Let me enter the fray about financial intermediation.  Without passing 
judgment on the merits or demerits of the modern Post Keynesian endogenous 
money approach(es), I concur with Matthew Forstater's view that banks do 
indeed create credit that can be used to finance investment.  The process 
was spelled out in wonderful clarity by Henry Dunning Macleod in _The 
Theory and Practice of Banking_ (1855) in the context of a discussion of 
the economic development of Scotland.  A short version of Macleod's thesis 
is this:  After the break-up of the feudal system in the Highlands around 
the middle of the 18th century, Scottish lords found themselves in 
possession of massive tracts of undeveloped lands, with plenty of 
underemployed labor also available.  But they had no way of developing the 
resources until the Scottish banks provided financing.  They did this by 
lending THEIR OWN NOTES - chiefly one pound notes - on the security of 
tenant leases or multiple signatures of guarantors.  The notes circulated 
as the basic medium of exchange, rarely being sent back to the issuing 
banks for conversion into coin.  This enabled the banks to add both assets 
(loans) and liabilities (notes) to their balance sheets by reducing their 
reserve ratio to a minimal level.  Macleod notes that the loans were made 
to entrepreneurs for the purpose of increasing production.  And they did 
so.  Rondo Cameron (_Banking in the Early Stages of Industrialization_ 
[1967]) confirms the gist of Macleod's story. 
 
The key to understanding the process of banking in development is to scrap 
the textbook view of the monetary base-times-multiplier process of money 
creation.  The Scottish banks were well-capitalized and well-respected. 
The banks were able to circulate their notes because that had good credit - 
people trusted their ability to pay in coin should the need arise.  As 
Macleod stresses, the bankers saw wealth as the present discounted value of 
future production.  They acted on their beliefs, and Scotland benefitted. 
 
Bank money is not a magical solution to development or growth problems. 
However, created in a proper manner and limited to productive enterprises, 
it has aided development in numerous historical periods. 
 
If anyone is interested in Macleod's story, I have a few copies of a paper 
I gave on the subject.  I'd gladly send them to anyone sending a request 
(to me, not to the HES net). 
 
--Neil Skaggs