Excerpt from The Case Against the Fed

Government paper, as pernicious as it may be, is a relatively straightforward form of counterfeiting. The public can understand the concept of “printing dollars” and spending them, and they can understand why such a flood of dollars will come to be worth a great deal less than gold, or than uninflated paper, of the same denomination, whether “dollar,” “franc,” or “mark.” Far more difficult to grasp, however, and therefore far more insidious, are the nature and consequences of “fractional-reserve banking,” a more subtle and modern form of counterfeiting.

Chapter 5 of An Introduction to Austrian Economics

Chapter 4 of An Introduction to Austrian Economics

1. The Phenomenon of Interest

It has been shown that time preference is a category inherent in every human action. Time preference manifests itself in the phenomenon of originary interest, i.e., the discount of future goods as against present goods.

A. The goods-character of goods of higher order is dependent on command of corresponding complementary goods.

When we have goods of first order at our disposal, it is in our power to use them directly for the satisfaction of our needs. If we have the corresponding goods of second order at our disposal, it is in our power to transform them into goods of first order, and thus to make use of them in an indirect manner for the satisfaction of our needs.

Before proceeding to other topics, it appears to me to be of preëminent importance to our science that we should become clear about the causal connections between goods. In our own, as in all other sciences, true and lasting progress will be made only when we no longer regard the objects of our scientific observations merely as unrelated occurrences, but attempt to discover their causal connections and the laws to which they are subject.

1. The Value of Exchange

How did money begin? Clearly, Robinson Crusoe had no need for money. He could not have eaten gold coins. Neither would Crusoe and Friday, perhaps exchanging fish for lumber, need to bother about money. But when society expands beyond a few families, the stage is already set for the emergence of money.

Despite the many illustrious forerunners in its six-hundred-year prehistory, Carl Menger was the true and sole founder of the Austrian School of economics proper. He merits this title if for no other reason than that he created, out of whole cloth, the system of value and price theory that constitutes the core of Austrian economic theory. But Menger did more than this: he also originated and consistently applied the correct, praxeological method for pursuing theoretical research in economics.