money is highly sensitive to changes in the proportion of money that the public holds in the form of notes. JEL: E43, E51, E52, E58

The discussion in previous articles by Schneider and Sayers of the factors that determine the level of bank deposits has brought closer together the conflicting views still held on some aspects of this question. In the present article the author takes this as his starting point for restating and qualifying his views concerning the importance of the influence of the behaviour of the public on the volume of deposits, and the limits of the neutralising powers of the Central Bank. The author concludes by expressing the hope that further investigations may be made of the actual quantitative importance, at different times and in different countries, of the several factors determining the volume of deposits. As an introduction to such enquiries, the author sets forth in a Postscript, some methodological details. In contrast to the practice followed by Schneider in similar studies, he re-emphasises the advisability of including savings and time deposits, in order to obtain a picture of the true magnitude of the influence exerted on the volume of deposits by the public. E51, E58, G02, G21

While liquid funds in the hands of public and private operators cannot be created except by the credit system and the treasury, it is not equally easy to grasp how the public’s behaviour may effect the amount of liquid resources in existence. The credit system can influence public’s capacity to hold financial assets through loans. However, it cannot decide at its discretion the volume of financial assets held by the public. On the contrary, in several ways, e.g. through convertibility, the public can make its influence felt on monetary reserves, and as a consequence on the nominal volume of financial assets. Thus, if the first priority of economic policy is assigned to the maintenance of monetary stability, the monetary authorities have few margins to regulate at their discretion the trend of liquid assets at the market’s disposal. JEL: E03, E51, E52, G02