The Mystery Of Banking

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The Mystery Of Banking Page 29

by Murray N. Rothbard

problem under barter, 4

  business cycle, fractional reserve banking behind, 103, 114, 120–22, 203, 209

  C

  Cantillon effect, xvii, 49–51

  cash

  balances, average, 60–63

  demand for, 32–35

  as contractionary pressure on banking system, 141–48

  determinants of, 147

  central banking. See banking

  Cernuschi, Henri, 124, 279n, 280

  certificates of deposit (CDs), 255

  Chase, Salmon P, 220, 222–23

  checking deposits. See demand deposits

  Checkland, Sydney, 271, 273, 274, 275

  China

  deposit banking in, 91

  government paper money in, 56

  cigarettes, as money, 7

  Civil War, American, 219–20

  claim transaction, deposit as, 87

  Clapham, John, 180–81

  clearing systems

  element of demand for money, 63–65

  in the United States, 216–18

  Cobbett, William, 284n

  Cobden, Richard, 281–83

  coincidence of wants

  money as solution to, 5

  problem under barter, 4 See also fractional reserve banking

  confidence

  element of demand for money, xvii, 65–66

  fractional reserve banking and, 103

  free banking and, 112–14

  Constitution of the United States, 193

  Continentals, depreciation of, 55

  Cooke, Henry, 223–24

  Cooke, Jay, 220–21, 223, 228–30

  counterfeiting

  fractional reserve banking as, 98–101

  free banking and, 185n

  gold standard and 48–51

  government involvement in, 51–55

  warehouse receipts, 89

  “crack-up boom,” 72

  credit cards, effect on demand for money, 64

  credit expansion

  checks on, 111–24

  end result of, xvii

  international limits on, 120

  needs of trade doctrine of, 287, 288

  credit transaction, loan as, 87

  currency blocs, 249, 250

  Currency School, 186–88, 277–83

  D

  Dallas, Alexander J., 201

  debasement, of money, 11–13, 43

  deflation. See money supply, contraction of

  deflationary expectations. See inflationary and deflationary expectations

  demand and supply. See supply and demand

  demand curves

  downward sloping, 16–18, 19

  for money, 32 shape of, 17n

  demand deposits. See deposits

  demand

  changes in, 24–26

  law of, 16–18

  criteria for money commodity, 6

  money supply’s effect on, 27–28

  schedule, 16

  Democratic Party, 207, 214

  Democratic-Republicans, factions within, 194–95

  deposits

  bailments and, 87

  demand, 2

  bank notes vs., 106

  British Currency School on, 188, 280

  fractional reserve banking and, 104–10

  fungibility of, 89

  general vs. special, 93–94

  dinar, debasement of, 12

  discount loans (rediscounts), 149–53

  penalty levels, 153

  window, 151–53

  divisibility, criteria for money commodity, 6–7

  dollars

  definition of, 10, 262

  history of term, 9, 9n

  durability, criteria for money commodity, 7

  E

  Economics textbook, xvii, xix

  economists, intellectual shift of, 232

  Ellis, Richard E., 195n

  embezzlement, 88–89

  deposit banking and, 90–94

  England

  banking system compared with that of Scotland, 184–86, 269–70

  central banking in, 177–83, 186–90

  deposit banking in, 88

  equity capital, 77

  exchange rates, gold standard and, 9, 10

  F

  Federal Deposit Insurance Corporation (FDIC), 147, 248, 264

  federal funds market, 151–52

  Federal Reserve Credit, 259–60

  Federal Reserve System, xv, xix, 235–46

  forecasting its actions, 1

  image of, xv–xvi, xx xxi

  liquidation of, 263

  Notes of, 238

  origins, xx

  reserves determined by, 141–60

  Federalists, 193

  Fetter, Frank W., 275, 282, 285

  fiat money standard

  Bank of England and, 182, 288

  origin of, 54

  post-Civil War, 219

  First Bank of the United States, 193–95

  Fourth National Bank of New York, 228

  fractional reserve banking. See banking

  free banking. See banking

  free price system, role in clearing markets, 20, 21

  frequency of payment, element of demand for money, 60–63

  Fullarton, John, 289

  G

  Gage, Lyman J., 233

  Germany, hyperinflation (1923), 68, 72, 73

  Gilbart, James William, 286–88

  Girard, Stephen, 201

  gold

  demand for, effect on money supply, 148–49

  denationalized, 262–63

  inflows of, 249

  market, 251

  supply of

  counterfeiting and, 47–51

  on the free market, 47–48

  gold and silver, dominant as moneys, 8

  gold certificates, 86, 238

  gold exchange standard, 244, 249–50

  of Great Britain, 244–45

  gold standard

  America taken off the, 248

  central banking and, 126, 132

  classical, 122

  inflationary check, 54

  plans, 267

  return to, 261–66

  goldsmiths, safekeeping of gold, 88n, 90

  Gouge, William M., 187, 204

  government

  debt, 172–76, 212, 220–23, 225

  deficits

  central banking and, 170–76

  crowding out effect of, 171

  paper money

  gold circulating alongside, 55–56

  origins of, 51–55, 55–58

  Treasury cash, 171

  securities, object of open market operations, 157

  Great Britain

  gold exchange standard of, 244–45 See also England; Scotland

  Great Depression, xx, 248

  greenbacks, 55, 219

  Greenspan, Alan, xv

  H

  Hamilton, Alexander, 193

  Hammond, Bray, 216

  Harley, Robert, 181

  Harrison, George L., 241

  Havenstein, Rudolf, 72–73

  Hayek, F.A., 267

  Hilton, Boyd, 288n

  Holdsworth, John Thom, 196n

  Hoover, Herbert, 248

  Hübner, Otto, 279

  Hull, Cordell, 249, 250

  hyperinflation, 68, 72

  I

  Independent Treasury System, 214

  indirect exchange, money as instrument of, 5

  indivisibilities

  money as solution to, 5

  problem under barter, 4

  inflation

  counterfeiting as, 49

  exporting, 250 See also price inflation

  inflationary and deflationary expectations, element of demand for money, 66–74

  international trade

  check on credit expansion, 120–22

  disrupted, 249

  interventionism, dynamics of, 222

  investment banking. See banking


  investment, safekeeping vs., 93

  J

  Jackson, Andrew, 208

  Jevons, William Stanley, 94

  K

  Kirkland, Edward, 221

  Klein, Benjamin, 185n

  Klein, John, 229

  Knox, John Jay, 218n

  L

  Laffer, Arthur, 267

  legal tender laws, 53, 179, 183, 194, 26

  Lehrman, Lewis, 267

  liabilities, 77

  life insurance cash surrender values, 257

  loan banking. See banking

  loans

  advance, 149–53

  by central bank, 149–53

  short term, 151

  M

  Manchester School, 281–82

  maravedi, debasement of, 12

  Massachusetts, government paper money in, 56–57

  mercantilism, 191, 193

  Mexico, 210

  microeconomics, price theory and, 15

  minting, competitive, 264

  Mises, Ludwig von

  on credit and claim transactions, 99n

  on credit expansion, xvii

  on the definition of gold, 262

  on free banking, 124, 278, 279n

  on the inflationary process, 68, 281n

  on the optimal money supply, 45

  regression theorem of, 3

  on the specie flow price mechanism, 122

  Theory of Money and Credit,xviii

  value and price theory, xviii

  Modeste, Victor, 280

  monetarists, 252, 258

  monetary base, 258

  Monetary Control Act (1980), 157

  monetizing the debt, 172–75, 216

  directly from the Federal Reserve, 174–76

  money

  certification of, 10

  circulation of foreign, 10n

  commodities used as, 6

  commodity, xix

  debasement of, 11–13

  demand curve for, 32

  demand for

  changes in, 39–40

  elements of, 59–74

  fiat, xix

  as final payment, 64, 256

  importance of, 1–2

  medium of exchange, 5

  origin of, 3–6

  price level and, 29–41

  purchasing power of money (PPM), 30–35

  changes in, 35–41

  effect of frequency of payments on, 62

  equilibrium, 31–35

  qualities of, 6–8

  return to sound, 261–68

  shortage of, 34–35, 71

  surplus of, 33

  money market

  equilibrium in, 35–41

  funds, 255–56

  money supply, 43–58

  “Angel Gabriel” model of, 45–46

  attention to, 1

  changes in, 36–38

  contraction of, 128, 141–45, 203–04, 212

  data on, 257–59

  definition of, 2, 252–57

  effect of money warehouses on, 86

  elasticity of, 230–31

  elements of, 57–58, 132

  expansion of, 131, 145–46

  optimal, 44–47

  population growth and, 47

  redistribution and, xvii, 46–47

  reserves and, 141–60

  sum of cash balances, 12–13 See also pyramiding

  monetary theory, xviii

  money unit, 8–13

  as name, 11–13

  unit of weight, 10

  money warehouse receipts, 85–89

  bank notes and deposits, 104–10

  as gold certificates, 86

  Mongols, paper money of, 65

  morality, banking and, xvii

  Morgan, House of, 242–43, 246

  Morris, Robert, 191–93

  Mushet, Robert, 284

  N

  National Banking Acts, 222–23

  National Banking System, 219–34

  Nationalists, 191–93

  newspapers, alliance with Cooke brothers, 223–24

  Norman, Montagu, 245–46

  Northern Pacific Railroad, 229

  Nussbaum, Arthur, 94n

  O

  open market operations, 153–60

  P

  Panic of 1819, 204–06

  Panic of 1873, 229, 230

  Panic of 1907, 230, 233

  paper money. See government paper money

  parallel standards, 9n

  Parnell, Henry Brooke, 284

  Paterson, William, 178–79

  Peel, Robert, 186, 287–88

  Peel’s Act (1844), 186–89, 286, 290

  Peel’s Act (1845), 189–90, 286, 290

  Phillips, C.A., 237, 240

  portability, criteria for money commodity, 7

  pound sterling

  debasement of, 11–12

  definition of, 8

  PPM. See purchasing power of money

  price inflation, 209–10, 242, 287

  causes of, 28, 56, 158

  price level. See purchasing power of money

  price-fixing, charge against gold standard, 10

  prices

  changes in, 22–28

  definition of, 8

  determinants of, 15–41

  dollar/gold, 262–63

  equilibrium, 21–22

  falling, 211–12, 213

  money, 6

  as purchasing power, 29

  rationing function of, 23

  sticky, 213n

  profit-loss motive, role in clearing markets, 20–21

  public works, 216

  purchasing power of money. See money

  purchasing power, 29

  pyramiding

  under the Bank of the United States, 194, 197, 208–10

  under Bretton Woods system, 250

  under the Federal Reserve, 236, 260–61

  under the National Banking System, 225–26, 228, 229 See also money supply, expansion of

  Q

  Quebec, government paper money in, 56n

  R

  Raguet, Condy, 3, 276n

  Randolph, John, of Roanoke, 200–01

  rationing, prices and, 23

  Raymond, Daniel, 187

  recession, 213

  gold inflow during, 121–22

  inflationary, 249

  redeemability

  of deposits, 254–55

  of dollars, 261

  redistribution

  central banking and, xvii

  fractional reserve banking and, 101

  money supply and, 46–47, 49–51, 53

  Reichsbank, 72–74

  Rentenmark, 73–74

  reserve ratio, 128

  reserve requirements, 134, 137–38, 227, 238

  reserves

  central banking and, 141–60

  definition of, 95

  total bank, 258–59

  Ricardo, David, 276n

  Richardson & Snyder, xvi

  Richardson & Steirman, xvi

  Rockoff, Hugh, 215

  Roosevelt, Franklin Delano, 248

  S

  savings bonds, 256–57

  savings deposits, 238–41, 253–54

  Scotland, free banking in, 183–86, 189–90, 269–91

  Scott, Walter, 283n

  scriveners, 84

  Scrope, George Poulett, 284–86

  Second Bank of the United States, 198–206

  disestablishment, 208

  inflationary record, 208–10

  seigniorage, 11n

  Sherman, John, 222

  shortages, 20–21

  of money, 34–35

  silver

  inflow of, 210 See also gold and silver

  Sinclair, John, 284–85

  Smith, John Benjamin, 281–82

  Smith, Vera C., 188–89, 215, 277, 279

  Smithsonian Agreement, 251–52

  South Sea Bubble, 181

  South Sea Company, 181

&n
bsp; Spahr, Walter E., 99

 

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