The Mystery of Banking Murray N. Rothbard 1 The Mystery of Banking Murray N. Rothbard Richardson & Snyder 1983 First Edition The Mystery of Banking ©1983 by Murray N. Rothbard Library of Congress in publication Data: 1. Rothbard, Murray N. 2. Banking 16th Century-20th Century 3. Development of Modern Banking 4. Types of Banks, by Function, Bank Fraud and Pitfalls of Banking Systems 5. Money Supply. Inflation The Mystery of Banking Murray N. Rothbard 2 Contents Chapter I Money: Its Importance and Origins 1 1. The Importance of Money 1 2. How Money Begins 3 3. The Proper Qualifies of Money 6 4. The Money Unit 9 Chapter II What Determines Prices: Supply and Demand 15 Chapter III Money and Overall Prices 29 1. The Supply and Demand for Money and Overall Prices 29 2. Why Overall Prices Change 36 Chapter IV The Supply of Money 43 1. What Should the Supply of Money Be? 44 2. The Supply of Gold and the Counterfeiting Process 47 3. Government Paper Money 51 4. The Origins of Government Paper ,Money 55 Chapter V The Demand for Money 59 1. The Supply of Goods and Services 59 2. Frequency of Payment 60 3. Clearing Systems 63 4. Confidence in the Money 65 5. Inflationary or Deflationary Expectations 66 Chapter VI Loan Banking 77 Chapter VII Deposit Banking 87 1. Warehouse Receipts 87 2. Deposit Banking and Embezzlement 91 [...]... before they spent their money, lost by the deal, for they found that their buying prices rose before they had the chance to spend the increased amounts of money In short, society did not gain overall, but the early spenders benefited at the expense of the late spenders The 34 The Mystery of Banking Murray N Rothbard profligate gained at the expense of the cautious and thrifty: another joke at the expense... money, then, will lower the price or purchasing power of the dollar, and thereby increase the level of prices A fall in the money supply will do the opposite, lowering prices and thereby increasing the purchasing power of each dollar The other factor of change in the price level is the demand for money Figures 3.6 and 3.7 depict what 30 The Mystery of Banking Murray N Rothbard happens when the demand... across the board The purchasing power of the dollar is now: Purchasing power of the dollar is therefore the inverse of the price level Figure 3.1 Supply of and Demand for Money Let us now put PPM on the Y-axis and quantity of dollars on the X-axis We contend that, on a complete analogy with supply, demand, and price above, the intersection of the vertical line indicating the supply of money in the country... recoinage, the king changes the definition of the fur from 20 to 16 grams He then pockets the extra 20% of gold, minting the gold for his own use and pouring the coins into circulation for his own expenses In short, the number of grams of gold in the society remains the same, but since people are now accustomed to use the name rather than the weight in their money accounts and prices, the number of rurs... If the price of bread is 70 cents a loaf, this means also that the purchasing power of a loaf of bread is 70 cents A loaf of bread can command 70 cents in exchange on the market The price and purchasing power of the unit of a product are one and the same [p 30] Therefore, we can construct a diagram for the determination of overall prices, with the price or the purchasing power of the money unit on the. .. Why does the price level ever change, if the supply of money and the demand for money determine the height of overall prices? If, and only if, one or both of these basic factors the supply of or demand for money—changes Let us see what happens when the supply of money changes, that is, in the modern world, when the supply of nominal units changes rather than the actual weight of gold or silver they used... worlds; they are both plain economics and governed by the same laws [p 42] [p 43] 32 The Mystery of Banking Murray N Rothbard Chapter IV The Supply of Money To understand chronic inflation and, in general, to learn what determines prices and why they change, we must now focus on the behavior of the two basic causal factors: the supply of and the demand for money The supply of money is the total number of. .. assume, then, that the supply of dollars, pounds, or francs increases, without yet examining how the increase occurs or how the new money gets injected into the economy Figure 3.4 shows what happens when M, the supply of dollars, of total cash balances of dollars in the economy, increases: 28 The Mystery of Banking Murray N Rothbard Figure 3.4 Increase in the Supply of Money The original supply of money,... prices because of changing population or for any other reason The “problem” of the proper supply of money is not a problem at all 2 The Supply of Gold and the Counterfeiting Process Under a gold standard, where the supply of money is the total weight of available gold coin or bullion, there is only one way to increase the supply of money: digging gold out of the ground An individual, of course, who... and E means the sum or aggregate of each of the Ms After debasement, since the money unit is the name (dinar) rather than the actual weight (specific number of gold grams], the number of dinars or pounds or maravedis will increase, and thus increase the supply of money M will be the sum of the individual dinars held by each person, and will increase by the extent of the debasement As we will see later, . The Mystery of Banking Murray N. Rothbard 1 The Mystery of Banking Murray N. Rothbard Richardson & Snyder 1983 First Edition The Mystery of Banking ©1983 by Murray N. Rothbard Library of. lighten, the definition of the currency unit; say, to change the definition of the pound sterling from 16 to 14 ounces of silver. This profitable process of the government’s repeatedly lightening the. short, the number of grams of gold in the society remains the same, but since people are now accustomed to use the name rather than the weight in their money accounts and prices, the number of rurs