Money and Banks

Modern monetary systems operate on the ability to turn debt into money.

The mythology of gold really grew up with Keynes and the quantity theory. Here are six of those myths: the gold standard is unable to accommodate the needs of an growing economy; the quantity of money is arbitrarily determined; the gold standard is a government price fixing scheme; the gold standard subjects a country to alternating inflation and deflation; the gold standard requires high costs devoted to resources; and the gold standard results in high interest rates.

Friedman’s book, Monetary History of the United States, tried to show the depression was caused by a deflation of the money supply by the Fed. Rothbard’s America’s Great Depression was published the next year in 1963. Rothbard argued that the Fed was actively inflating the money supply.

Monetary theory is where Austrians diverge the most from mainstream. Mises built a new taxonomy of money. He said money included any checking account deposits. The marginal utility of gold on the last day of barter was determined by the uses of gold. People then demanded gold as money because there was preexisting value. A paper dollar must have such a connection to money. Government cannot create money. Money is not neutral. The natural trend of prices in a market economy is falling.

The Real Bills Doctrine (RBD) has a long and controversial history, writes Robert Blumen. Many of the key concepts originated with the monetary crank John Law.

Frank Shostak explains that China is not the cause of bad US monetary policy.  

Murray Rothbard, in this classic essay originally published in 1991, offers the most "pure" proposal of all: private mintage, 100 percent reserve banking, circulating coins, full convertibility.

Many commentators say that there is more than enough savings to support future growth. But Frank Shostak says there is a problem with this view.

The more you think about the incoherent Bush Social Security plan, writes Bob Murphy, the more you realize what a hoax it is.

The Austrian economists—Mises, Rothbard, and Hayek most prominently—were not alone in predicting the baneful effects of central banking and paper money.