1. Skip to navigation
  2. Skip to content
  3. Skip to sidebar
Source link: http://archive.mises.org/11068/good-inflation/

Good Inflation

November 20, 2009 by

Cash-economizing inflation is benign because it is an outcome of individuals striving to optimize their property holdings through the voluntary exchange process. Indeed, it improves economic welfare. FULL ARTICLE by Joseph T. Salerno

{ 74 comments }

Taras Smereka November 20, 2009 at 8:20 am

The link is broken for me, leads to a “redirect loop” that does not allow me to access the article.

Dennis November 20, 2009 at 9:08 am

One problem that I have with “free banking” is that under this framework banks could increase the quantity of money to counteract the downward effect on prices of an increase in the demand for money. The free bankers believe that this is a positive aspect of their program.

However, this increase in the quantity of money obviously would occur through an increase in fiduciary media and would be directly injected into the loanable funds market and, thus, lower the rate of interest. Would this not set in motion the unsustainable boom that is fundamental to the Austrian view of the business cycle? Or put another way, does not the free bankers’ position on this issue mean that they cannot support Austrian business cycle theory, or that they are willing to set in motion the boom/bust cycle in their attempt to counteract the downward pressure on prices caused by an increase in the demand for money? Have the free bankers adequately addressed this issue?

Also, in a more general sense, does not any increase in fiduciary media that first enters the economy through the loanable funds market set in motion the unsustainable boom phase of the business cycle?

DD November 20, 2009 at 9:44 am

The “free bankers” are monetarists in denial, although they would hardly claim that a central bank can perform any productive function. They apply the same aggregate/macro analysis to justify the expansion of credit, just as the monetarists do. They simply differ on the set point of what they consider to be the “equilibrium” point. The monetarists advocate for price stability, while “free bankers” accept permanent price deflation and think that the set point does not necessarily need to be price stability, but would be determined by the demand of people to hold cash.

Nobody is denying that demand to hold money will induce profit seeking entrepreneurs from satisfying that demand; however, it is completely fallacious to think that this could be achieved by the banking system without causing the inter-temporal distortion in the structure of production by the new credit’s affect of lowering of the interest rate below its natural rate. This is an inevitable event that results from the micro-affects of credit expansion, which the “free bankers”, although in complete agreement with the micro-effects of money and credit, simply choose to ignore.

Marcus November 20, 2009 at 10:00 am

Do all “free bankers” want a central bank , for example Lawrence Reed or does he not belong to the free bankers ?

DD November 20, 2009 at 10:15 am

“free bankers” are free bankers. They want a free market in banking. No government! That means no central bank.

Nuno Branco November 20, 2009 at 10:28 am

Where does this definition of “free banking” comes from. What kind of “free bankers” want to have a central bank?

Can someone link to an article where I can read more about this system?

Eric November 20, 2009 at 10:35 am

I had difficulty reading this article because the term “inflation” has lost it’s meaning (by government economists who generally wish to hide the truth about money manipulation).

Which of these does the author mean when he uses the unqualified term inflation?

Money Inflation (increase in money),

or

Price Inflation (increase in prices).

Matt Haak November 20, 2009 at 10:38 am

An excellent discussion of free banking can be found in Rothbard’s Mystery of Banking

mises.org/mysteryofbanking/mysteryofbanking.pdf

Nuno Branco November 20, 2009 at 10:55 am

Matt,

That book does not answer my question. Rothbard implies that a “free banking” does have an inherent limit to how much credit it can be inflated. He also argues that implementing central banking is the de facto removal of such limits.

This is why I am confused when the article mentions “free bankers” that support “central banking”. In my mind the two are not compatible… not in the true sense of “free banking”.

Mike Sproul November 20, 2009 at 11:13 am

Nuno Branco et. al.:

Free banking is incompatible with the quantity theory/monetarist view. Unfortunately, many free bankers (e.g., Salerno, Rothbard, Selgin) do not see the flaws of the quantity theory.

The correct theory of money is the backing theory. This theory says, for example, that a bank can issue 100 currency units (‘dollars’) for 100 ounces of silver, and each dollar will be worth 1 ounce. If the bank then lends another $200, in exchange for an IOU worth 200 oz., then the bank now has $300 laying claim to stuff worth 300 oz., so each dollar is worth 1 oz., even though the supply of money has tripled. This is compatible with free banking, because a bank operating on these principles can be left alone and will never cause inflation.

Quantity theorists don’t see this. They think that the $200 loan will cause inflation, as if the bank were no different from a counterfeiter. Thus they take the very unlibertarian position of restricting the issue of money by legitimate banks making voluntary deals with their customers.

Lord Buzungulus, Bringer of the Purple Light November 20, 2009 at 11:22 am

Wonderful; the real bills fruitcakes are upon us.

Lagrange November 20, 2009 at 11:25 am

“However, this increase in the quantity of money obviously would occur through an increase in fiduciary media and would be directly injected into the loanable funds market and, thus, lower the rate of interest. Would this not set in motion the unsustainable boom that is fundamental to the Austrian view of the business cycle? ”

Such a subtle, nuanced and totally original. I don’t think the free banks have ever come across this criticism.

Nuno Branco November 20, 2009 at 11:36 am

“$300 laying claim to stuff worth 300 oz., so each dollar is worth 1 oz.”

It cannot lay claim to “stuff worth 300oz”. It either has 300 oz or it doesn’t. If it only has claims to “stuff worth 300oz” then $1 can be 1oz or not depending on the market value of “stuff”.

redshirt November 20, 2009 at 11:42 am

Also confused… I too thought “free bankers” were against a central bank altogether. And are we talking about free bankers as providing different competing currencies?

I see Mike Sproul’s point there, but wasn’t that bounced around here before? The IOU isn’t actually 200 oz of silver. It’s stuff having a value that could increase or fall vs. 200 oz of silver. There remains risk that demands for payment in silver could exceed the availability of silver. Right or am I missing something?

scott t November 20, 2009 at 12:07 pm

“We were discussing the various kinds of (price) deflation and which kinds, according to Austrians, are benign and accommodate consumer preferences, and which are malignant and conflict with consumer preferences.”

prices deflation due to a market induced productivity gain would be – good for all?

price deflation due to rapid, poorly-foreseen credit expansion/inflation (that leads to a ramping up of production without a ramping up of other markets)..bad for producers?

is that right??

“One kind of “good” inflation typically results when innovations and changes occur that permit people to economize on the amount of money they need to hold in their cash balances. For example, the introduction and increasing availability of credit cards bring about a decrease in the demand for money,”

if money is just a medium of exchange isnt the credit card just a cash/fiduciary media balance accounted for somewhere?…perhaps these days it is a credit balance) that permits cash/fiduciary media claims to be traded quickly over distances?

how does that economize on any money balance?

additionally, i assume from what i read here that gold/silver moneys are harder and more difficult to inflate/increase (when market initiated efforts to extract gold/silver, destined to be money, is paid for in existing gold/silver or non-inflated gold/silver receipts) than a govt paper/digital currency.
and because its harder to inflate at the whim of govt and bank-credit expansionauts long term price deflation would likely reign? being good for all.

but a previous mises blog posts states….”when prices are adjusted for inflation, Americans today spend “40% less on clothes, 20% less on food, more than 50% less on appliances, about 25% less on owning and maintaining a car” than they did during the early 1970s. Over that same period, Census Bureau tables show, U.S. median household income rose by at least 18% in constant dollars….” (if true)

would the gold/silver money have produced a better, from what appears above, price deflation?

Marcus November 20, 2009 at 12:07 pm

@ Mike Sproul

two questions how does the bank get this extra $ 200 and what is your definition of inflation?

Nuno Branco November 20, 2009 at 12:09 pm

“if money is just a medium of exchange isnt the credit card just a cash/fiduciary media balance accounted for somewhere?…perhaps these days it is a credit balance) that permits cash/fiduciary media claims to be traded quickly over distances?

how does that economize on any money balance?”

If you have a hoard of cash for emergency situations you can probably release some of it and replace it for a credit card. It is not the use of the CC that causes inflation but your release of part of your horde.

Lord Buzungulus, Bringer of the Purple Light November 20, 2009 at 12:53 pm

Nuno Branco hits the nail right on the head. The IOU in Mike Sproul’s example is not worth whatever amount the bank lends to the issuer, it’s worth whatever the market says it’s worth. It’s rather shocking that the advocates of the real bills doctrine do not grasp this rather simple point.

Shay November 20, 2009 at 12:54 pm

A free banker sounds like someone who is free to provide his own IOU notes, which other people are free to accept or reject, based perhaps on the bank’s ability at any moment to back every outstanding IOU with something of the same value, perhaps an IOU from a more trusted bank. The free market can then decide which banks are managing backing in a sound way, and which ones in a risky way. There is no coercion (assuming the banks with less than 100% backing don’t lie) involved here. This scheme even forms a superset of having just banks with 100% backing at all times. It’d be sort of like allowing anyone to perform medical services, and leaving it up to the buyer to choose which ones he trusts, perhaps based on evaluations by other private companies.

T. Ralph Kays November 20, 2009 at 1:02 pm

Mike Sproul wants to equate the use of the word backing as used by fiat money politicos with the definition of backing as used by Austrian and classical economists. The two meanings are entirely different. The only purpose of joining the two meanings is to justify the theft inherent in fractional reserve banking. Argueing with Mike Sproul is useless because the definition of backing that he uses is worthless.

Backing with "government debt" November 20, 2009 at 1:28 pm

Backing money with government debt is real backing. Just ask the Non-Federal Non-Reserve. It means backing it by the ability to steal and redistribute other people’s wealth. Who needs a reserve when the government can steal everyone else’s stuff.

Sam Bostaph November 20, 2009 at 1:54 pm

I would add two comments to Joe Salerno’s piece on “good inflation”:
1. The free banking people presume that it is possible for the central bank to gather the information needed to manage the quantity of money (whatever that is) in a timely manner in order to achieve price stability. Neither history nor epistemological theory provide support for this view.
2. Giving the central bank such powers (or, even having a central bank) is the open door to the current system of Fed-driven malinvestment.

Joseph Salerno November 20, 2009 at 2:00 pm

I would like to emphasize an important point that I may not have addressed with sufficient clarity in my article. The ideal of modern free bankers is a monetary and financial system based on a privately produced commodity money in which private fractional-reserve banks compete in issuing brand-name bank notes and demand deposits. There is indeed no room for a central bank in this system. However, for our current central-bank dominated fiat money system, free bankers have prescribed the “productivity norm” as the operating procedure of the central bank. This policy norm, they argue, will approximate the outrcome of a free banking system. See, for example George Selgin’s booklet, Less Than Zero: The Case for a Falling Price Level in a Growing Economy. This policy norm implies that the central bank should stabilize the Keynesian macroeconomic variable of total spending or “aggregate demand” in the economy by means of “nominal income targeting.” This would effectively stifle any changes in general prices that do not reflect alterations in productivity , even if these price changes are brought about by changes in the demand to hold money that result from the voluntary choices of market participants.

Marcus November 20, 2009 at 2:15 pm

thx mr salerno this makes the whole thing clearer.

Shay November 20, 2009 at 2:20 pm

I figured out how to fix the link; copy it, then remove the quote from the end (useful the next time this happens). Here it is:

Good Inflation

Fed Up November 20, 2009 at 2:55 pm

The road to hell is paved with good inflation.

Sorry, couldn’t resist.

chris November 20, 2009 at 3:11 pm

i don’t think there’s any a priori way of concluding that credit cards push demand for goods forward. in my own case, i use credit cards for everything because they are easier but i don’t increase consumption because of it. I only spend what I have to back up my liabilities.

there may be a behavioral and psychological aspects that lead to what Salerno is talking about, but I don’t think it is necessarily true.

T. Ralph Kays November 20, 2009 at 3:21 pm

chris

Now that you carry a credit card do you also keep as much cash on hand as you would without the card? Most people who have credit cards don’t feel the need to keep as much actual cash available day to day. It is the dis-hoarding of this cash that causes the effect he is talking about, not the use of the credit card per se.

chris November 20, 2009 at 6:24 pm

t. ralph,

no, i carry no cash. but price inflation would have to arise from a ceteris peribus increase in demand (or reduction in supply) which credit cards do not necessarily create if they merely replace other forms of “money.”

Mike Sproul November 20, 2009 at 6:40 pm

Redshirt:
“The IOU isn’t actually 200 oz of silver. It’s stuff having a value that could increase or fall vs. 200 oz of silver. There remains risk that demands for payment in silver could exceed the availability of silver. Right or am I missing something?”

That’s correct. If the money-issuing bank loses assets, the money will lose value. Banks with better capitalization are less vulnerable to this, so their money would be more readily accepted.

Marcus:

“how does the bank get this extra $ 200 and what is your definition of inflation?”

The bank prints and issues its own paper dollars, and I am speaking of price inflation.

Shay:

“A free banker sounds like someone who is free to provide his own IOU notes, which other people are free to accept or reject”

That’s correct. Most Austrians seem to think that the IOU notes must be based on some commodity, but a more consistent libertarian position would be to let the banks and their customers decide for themselves what an IOU stands for, and what it is backed by.

Joseph Salerno:

“The ideal of modern free bankers is a monetary and financial system based on a privately produced commodity money in which private fractional-reserve banks compete in issuing brand-name bank notes and demand deposits.”

Why limit banks to dealing in commodity money? What if a bank wants to issue notes that are backed by bonds and not physically convertible into any commodity, and what if it has customers who accept those notes? Would you step in and interfere?

On ‘nominal income targeting’: Do you mean that the central bank should look at the Keynesian variable Y (=Py) and try to make the money supply move in step with Y?

newson November 20, 2009 at 6:48 pm

one assumes that innovations like credit cards would change cash demand more or less in a one-off fashion; a new price equilibrium would be realized rapidly thereafter. the same must have happened when cheques were introduced.

this one-off inflationary “shock” would be the mirror image of the specie-money deflationary “shock” salerno depicts were gold nanoparticles discovered to cure cancer. after the withdrawal of a portion of the gold previously dedicated to monetary use, a new equilibrium would be reached.

it seems to me that these changing equilibria are quite fair; they produce winners and losers as do natural phenomena, but with an absence of design.

if credit is fully-reserved, then there is no compromise of property titles. no one is being willfully expropriated, even if the purchasing power of their money is constantly changing.

P.M.Lawrence November 20, 2009 at 8:00 pm

Chris wrote “i don’t think there’s any a priori way of concluding that credit cards push demand for goods forward”, and Newson wrote ‘one assumes that innovations like credit cards would change cash demand more or less in a one-off fashion; a new price equilibrium would be realized rapidly thereafter. the same must have happened when cheques were introduced. this one-off inflationary “shock”… these changing equilibria are quite fair; they produce winners and losers as do natural phenomena, but with an absence of design… no one is being willfully expropriated…’

Actually, there is a mechanism that promotes credit cards and expropriates other people’s wealth. They are structured and imposed so that their fees fall on all purchasers, even cash purchasers, not just on credit card users. Australia recently changed the law to allow user pays, but in general the credit card companies insist that merchants spread fee costs on all prices, so other customers subsidise them. This works like a Tragedy of the Commons; even if all customers switched to credit cards they would still be paying, it’s just that they don’t have individual incentives that line up properly with the true costs and benefits. It’s not a one off.

T. Ralph Kays November 20, 2009 at 8:11 pm

chris

The demand for cash holdings removes money from circulation, the money people hang onto “just in case”. Credit cards change the demand for cash holdings once, not in a continuous fashion, as he clearly says. At the time that this dis-hoarding takes place there will be an increase in demand. As he said:
“It is also noteworthy that this kind of inflation involves a one-shot increase in prices: once the new payment method or invention becomes broadly adopted, the decline in the demand for money ceases and prices stop rising.”

Madhusudan Raj November 20, 2009 at 8:18 pm

Fed Up said:

“The road to hell is paved with good inflation.”

I totally agree.

Given the situation of ‘fractional reserve banking’ and ‘central banks’, I fail to see any way in which the invention of ‘credit card’ will be (or is) having a benign effect.

Situation can be different if we are living in a free society with ’100 percent money reserve’ system. But we are not living in such a society.

newson November 20, 2009 at 8:51 pm

to pm lawrence:
the reduction in demand for cash would be a one-off, as the public becomes acquainted with the new, cash-substitution innovation.

australia, like the rest of the world, doesn’t even approximate a free market monetary model. i thought it obvious that my comment was referring to the hypothetical world of credit innovation in a non-frb regime.

in a sound money setting, i find it difficult to believe that there would be as much credit, period. so merchants might well be able dictate their own terms, or even refuse credit cards, and still make a dollar.

cross-subsidization seems perfectly legitimate to me only if there is no legal restriction on new entries in banking. if one credit card company is oppressive with respect to merchants, or their clients, then another will spring up offering less onerous terms.

George Selgin November 20, 2009 at 10:48 pm

Well, its tedious to have to defend ones views agianst persons who really ought to read them instead of relying on second-hand descriptions–which they also misinterpret. But: to posit stability of nominal spending as a policy ideal is not to endorse central banking as a desirable institution for acchieving the ideal. I have been quite consistent in claiming that free banking is the best and perhaps only reliable way of achieving approximate stability of nominal spending. And I dare anyone on this list to claim that he or she has been a more consistent opponent of central banking than I have been! The lengths to which the Rothbardians go to paint personbs such as myself as statists is silly: why not attack the real interventionists!

Backing November 20, 2009 at 10:53 pm

That’s just great Mike Sproul. If an IOU is backing, why bother producing anything of tangible value? Just pay for everything with IOU’s that you write up as you need them.

Backing November 20, 2009 at 10:57 pm

“Situation can be different if we are living in a free society with ’100 percent money reserve’ system. But we are not living in such a society.”

But in Mike Sproul’s world, we are in a 100% reserve system. Federal Reserve Notes are backed by promises to pay, which are backed by promises to pay promises to pay, which are backed by promises to pay promises to pay promises to pay, etc…

Backing November 20, 2009 at 11:02 pm

“That’s correct. If the money-issuing bank loses assets, the money will lose value. Banks with better capitalization are less vulnerable to this, so their money would be more readily accepted.”

Your IOU for 200oz of silver is not worth 200oz of silver. It is probably worth more like 0.00001oz of silver. Your IOU is not worth face value, so it takes more of them to purchase things.

Backing November 20, 2009 at 11:05 pm

“If the bank then lends another $200, in exchange for an IOU worth 200 oz., then the bank now has $300 laying claim to stuff worth 300 oz., so each dollar is worth 1 oz., even though the supply of money has tripled.”

Where does the “$200″ come from to lend? If it already existed, it does not need additional backing.

Backing November 20, 2009 at 11:10 pm

And that’s where the bank commits the fraud. It’s claiming the money it prints is backed by silver when it’s only backed by an IOU for silver.

Anybody can print IOU’s. You can print an IOU for all the silver in the universe. Will your bank take that as “backing”?

Backing November 20, 2009 at 11:18 pm

Why does the bank *ever* need physical silver? They can just give you an IOU for silver when you redeem your notes! The notes are still backed by silver in Mike Sproul’s world.

Backing November 20, 2009 at 11:33 pm

So in Mike Sproul’s world, a bank can print $1000000000 (where “$” is the bank’s currency), and if it writes up IOU’s for 1000000000oz silver, each $ would be worth 1oz.

LOL

Backing November 20, 2009 at 11:38 pm

If a bank “backs” a $ by an IOU for 1oz of silver, then $ is not worth 1oz of silver. It is worth an IOU for 1oz of silver. Big difference.

Now is that IOU for 1oz of silver worth 1oz of silver?

Backing November 20, 2009 at 11:50 pm

Obviously not, if the IOU is not itself backed by 1oz silver. It can be backed by another IOU, but you would eventually have to have some combination of IOU’s that are backed by 1oz silver, for the original IOU to be worth 1oz silver. If there is no such silver backing, then the IOU is only worth the paper it’s printed on (or less than 1oz silver).

And that would make your IOU worthless, making the bank’s $ worthless, causing price inflation.

Backing November 20, 2009 at 11:54 pm

So maybe you only have 0.5oz silver to back each IOU for 1oz silver. Then your $ is only worth 0.5oz silver, so all prices double.

Or if you only have 0.0000001oz silver to back each IOU for 1oz silver. Then your $ is only worth 0.0001oz silver, so all prices get multiplied by 10,000.

Or if you’re like Weimar Germany, maybe you only have 0.000000000000001oz silver to back each IOU, because you never had any silver and/or all your silver left the country. Then your $ is only worth 0.000000000000001oz, so all prices get multiplied by 1,000,000,000,000,000.

scott t November 21, 2009 at 2:01 am

http://blog.mises.org/archives/011023.asp#c627219
the above link contained the below statements

t.r.k….”Future receipts of any kind cannot, by definition, count towards backing any currency.”

scott t…..”does the sproul currency say then that the future receipt, the communicated promise, can be an asset…the currency is backed the promises. but it may not redeemable backing?”

m sproul goes on to say to go on to say
“If a bank claims that a dollar will always be redeemable for 1 oz, then that promise becomes impossible with fractional reserves. But if the dollar limits its promise to “1 Ounce most of the time” then it’s not a false promise.”

ampersand mike sproul from the same thread says —
@Mike Sproul:
“Backing Federal Reserve Notes with “government debt” means backing them with the ability to steal the fruits of people’s labor, because that is the only way the government can pay the debt.”

then real m sproul says :”@Mike Sproul wasn’t done by me……Federal Reserve Notes are backed by the gold and bonds owned by the Fed. The bonds, in turn, are backed by the assets of the Federal Government, which means, mainly, taxes receivable.”

i guess m sproul says that what ever assets back (promises, silver, land, taxation/theft) ‘money’ is what the 1, 2, 5 , 10 and 100 on the fed notes denominates.
as long as the promise is contracted (not unknown, iow) between parties then its ok-ish..if i understand sproul right.
d
oes the federal reserve ‘buy assets’ in a way that noone else can? does this result in choice buying opportunities for a few but higher prices for many?
are these assets ones the market has shown that noone would buy – except the EZ-fed?
once the assets are bought buy the federal reserve does this allow the previous asset holders privalege and protection that poor asset purchases couldnt get me out of?
is it harmful , iow?

in a previous mises post there was information that said tha americans now pay much less (adjusted for inflation) for many goods than they did in the 70′s.

“when prices are adjusted for inflation, Americans today spend ’40% less on clothes, 20% less on food, more than 50% less on appliances, about 25% less on owning and maintaining a car’than they did during the early 1970s. Over that same period, Census Bureau tables show, US median household income rose by at least 18% in constant dollars…”
http://mises.org/Community/forums/t/11793.aspx

that sounds like inflation of money doing good…lowering consumer prices.

but this link http://www.lewrockwell.com/north/north555.html
says “after 1973, when real wages grew stagnant for two decades.”

P.M.Lawrence November 21, 2009 at 4:39 am

Newson wrote “cross-subsidization seems perfectly legitimate to me only if there is no legal restriction on new entries in banking. if one credit card company is oppressive with respect to merchants, or their clients, then another will spring up offering less onerous terms.”

But that’s not the issue, the issue is the companies using their leverage over merchants (helped by public ignorance) to throw a burden on non-clients of theirs (cash customers and customers of other credit card companies); the merchants could make discounts for cash a selling point, if they could overcome the leverage and if they got most of the saving – but the consumers would get that, and in many times and places the law favours the credit card companies, so it doesn’t happen. The “best” consumers can do is opt in and become credit card clients, getting at least some benefit from using credit cards as opposed to cash – even when cash is more cost effective, because there is no way that people can choose an option without the costs of credit cards. Even cash payers have to pay it, that’s the point.

Adam Knott November 21, 2009 at 10:09 am

Dr. Salerno:

“I would like to emphasize an important point that I may not have addressed with sufficient clarity in my article. The ideal of modern free bankers is a monetary and financial system based on a privately produced commodity money in which private fractional-reserve banks compete in issuing brand-name bank notes and demand deposits. There is indeed no room for a central bank in this system. However, for our current central-bank dominated fiat money system, free bankers have prescribed the “productivity norm” as the operating procedure of the central bank.”

Thank you for clarifying this point.

In a free banking atmosphere, couldn’t a private bank also be a 100% reserve bank? Are the free bankers calling for laws preventing Rothbardians from opening or patronizing 100% reserve banks?

Your clarifying comment implies that free banking isn’t a call for free banking, but a call specifically for fractional reserve banking. This wouldn’t be free banking. It would be a monopolistic system allowing only one form of banking, i.e., fractional reserve banking.

That is not what free banking means to many free market thinkers.

Secondly, in the current central bank dominated system, any policy recommendation whatsoever, if adopted, will harm the interests of some and further the interests of others. Anyone who recommends a particular course of policy action in the context of an involuntary monopoly system thus recommends harming some who cannot opt out of this system. But if free bankers are guilty of this, so is anyone who does not call for an end to the government monopoly on money. The Reisman artice published here recently, and citing Rothbard as authority, calls for policy recommendations under an involuntary government monopoly on money. Reisman calls for adjusting the monetary affairs of all people subject to this system without referring to the idea of free banking—the idea that people might choose currency and banking arrangements other than the present monopolistic system.

There is no “correct” way to structure or run an involuntary monetary system any more so than there is a “correct” way to run socialized medicine. Why can’t all libertarians call for an end to the monopoly on money and banking rather than arguing over the “correct” policy recommendations under monopoly?

Backing November 21, 2009 at 12:44 pm

“Federal Reserve Notes are backed by the gold and bonds owned by the Fed. The bonds, in turn, are backed by the assets of the Federal Government, which means, mainly, taxes receivable.”

How can you “back” money by future income? If that’s allowed, then you can back an infinite amount of money without causing price inflation.

Comments on this entry are closed.

Previous post:

Next post: