Economics Dictionary of ArgumentsHome
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| Central bank: A central bank is a government-appointed independend institution responsible for overseeing a country's monetary system and financial stability. It manages the currency supply, regulates commercial banks, and sets interest rates to achieve economic objectives such as price stability and full employment._____________Annotation: The above characterizations of concepts are neither definitions nor exhausting presentations of problems related to them. Instead, they are intended to give a short introduction to the contributions below. – Lexicon of Arguments. | |||
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Ludwig von Mises on Central Bank - Dictionary of Arguments
Rothbard IV 16 Gold Standard/Central Banks/Mises/Rothbard: (…) [For von Mises] in contrast to the views of most economists then and now, that “money” is not simply arbitrary units or pieces of paper as defined by the government: “dollars,” “pounds,” “francs,” etc. Money must have originated as a useful commodity: as gold, silver, or whatever. The original money unit, the unit of account and exchange, was not the “franc” or the “mark” but the gold gram or the silver ounce. Rothbard IV 17 This analysis, combined with Mises’s demonstration(1) of the unmitigated social evils of the government’s increase of the supply of arbitrarily produced “dollars” and “francs,” points the way for a total separation of government from the monetary system. For it means that the essence of money is a weight of gold or silver, and it means that it is quite possible to return to a world when such weights will once again be the unit of account and the medium of monetary exchanges. A gold standard, far from being a barbarous fetish or another arbitrary device of government, is seen able to provide a money produced solely on the market and not subject to the inherent inflationary and redistributive tendencies of coercive government. A sound, non-governmental money would mean a world where prices and costs would once more be falling in response to increases in productivity. >Money/Mises, >Money supply/Mises, >Marginal utility/von Mises. Central Banks/money supply/banking system/von Mises/Rothbard: Mises also demonstrated the role of banking in the supply of money, and showed that free banking, banking free from government control and dictation, would result not in wildly inflationary expansion of money, but in banks that would be forced by demands for payment into a sound, non-inflationary policy of “hard money.” Tradition: Most economists have defended Central Banking (control of banking by a governmental Rothbard IV 18 bank, as in the Federal Reserve System) as necessary for the government to restrict the inflationary tendencies of private banks. MisesVsTradition: But Mises showed that the role of central banks has been precisely the opposite: to free the banks from the stringent free-market restrictions on their activities, and to stimulate and propel them into inflationary expansion of their loans and deposits. Central banking, as its original proponents knew full well, is and always has been an inflationary device to free the banks from market restraints. Rothbard IV 55 Mises’s article on the gold standard proved highly controversial. He called for a de jure return in Austria-Hungary to gold redemption as a logical conclusion of the existing de facto policy of redeemability. In addition to running up against advocates of inflation, lower interest rates, and lower exchange rates, Mises was surprised to face ferocious opposition by the central bank, the Austro-Hungarian Bank. >Money supply/Mises, >Quantity theory/Mises. Rothbard IV 60 Central Banks/inflation/Mises/Rothbard: In addition to his feat in integrating the theory of money with general economics and placing it on the micro-foundations of individual action, Mises, in Money and credit, transformed the existing analysis of banking. Returning to the Ricardian-Currency School tradition, he demonstrated that they were correct in wishing to abolish inflationary fractional-reserve credit. Mises distinguished two separate kinds of functions undertaken by banks: channeling savings into productive credit ("commodity credit"), and acting as a money-warehouse in holding cash for safekeeping. Both are legitimate and non-inflationary functions; the trouble comes when the money-warehouses issue and lend out phony warehouse receipts (notes or demand deposits) to cash that does not exist in the bank's vaults ("fiduciary credit"). These "uncovered" demand liabilities issued by the banks expand the money supply and generate the problems of inflation. Mises therefore favored the Currency School approach of 100 percent specie reserves to demand liabilities. He pointed out that Peel's Act of 1844, established in England on Currency School principles, failed and discredited its authors by applying 100 percent reserves only to bank notes, and not realizing that demand deposits were also surrogates for cash and therefore functioned as part of the money supply. Mises wrote his book at a time when much of the economics profession was still not sure that demand deposits constituted part of the money supply. 1. Ludwig von Mises. 1912. The Theory of Money and Credit (Theorie des Geldes und der Umlaufsmittel, Translated by H.E. Batson in 1934; reprinted with “Monetary Reconstruction» (New Haven, Conn.: Yale University Press, 1953). Reprinted by the Foundation for Economic Education, 1971; reprinted with an Introduction by Murray N. Rothbard, Liberty Press Liberty Classics, 1989._____________Explanation of symbols: Roman numerals indicate the source, arabic numerals indicate the page number. The corresponding books are indicated on the right hand side. ((s)…): Comment by the sender of the contribution. Translations: Dictionary of Arguments The note [Concept/Author], [Author1]Vs[Author2] or [Author]Vs[term] resp. "problem:"/"solution:", "old:"/"new:" and "thesis:" is an addition from the Dictionary of Arguments. If a German edition is specified, the page numbers refer to this edition. |
EconMises I Ludwig von Mises Die Gemeinwirtschaft Jena 1922 Rothbard II Murray N. Rothbard Classical Economics. An Austrian Perspective on the History of Economic Thought. Cheltenham, UK: Edward Elgar Publishing. Cheltenham 1995 Rothbard III Murray N. Rothbard Man, Economy and State with Power and Market. Study Edition Auburn, Alabama 1962, 1970, 2009 Rothbard IV Murray N. Rothbard The Essential von Mises Auburn, Alabama 1988 Rothbard V Murray N. Rothbard Power and Market: Government and the Economy Kansas City 1977 |
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> Counter arguments against Mises
> Counter arguments in relation to Central Bank
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