CHAPTER 1 Basic Concepts

“Practical men, who believe themselves to be quite exempt from any intellectual influences, are usually the slaves of some defunct economist. Madmen in authority, who hear voices in the air, are distilling their frenzy from academic scribbler of a few years back. I am sure that the power of vested interests is vastly exaggerated compared with the gradual encroachment of ideas.”

John Maynard Keynes: The General Theory of Employment, Interest and Money, 1947

Introduction

The modern theory of financial intermediation is based on concepts developed in financial economics. These concepts are used liberally throughout the book, so it is important to understand them well. It may not be obvious at the outset why a particular ...

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