Chapter 1: The Theory and Brief History of Money and Banking

The ultimate purpose of this book is to give the reader a solid grasp of how money works in today’s world. Yet before diving into the particulars of central banks, repo markets, and LIBOR—all topics that will be covered in future chapters—we should first provide a general framework giving the basic theory or “economic logic” of money and banking.

Understanding Money Mechanics

Acknowledgements

I would like to thank Bill McKivor (of The Copper Corner) for his permission to reproduce photos of privately-minted coins and tokens, as well as his generous time in advising me on the topic. George Selgin introduced me to Mr. McKivor and provided guidance on the mechanics of the US gold standard. Joe Salerno also provided numerous recommendations of readings on the gold standard’s theory and history. Finally, I would like to thank Scott Sumner for helpful feedback on an initial draft of my critique of Market Monetarism.

Introduction

The purpose of this short book is to provide the intelligent layperson a concise yet comprehensive overview of the theory, history, and practice of money and banking, with a focus on the United States. Although the author (Murphy) considers himself an Austrian school economist, most of the material in this book is a neutral presentation of historical facts and an objective description of the mechanics of money creation in today’s world.

Price Deflation and the Horrors of Falling TV Prices

For nearly a century, the state and its various allies have propagandized generations of college kids into believing that falling prices are a detriment to society. This would seem a difficult task given the absurdity of the claim, but this convenient lie has justified decades of theft from the poor to the very elites who subscribe to it. As such, it is easy to see the appeal.

As Upton Sinclair said, “It is difficult to get a man to understand something, when his salary depends on his not understanding it.”

In Defense of Turgot

Murray Rothbard views the eighteenth-century French economist and administrator Anne-Robert-Jacques Turgot as a great and admirable figure, but David Graeber and David Wengrow do not agree. In their recently published The Dawn of Everything (Farrar, Straus and Giroux, 2021), they present Turgot as a force for evil. His ideas provided a justification for a false sense of Western superiority to people supposedly less civilized and in that way lent support to wars of conquest against them.

Covid and Life Expectancy

How dangerous is Covid? Two recent articles (see here and here) on mises.org suggest that what we are witnessing is hysteria. Both articles examined age-standardized mortality statistics for the US and UK respectively. In the UK, the 2020 mortality rate was at a similar level to 2008, and for the US the mortality rate was at around the same rate as 2004.

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