Understanding Money Mechanics

1922Genoa conference 40
1933 Gold confiscation 41
1934 Dollar devaluation 41

Accounting
   possibility of 21
   usefulness of 21
Aggregate demand theory 157
Aggregate spending 162
Aldrich, Nelson 48
Anderson, Benjamin 39
Arbitrage between currencies 30
Asian savings glut 130
Asset-backed securities (ABS) 92
Austrian Theory of the Trade  (Business) Cycle (ABCT) 103, 123, 125, 163–64, 194
   and the yield curve 124–25
Authentication, secure 182
Average inflation targeting 97–99

Bailment contracts 25
Bank capital, regulatory role of 76
Bank deposits as credit contracts 26
Bank for International Settlements 11, 75
Bank lending 139
Bank notes used as money 24–25
Bank of England 46
Bank reserves 76
   as altered by the central bank 65–66
   components of 65
   interest paid on 152
Bankers’ acceptances 46
Banking Act of 1933 (Glass-Steagall) 51
Banking Act of 1935 51, 52–53
Banks
   as creators of money 24
   as depository institutions 24
   as fractional reserve lenders 24, 26
   as money storage institutions 24
   functions of 23
   origins of 23
Barter 17, 20
Basel Accords 75–76
Basel Committee on Bank Supervision (BCBS) 11, 75
Bernanke, Ben 89, 95n, 133, 161, 170–71, 173
Bimetallism 32, 33–34
   end of in the US 36
bitcoin 179
Bitcoin 10, 179–88
   mining of 180
   protocol 180
   moneyness of 187–88
Blockchain 180
Bond yield curve 121
   and recession 121–22
   inverted 121–22
Boulton, Matthew 22
Bretton Woods agreement 42
Bretton Woods conference 42
Bretton Woods system 42, 75
British pound, definition of 30
British Royal Mint 22
Bryan, William Jennings 36
Budget deficits, justified 160
Business cycles 70

Cantillon effect 117
Capital structure 107
Carney, John 198
Case-Shiller Home Price Index 129
Central banks, role of in war 39
Central planning 21
Certificate of Deposit (CD) 63
Chartalism 200
Cheap credit, consequences of 127
Checking (demand) deposits 62
Churchill, Winston 40
Cigarettes, use of as money 19
Circulation credit 105
Civilian unemployment rate 131
Classical gold standard
   end of 37
   freedom under 37
Classical liberal tradition 28
Coinage Act of 1792 33
Coinage Act of 1834 34
Coinage Act of 1837 34
Coinage, free 27
Coins and tokens, functions of 21
Commodity credit 105
Commodity money 20, 27, 65, 105
Constant inflation targeting 98
Constitutional legal tender clause 33
Consumer Price Index (CPI) 148, 154–56, 175, 194
Countercyclical policies 164
Credit intermediation 23
Credit money 105
Credit ratings agencies 72
Crusoe, Robinson 202
Cryptocurrencies 10
Currencies, sovereign 28
Currency School 70

Debt confused with money 201
Deficit owl 189
Depression of 1920–21, causes of 40
Diamonds 20
Direct exchange, limits of 17–18
Dollar, origin of the term 33
Double coincidence of wants 20
Dual mandate of the Fed 53–54

Economic boom, artificial 108
Economic value, subjective 17
Einstein, Albert 159
Encryption 182
Equation of Exchange 111, 116
Eurodollars 73
Excess reserves 77, 94, 152–53
   excess of 142–43
Exchange rates
   fixed 29
   floating 29

Fama, Eugene 151
Federal Deposit Insurance Corporation (FDIC) 73
Federal funds market 80–81
Federal funds rate 80, 128
Federal Open Market Committee (FOMC) 11, 52, 55, 82–83
Federal Reserve Act of 1913 47
Federal Reserve Act of 1939 48
Federal Reserve action timeline 85–88
Federal Reserve actions, legality of 90
Federal Reserve asset purchases 65, 66, 82
Federal Reserve balance sheet 89
   composition of 92
   expansion of 91–92
Federal Reserve Bank Districts 50, 54
Federal Reserve Bank of Chicago 9
Federal Reserve Bank of New York, role of 55
Federal Reserve Banks, autonomy of 51
Federal Reserve Board of Governors (FRBOG) 52, 54
Federal Reserve discount window 81–82
Federal Reserve policy in the 1920s 167
Federal Reserve powers, expansion of 92
Federal Reserve Reform Act of 1977 53–54
Fiat monetary system 43
Fiat money 20, 28
Financial Stability Board 69–70
Fractional reserve banking 106
Free Banking era 45
Friedman, Milton 29, 32, 112, 166, 168
Full-bodied coins 21, 33
Fungible goods 25

German Empire 36
Gold 20
Gold coin standard 10–11, 27
Gold coins, full-bodied 27
Gold dollar, defined 28
Gold exchange standard 40
Gold export point 31
Gold import point 31
Gold Standard Act of 1900 36
Gold standard, classical 27, 35
Gold to silver ratio under bimetallism 35
Goldsmith banking 23
Goods, marketability of 19
Graeber, David 10, 200
Great Depression, the 41, 161–64, 166, 170
Great Recession, the 131, 132, 166–73
Green New Deal 192
Greenbacks 36
Greenspan, Alan 127, 130
Gresham’s Law 34

Hayek, Friedrich von 70, 103
   on shadow banking 71
Hedonic adjustments (to the CPI) 155
Hoover administration policies 164
Housing prices, bubble in 127, 132
Human Action (Mises) 104, 109n, 109
Hyperinflation 12, 112
   reasons for current lack of 147–55

Idle resources (“slack”) 194
Indirect exchange 18, 185
Inflation 38
Interest paid on reserves 83–84
International Monetary Fund (IMF) 42
Investor expectations, role of 124

Jackson Hole monetary conference 98
Jackson, Andrew 45, 202
Jekyll Island 47, 48

Kelton, Stephanie 13, 189
Keynes, John Maynard 157
Keynes’s General Theory of Employment, Interest, and Money 157–63
Keynesian theory and totalitarianism 159
Keynesianism 163–64
Keynesians 149, 151
Krugman, Paul 123, 123–24, 125, 149, 161

Labor Theory of Value 159
Lender of last resort 47
Level target 169
LIBOR 11, 73
Liquidity trap (Keynesian) 151, 166
Lonergan, Eric 201
Lowenstein, Roger 47

M0 monetary aggregate, defined 60
M1 and M2 growth after 2008 96, 172–73
M1 monetary aggregate 154–55, 166
   defined 60
   redefined 95–97
M2 monetary aggregate 166
   collapse of after 1929 170
   defined 61
M3 monetary aggregate 61
Magical Monetary Theory 190
Maiden Lane 90
Malinvestment 12, 109
Malinvestments, structural 175
Marginal Revolution 159
Market monetarism 165–70
MBS tranches 72
McCulley, Paul 69
McKinley, William 36
Medium of exchange 18, 185
Menger, Carl 18, 103, 104, 186
Mints, private 22
Mises, Ludwig von 28, 38, 70, 103–10, 157, 164, 186, 193
Modern Monetary Theory (MMT) 149, 189
   essence of 190
   minimum wage in 203
   origins of 199
Monetarism 166
Monetary  policy regime 80
Monetary (bank) reserves 62–67
Monetary aggregates 60
Monetary base 94–96,
   as controlled by the Fed 141, 144–45
   defined 60
Fed control over 130–31
   growth of after 2008 171
Monetary commodities, qualities of 20
Monetary inflation 111–12
Monetary policy targets 80
Monetary policy tools 80
Monetary sovereignty 191
   and trust 195
   conditions for 191
   how to lose 196
Money and banking, classic treatments of 9
Money creation, Bank of England view of 137–38.
Money illusion 161
Money multiplier process 62–65
Money multiplier theory 138
Money substitutes 61
Money
   bank creation of 107–08, 126
   definition of 20, 59, 185
   demand for 150
   fiat 105
   origin of 18
   purchasing power of 186
   quantity of 60
   the price of 150
   types of (according to Mises) 105
Morgan, J.P. 47, 48
Morgenstern, Oskar 37
Mortgage rates in the bubble 129
Mortgage-Backed Securities (MBS) 72
Mosler, Warren 192, 198, 199
Multiplier process, role of the Federal Reserve in 65–66
MZM monetary aggregate 61

National Banking Act of 1863 46
Near money 151
Net private assets, source of 202
Neutrality of monetary injections 117
Newton, Isaac 159
Nixon shock of 1971 11, 42–43
Nixon, Richard 150
Nominal GDP (NGDP) 131, 168, 174
   growth, expectations about 176
   targeting of 165–77
Norman, Mike 195

Ocasio-Cortez, Alexandria 192
Open Market Operations 11, 53, 137–38
Overinvestment 112, 09

Palyi, Melchior 37
Panic of 1907 47
Paper notes, redeemable 29
Paradox of Thrift 159–60
Paul, Ron 133
Peel’s Act of 1844 (England) 70
Phillips curve 149
Post-crash hindsight 155
Post-war parity policy 40
Powell, Jay 98
Price deflation predicted 149
Price inflation 111–12
Propensity to consume 160
Propensity to save 160
Public ledger 180, 182
Pushing on a string 166

Quantitative easing
   QE 10, 82, 149, 150, 151, 152–53, 198
   QE2 82
   QE3 83, 170

Redemption claims 21
Regression Theorem of Mises 187
Relative prices, distortion of 177
Repo market
   size of 74
   Fed actions to defend 75
Repurchase agreements (repos) 74
Required reserves 94
Reserve Bank Organization Committee (RBOC) 11, 50
Reserve requirements 78, 80, 141
   abolition of 93–94
Resource constraints in MMT 192
Roosevelt, Franklin D. 41
Rothbard, Murray 9, 31, 34, 61, 125, 193

Salerno, Joseph 61, 126
Savings deposits 63, 96
Schwartz, Anna 166, 174
Second Bank of the United States 45
Senate Budget Committee 189
Shadow banking system, size of 70
Shadow banking
   defined 69
   role of during the housing boom 71–72
Silver 20
Silver dollar, free coinage of 35
Silver standard, British 32
Social media 10
Soho Mint 22
Sound money, the need for 28
Spanish silver dollar 33
Specie payment, suspension of 35
Speculation 30
Stagflation 150, 175
Standard Sumnerian model 176
Sticky wages and prices 169
Sumner, Scott 131, 165–77
Sweep accounts 95

Taxation
   deferred (government borrowing) 193
   hidden (inflation) 193
Taxes giving value to money 199–200
Term Asset-Backed Securities Loan Facility (TALF) 92
Theory of Money and Credit, The (Mises) 12, 104–08, 186
Thornton, Mark 133
Tight money 51n, 166–68
Time preference 107
TMS monetary aggregate 61, 125
Tobacco used as money 33
Travelers’ checks 61
Treaty of Versailles 113
Troubled Asset Recovery Program (TARP) 10

US Civil War
   inflation during 113
   monetary policy during 35
Unemployment 162

Velocity of circulation 116

Wages, nominal vs. real 161
War of 1812 33
Warburg, Paul 46
Weimar Republic, hyperinflation during 113
Wiegand, Carl 37
Williams, Thomas 22
Wilson, Woodrow 48
World Bank, the 42
World War I 37–38
   and fiat money 38
World War II POW camp, money used in 19

Zero lower bound (for interest rates) 98
Zimbabwe, hyperinflation in 114–15