Money and Banks

Recorded at Mises University 2004.

Recorded at Mises University 2004.

Recorded at Mises University 2004.

Recorded at Mises University 2004.

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.