Study Guide to Man, Economy, and State with Power and Market

Chapter 12: The Economics of Violent Intervention in the Market 165
C. Secondary Developments of the Business Cycle
The demand for money may be affected during the
course of the business cycle, and this can make the adjustment
process more difficult.
D. The Limits of Credit Expansion
Under a commodity standard, credit expansion is
naturally limited by the need for redeemability. Even
under a fiat standard, individual banks always face the
possibility of a run. However, central banking greatly
expands the scope for credit expansion.
E. The Government as Promoter of Credit
Expansion
The government promotes credit expansion by weakening
the above checks. For example, government guarantees
of bank deposits lowers the likelihood of runs, and
central banking allows a uniform credit expansion on the
part of all member banks.
F. The Ultimate Limit: The Runaway Boom
In the face of hyperinflation, the public’s demand for
the fiat money drops precipitously, causing prices to rise
even more than one would expect from the increases in
supply. In extreme cases the currency will be abandoned
altogether.
G. Inflation and Compensatory Fiscal Policy
The various government programs to “fight inflation”
are absurd, since (price) inflation is caused by the
government’s expansion of the money supply.