Monetary Theory

Let’s pull this sentence out of the civic pieties of our time and see what’s wrong with it: “We should all volunteer our time in

As with everything else in life, competition among conceptual frameworks is very healthy, since it can quickly highlight when an economist is likely abusing his favorite technique.

What Rothbard was describing, as have other Austrian-school economists, was the business cycle — when "businessmen are misled by bank credit inflation to invest too much in higher-order capital goods," like land, plant and equipment.

Capitalism should not be condemned, since we haven’t had it. Capitalism presumes sound money, not fiat money manipulated by a central bank.

But the Keynesian conclusion is rather obvious: the state, through its compulsory means, has to boost the level of aggregate demand in some way to stop the economy from falling into recession.

Thus, to say it all in one sentence, the threat of massive deflation can be eliminated, the threat of inflation ended, and the actual and potential domain of economic freedom greatly expanded, for $11 billion — an $11 billion that would not even be an out-of-pocket expense to anyone but merely a balance-sheet charge on the books of the Federal Reserve System when it deducted its gold holding from its balance sheet and added it to the balance sheets of the banks.

So it was in 1920 and 1921. The government didn't intervene and voila normalcy returned.

Inflation, to sum up, is the increase in the volume of money and bank credit in relation to the volume of goods. It is harmful because it depreciates the value of the monetary unit, raises everybody's cost of living, imposes what is in effect a tax on the poorest (without exemptions) at as high a rate as the tax on the richest, wipes out the value of past savings, discourages future savings, redistributes wealth and income wantonly, encourages and rewards speculation and gambling at the expense of thrift and work, undermines confidence in the justice of a free enterprise system, and corrupts public and private morals.

Someone asked for handout on inflation to pass out in front of the Fed. This is quick.

The Federal Reserve System virtually controls the nation's monetary system, yet it is accountable to no one.