MARKETS

There is a populist idea of money printing. The idea is that banks can just print what they want, enriching themselves in a massive fraud. But, does it really work this way? Let’s start with a simple case, which is clearly not money printing. We will build a series of...

Most people assume that prices move as a result of changes in the money supply. Instead, let’s look at the effect of changes in interest.

The real long-run goal of monetary reform should be the denationalization of money. That is, the separation of money from the state by ending of central banking, altogether. In its place would emerge private, competitive free banking – a truly market-based money and banking system.

Free bankers have been fighting a war on two fronts. On one they face champions of central banking and managed money. On the other they struggle against advocates of 100-percent reserve banking. Although the second front is a lot smaller than the first, it’s far from being unimportant, in part because the battle there is being fought against people who generally favor free markets, who might have been expected to join rather than to oppose our cause.

Scott Sumner said he had a “modest” proposal: there should be a highly liquid futures market in Nominal Gross Domestic Product (NGDP). Let’s look at that.

The flip side of falling interest rates is the rising price of bonds. Bonds are in an endless, ferocious bull market. Why do I call it ferocious? Perhaps voracious is a better word, as it is gobbling up capital like the Cookie Monster jamming tollhouses into his maw. There are several mechanisms by which this occurs, let’s look at one here.

Many people agree that it’s important to move to a free market in money (i.e. the gold standard). They also say that it’s just as important to fight bad taxes and regulation. In their view, government interference in the economy is like friction in a car. The more friction you add, the slower the car goes. One source of friction is much the same as any other.

Let me explain why money doesn’t quite work that way, using a few examples.

Governments and their central banks have usurped market-based money systems to serve the plundering purposes of kings, parliaments, and special interest groups.

Money, Banking, and the Business Cycle provides a comprehensive defense of Austrian business cycle theory (ABCT). It shows that a free market in money and banking will create the most stable banking and monetary system that is possible.

If you borrow then it’s not income. This is why no one in his right mind borrows to buy consumer goods. Those who try cannot sustain it for long… But what if someone else borrows?