Money, banking and credit

The last foundation course before the cycle itself. Mises published The Theory of Money and Credit in German in 1912, and it appeared in English in 1934, translated by Batson, with a fourth part added by Mises for the 1953 edition. It is where subjective value is applied to money, and where the account of credit that the whole later theory rests on first appears.

Nine lessons. Three build the theory: what problem money solves, how Mises explains money having a purchasing power at all without arguing in a circle, and the distinction between a claim that is fully backed and one that is not.

Two are mechanics. A bank's balance sheet is posted step by step, as ledger entries, because that is the clearest way to see what fractional reserve banking actually is and what it does to the quantity of claims outstanding. The second asks which of those claims count as money, which is a question with no agreed answer.

One describes what a central bank does operationally, from the central bank's own published statements of its framework, and evaluates nothing.

The last three are the argument this school has with itself, and it is a real one between serious economists. One side holds that banking on fractional reserves is the problem. The other holds that competitive banks without a central bank are stable and that the practice is legitimate. Each is stated as its own authors state it, neither wins here, and the ninth lesson is what they agree on.

Nothing here is a forecast, a policy position or a view about any security, and ValueScreener gives no advice.