Loan Banking

A note that "bank" refers to a number of different organizations that serve a number of different functions. While modern banks often cover multiple services once handled by separate institutions, the author wants to isolate the functions for clarity.

A "loan bank" has a stock of money, which it lends out to others, and generates a profit from the interest paid by borrowers.

Thus far, no money is "created." The interest is paid from one party to another in real money, so there is no net change in the supply of money.

Neither is money taken out of the system if a person fails to repay a loan - someone gains, someone loses, but there is no effect on the money supply.

Rothbard makes a few variations to increase complexity: the bank may be funded by more than one person (partners or corporate shareholders), it may borrow money in order to loan it out at a higher rate, etc. None of this changes the fundamental nature of the business or its impact (i.e., none) on the supply of money.