AlexMerced
03-14-2010, 12:47 AM
So you know how there is those pocket constitutions we hand out, I thought why not have something similar to that summarizing a lot of the ideas in austrian economics to introduce people to Mises, Rothbard and the rest of the gang.
So I've created... http://www.lulu.com/content/paperback-book/economics-and-liberty-a-pocket-guide-for-beginners/8445241
here's an excerpt from the book
Chapter 8 – The State and Money
Up until now money substitutes have been managed by competing banks. If the reserve ratio of the bank began to get too high I would withdraw my coins from the bank and deposit them in another bank. This mechanism keeps the banks from causing too much inflation or increasing the money supply.
Leaving this function of storing money and creating money substitutes to private banks is important in keeping trade from sudden stops. This free market constraint on money can really inhibit the ability for the state to expand its operations to push the values of those running the state.
The state can only increase taxation by so much in order to increase their resources. With the threat of violence, they may create a monopoly of money and money substitutes. Typically this monopoly is given to a central bank who will serve as the bank of all the private banks, or the bankers' bank. When banks take on too much risk they can just borrow money from the bankers' bank or central bank. This makes banks willing to take on more risk and leaves no alternative for consumers since all banks are tied to one central bank.
How does this help the state fund its operations? If the state can't raise enough tax revenues to pay for all its operations it will have to borrow money. When a state or enterprise needs to borrow large sums of money they issue bonds which are sold and then later repaid. Like anyone else borrowing money the state must pay interest and if they borrow a lot of money it will cause interest rates to rise since there will be a lot less capital to go around.
In order to avoid paying higher interest the central bank can print more money substitutes and give them to the banks in exchange for the states bonds. This creates demand for the state's debt since they can be traded for these newly printed money substitutes. This increases the perceived amount of capital allowing the state to borrow money at lower interest rates.
This will cause several problems including the inflation problems we addressed earlier. The artificial demand for the state's bonds means less demand for the bonds or debt of enterprises, which allows for less investment into innovation. Interest rates are being pushed down even though capital is becoming more sparse; it sends the wrong signal to entrepreneurs thus causing over investment. This all happens because the state wants to expand its operations.
As this central bank warehouses coins, it can only raise its reserve ratio versus its Vat coin reserves so much. Eventually the state will cut the ties to the underlying money. It will declare that by the decree and the threat of violence that the money substitutes is money and is the only money. Now only this paper or fiat money printed by the central bank can be used in exchange. This allows the central bank to increase the money supply unrestrained by its reserves of the previous money.
This facilitates for unrestrained growth of the state to tax and borrow as much as it wants. Now people's wealth is entirely dependent on the central bank's ability to restrain the money supply from growing too rapidly. The incentives for the central bank are generally the opposite of this. What eventually happens is that the bank will grow the money supply so much that the paper money becomes worthless. Now the people have nothing to trade in its place and no way to prepare for such an event since there is no alternative allowed.
As the state begins getting more and more involved in the money supply the more it will try to take control. By taking control of the money supply we destroy the wealth of the people who the state is supposed to serve. This also creates the wrong signals to entrepreneurs of value and available capital. The state's increasing involvement in money, even indirectly through a central bank can only spell out poverty in the long term.
So I've created... http://www.lulu.com/content/paperback-book/economics-and-liberty-a-pocket-guide-for-beginners/8445241
here's an excerpt from the book
Chapter 8 – The State and Money
Up until now money substitutes have been managed by competing banks. If the reserve ratio of the bank began to get too high I would withdraw my coins from the bank and deposit them in another bank. This mechanism keeps the banks from causing too much inflation or increasing the money supply.
Leaving this function of storing money and creating money substitutes to private banks is important in keeping trade from sudden stops. This free market constraint on money can really inhibit the ability for the state to expand its operations to push the values of those running the state.
The state can only increase taxation by so much in order to increase their resources. With the threat of violence, they may create a monopoly of money and money substitutes. Typically this monopoly is given to a central bank who will serve as the bank of all the private banks, or the bankers' bank. When banks take on too much risk they can just borrow money from the bankers' bank or central bank. This makes banks willing to take on more risk and leaves no alternative for consumers since all banks are tied to one central bank.
How does this help the state fund its operations? If the state can't raise enough tax revenues to pay for all its operations it will have to borrow money. When a state or enterprise needs to borrow large sums of money they issue bonds which are sold and then later repaid. Like anyone else borrowing money the state must pay interest and if they borrow a lot of money it will cause interest rates to rise since there will be a lot less capital to go around.
In order to avoid paying higher interest the central bank can print more money substitutes and give them to the banks in exchange for the states bonds. This creates demand for the state's debt since they can be traded for these newly printed money substitutes. This increases the perceived amount of capital allowing the state to borrow money at lower interest rates.
This will cause several problems including the inflation problems we addressed earlier. The artificial demand for the state's bonds means less demand for the bonds or debt of enterprises, which allows for less investment into innovation. Interest rates are being pushed down even though capital is becoming more sparse; it sends the wrong signal to entrepreneurs thus causing over investment. This all happens because the state wants to expand its operations.
As this central bank warehouses coins, it can only raise its reserve ratio versus its Vat coin reserves so much. Eventually the state will cut the ties to the underlying money. It will declare that by the decree and the threat of violence that the money substitutes is money and is the only money. Now only this paper or fiat money printed by the central bank can be used in exchange. This allows the central bank to increase the money supply unrestrained by its reserves of the previous money.
This facilitates for unrestrained growth of the state to tax and borrow as much as it wants. Now people's wealth is entirely dependent on the central bank's ability to restrain the money supply from growing too rapidly. The incentives for the central bank are generally the opposite of this. What eventually happens is that the bank will grow the money supply so much that the paper money becomes worthless. Now the people have nothing to trade in its place and no way to prepare for such an event since there is no alternative allowed.
As the state begins getting more and more involved in the money supply the more it will try to take control. By taking control of the money supply we destroy the wealth of the people who the state is supposed to serve. This also creates the wrong signals to entrepreneurs of value and available capital. The state's increasing involvement in money, even indirectly through a central bank can only spell out poverty in the long term.