Chapter Outline

1.   The Two Ways of Issuing Fiduciary Media

Fiduciary media may be issued by banks or by non-banks (primarily the government). Banks can issue fiduciary media either through banknotes or by granting deposits in a current account (i.e., a modern-day checking account). Banks treat their outstanding fiduciary media as liabilities on their balance sheets, and must loan or directly invest them wisely.

Summary

If labor and other resources are used to extract more gold from mines, and this additional gold goes into the cash balances of people in the community, then from a social point of view the labor and other resources have been wasted. The quantity of “real output” (pounds of steak, barrels of crude oil, etc.) produced per person doesn’t rise, but merely the prices of these items quoted in gold or silver.

Summary

The confidence in a bank’s ability to redeem its fiduciary media is an all-or-nothing proposition: if a portion of the community panics and rushes to redeem their claims, then everyone does. By their very nature, fiduciary media cannot all be honored by the bank at once. Consequently, some writers suggest an outright prohibition on the practice.

Chapter Outline

1.   On the Nature of the Problem

Interest accrues as the difference between what a producer pays upfront for inputs versus the total revenue he receives for the product (down the road). Up till now in the book, we have studied the forces that can change the exchange ratio between money and consumer goods, or what are called goods of the first order.

Summary

The governments of Europe and America have been guided by the idea that the natural desire of the banks to issue fiduciary media must be checked, in order to avoid economic crises. However, this goal conflicts with the other desires for low interest rates and high selling prices.

Chapter Outline

1.   The Classical Idea of Sound Money

The principle of sound money must be placed in the context of the broader, classical liberal program of containing government tyranny. Just as a constitution or a bill of rights would be adopted, in light of historical abuses of civil liberties, in the same way the classical liberals of the nineteenth century wanted to prevent governments from wrecking currencies as had occurred throughout history.

Chapter Outline

1.   The Inflexible Gold Standard

Under both the classical gold standard and the gold-exchange standard—as they had existed before World War I—each nation’s currency unit was legally tied to an inflexible (i.e., constant) exchange rate against gold. The difference between the two systems was one of degree. Under the classical gold standard, citizens within each country carried actual gold coins and used them in everyday transactions.

Summary

The disintegration of the worldwide classical gold standard has gone hand-in-hand with the march toward all-round central planning. The return to sound money involves a renunciation of inflation. This is only possible if the public recognizes the futility of interventionist government.