Quotes from The Theory of Free Banking

By George Selgin (1988)

• The Bank of England was in a sensitive position: if it overissued, it lost specie abroad, which eventually necessitated either contraction or suspension of payments. If it underissued, it made the conversion of deposits to notes at other English banks impossible.#
  EconomicsBankingHistory
• Precisely what Mises means by commodity credit is not clear. If the phrase refers to bank issues backed 100 percent by reserves of commodity money (which would make it the complement of what Mises calls “fiduciary” or “circulation” credit) then it does not refer to a form of credit at all. A bank holding 100 percent reserves against all of its liabilities is not a credit-granting institution, but a warehouse.#
  MoneyEconomics
• Many past and present American monetarists would probably agree with the theoretical views [that money supply should counteract changes in velocity]. Their preference for other policies—for price-level stabilization or a fixed money growth rate rule—stems, not from any theoretical disagreement, but from their view that these policies provide the best achievable approximation to the ideal of a truly demand-elastic money supply.#
  EconomicsMoney
• When the expansion or contraction of bank liabilities proceeds in such a way as to be at all times in agreement with changing demands for inside money, the quantity of real capital funds supplied to borrowers by the banks is equal to the quantity voluntarily offered to the banks by the public. Under these conditions, banks are simply intermediaries of loanable funds. Thus a direct connection exists between the conditions for equilibrium in the market for balances of inside money and those for equilibrium in the market for loanable funds. #
  EconomicsMoney
• The aggregate demand to hold balances of inside money is a reflection of the public’s willingness to supply loanable funds through the banks whose liabilities are held. To hold inside money is to engage in voluntary saving. As George Clayton notes, whoever elects to hold bank liabilities received in exchange for goods or services “is abstaining from the consumption of goods and services to which he is entitled. Such saving by holding money embraces not merely the hoarding of money for fairly long periods by particular individuals but also the collective effect of the holding of money for quite short periods by a succession of individuals.”#
  EconomicsMoney
• Bank borrowers generally acquire money balances only to spend them immediately on goods and services. The demand for money, properly understood, refers to the desire to hold money as part of a financial portfolio. A bank borrower contributes no more to the demand for money than a ticket agent contributes to the demand for plays and concerts; only holders of money or actual occupants of concert seats contribute to demand.#
  EconomicsMoney
• Competition in the supply of base money is no less desirable than competition in the supply of bank liabilities, including bank notes, redeemable in base money.#
  EconomicsMoneyBanking
• Changes in the desire to hold inside money reflect the public’s willingness to lend “real capital” to and through the banking system.#
  EconomicsBanking
• Central banks’ ability to cut short the supply of currency once they possess a monopoly of note issue creates the need for them to serve as lenders of last resort in the first place.#
  EconomicsBanking
• Relative inflation does not reveal itself in a rising consumer price index, although it does result in an upward movement in the prices of factors of production.#
  EconomicsMoney
• A price index does not itself reveal whether its movements reflect changes in the conditions of real output or are symptoms of monetary disequilibrium.#
  Economics
• A general increase in the demand for inside money is equivalent to a general decline in the rate of turnover of inside money.#
  MoneyEconomics
• It is perfectly possible that fiduciary media may arise from loans or investments involving transfer credit only [as opposed to created credit]. The expansion of bank liabilities may represent a response to greater abstinence by money holders and, hence, to a fall in the “natural” rate of interest.#
  MoneyBankingEconomics
• Offsetting price changes due to changes in productive efficiency would not preserve monetary equilibrium.#
  EconomicsMoney

Benjamin Klein, “The Competitive Supply of Money” (1974)

• If confidence for fiduciary [fiat] money costs as much to produce as the commodity, the social savings [from replacing commodity-money backed liabilities with fiat money] would be zero.#
  MoneyEconomics

Jacob Viner, “Mr. Keynes on the Causes of Unemployment” (1935)

• In a world organized in accordance with Keynes’ specifications there would be a constant race between the printing press and the business agents of the trade unions, with the problem of unemployment largely solved if the printing press could maintain a constant lead and if only volume of employment, irrespective of quality, is considered important.#
  Economics

Thomas Sowell, Knowledge and Decisions (1980)

• It is not merely the enormous amount of data that exceeds the capacity of the human mind. Conceivably, this data might be stored in a computer with sufficient capacity. The real problem is that the knowledge needed is a knowledge of subjective patterns of trade-off that are nowhere articulated, not even to the individual himself. . . . There is no way for such information to be fed into a computer, when no one has such information in the first place.#
  Economics