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... their daily lives, and there would be a shortage of cash balances compared to the supply of money available The demand for cash balances would be greater than the total supply People would then try to alleviate this imbalance, this shortage, by adding to their cash 27 The Mystery of Banking Murray N Rothbard balances They can only do so by spending less of their income and adding the remainder to their... 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. .. drives down the purchasing power of the dollar until people are willing to hold the new dollars in their cash balances What if the supply of money, M, decreases, admittedly an occurrence all too rare in the modern world? The effect can be seen in Figure 3.5 29 The Mystery of Banking Murray N Rothbard Figure 3.5 A Fall in the Supply of Money In the unusual case of a fall in the supply of money, then, total... 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... disappear from the shelves, and we would experience a shortage of coffee (shortage being present when something cannot be purchased at the existing price) The coffee market would then look like this (Figure 2.5): 17 The Mystery of Banking Murray N Rothbard Figure 2.5 Shortage [p 21] Thus, at the price of $1, there is a shortage of 4 million pounds, that is, there are only 10 million pounds of coffee available... 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. .. example, suppose that there are four commodities in the society and that their prices are as follows: In this society, the PPM, or the purchasing power of the dollar, is an array of alternatives inverse to the above prices In short, the purchasing power of the dollar is: 24 The Mystery of Banking Murray N Rothbard Suppose now that the price level doubles, in the easy sense that all prices double Prices are... 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 will have increased by 20% The money supply in rurs, therefore, has gone up by 20%, and, as we shall see later on, this will drive up prices in the economy in terms of rurs Debasement, then, is the arbitrary . 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. different. By means of the seemingly innocuous analytical device known in money and banking classes as the T-account, the The Mystery of Banking Murray N. Rothbard 6 student is morally disarmed. The. 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