Money, Bank Credit, and Economic Cycles - The Ludwig von Mises ...

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Central and Free Banking Theory 619under disadvantages, by encreasing money beyond its naturalproportion to labour and commodities, and therebyheightening their price to the merchant and manufacturer.And in this view, it must be allowed, that no bank could bemore advantageous, than such a one as locked up all themoney it received [this is the case with the Bank of AMS-TERDAM], and never augmented the circulating coin, as isusual, by returning part of its treasure into commerce. 34Equally valuable is Hume’s essay, “Of Interest,” devotedentirely to criticizing the mercantilist (now Keynesian) notionthat a connection exists between the quantity of money andthe interest rate. Hume’s reasoning follows:For suppose, that, by miracle, every man in GREATBRITAIN should have five pounds slipt into his pocket inone night; this would much more than double the wholemoney that is at present in the kingdom; yet there would notnext day, not for some time, be any more lenders, nor anyvariation in the interest. 35According to Hume, the influence of money on the interestrate is only temporary (i.e., short-term) when money isincreased through credit expansion and a process is initiatedwhich, once completed, causes interest to revert to the previousrate:The encrease of lenders above the borrowers sinks theinterest; and so much the faster, if those, who haveacquired those large sums, find no industry or commerce inthe state, and no method of employing their money but bylending it at interest. But after this new mass of gold and silverhas been digested, and has circulated through the whole state,affairs will soon return to their former situation; while the landlordsand new money-holders, living idly, squander abovetheir income; and the former daily contract debt, and thelatter encroach on their stock till its final extinction. Thewhole money may still be in the state, and make itself felt34 Ibid., pp. 284–85.35 Hume, “Of Interest,” Essays, p. 299.
620 Money, Bank Credit, and Economic Cyclesby the encrease of prices: But not being now collected intoany large masses or stocks, the disproportion between theborrowers and lenders is the same as formerly, and consequentlythe high interest returns. 36Hume’s two brief essays constitute as concise and correctan economic analysis as can be found. We may wonder howdifferent economic theory and social reality would have beenif Keynes and other such writers had read and understoodfrom the start these important contributions of Hume’s, andhad thus become immune to the outdated mercantilist ideaswhich, time and again, reappear and gain new acceptance. 37Compared to Hume’s, Adam Smith’s contributions mustlargely be considered an obvious step backward. Not onlydoes Smith express a much more positive opinion of papermoney and bank credit, but he also openly supports fractional-reservebanking. In fact Smith claims:What a bank can with propriety advance to a merchant orundertaker of any kind, is not, either the whole capital withwhich he trades, or even any considerable part of that capital;but that part of it only, which he would otherwise be obliged tokeep by him unemployed, and in ready money for answeringoccasional demands. 38The only restriction Smith places on the granting ofloans against demand deposits is that banks must use36 Ibid., pp. 305–06; italics added.37 Hayek has pointed out the surprising gaps in Keynes’s knowledge ofthe history of economic thought concerning monetary matters in eighteenth-and nineteenth-century England and has indicated that, hadKeynes’s knowledge been deeper, we would have been spared much ofthe clear regression Keynesian doctrines have represented. See F.A.Hayek, “The Campaign against Keynesian Inflation,” in New Studies inPhilosophy, Politics, Economics and the History of Ideas, p. 231.38 Adam Smith, An Inquiry into the Nature and Causes of the Wealth ofNations, vol. 1, p. 304; italics added. On the evolution of Adam Smith’sideas on banking, see James A. Gherity, “The Evolution of Adam Smith’sTheory of Banking,” History of Political Economy 26, no. 3 (Autumn,1994): 423–41.
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MONEY,BANK CREDIT,ANDECONOMIC CYCLE
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CONTENTSPREFACE TO THE THIRD ENGLIS
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xiiMoney, Bank Credit, and Economic
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xivMoney, Bank Credit, and Economic
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xviMoney, Bank Credit, and Economic
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xviiiMoney, Bank Credit, and Econom
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PREFACE TO THESECOND ENGLISH EDITIO
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Preface to the Second English Editi
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PREFACE TOTHE THIRDSPANISH EDITIONI
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Preface to the Third Spanish Editio
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xliiMoney, Bank Credit, and Economi
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INTRODUCTIONThe economic analysis o
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Introductionxlviiand foreign exchan
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IntroductionxlixThis book comprises
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Introductionrecurrent phenomenon. I
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Introductionand Professors Hans-Her
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4THE CREDITEXPANSION PROCESSThis ch
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6ADDITIONALCONSIDERATIONSON THE THE
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7A CRITIQUE OFMONETARIST ANDKEYNESI
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A Critique of Monetarist and Keynes
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9A PROPOSAL FOR BANKINGREFORM: THE
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A Proposal for Banking Reform:The T
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BIBLIOGRAPHYAbrams, M.A., Money in
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Bibliography 815Bajo Fernández, M.
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Bibliography 817Borch, K.H., Econom
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Bibliography 819Coronel de Palma, L
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Bibliography 821N. Durlauf and Lawr
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Bibliography 823Galiani, F., Della
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Bibliography 825Graham, F.D., “Pa
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Bibliography 827——, Prices and
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Bibliography 829translation by N. K
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Bibliography 831——, “Keynes
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Bibliography 833Russian edition by
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Bibliography 835Keeler, J., “Empi
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Bibliography 837——, “On Crisi
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Bibliography 839——, “Professo
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Bibliography 841Miller, H.E., Banki
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Bibliography 843Neira, Alonzo, M.A.
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Bibliography 845Raguet, C., “Repo
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Bibliography 847——, “The Myth
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Bibliography 849——, “Banking
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Bibliography 851M.C. Marcuzzo (Chel
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Bibliography 853——, “A Critiq
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Bibliography 855Walker, A., The Sci
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INDEX OF SUBJECTSAccelerator princi
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Index of Subjects 859Banking reform
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Index of Subjects 861objection to t
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Index of Subjects 863Goal, concept
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Index of Subjects 865See also Fract
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Index of Subjects 867Plan, definiti
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Index of Subjects 869Tragedy of the
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