The banking system creates a special kind of intervention in the normal flow of economic activity. Unlike regulation, which directly controls owners use of their own property, and “spending,” which forcibly reallocate’s resources, the banking system, through its activities, distorts the information flow that economic actors use to make decisions. The banking system creates artificial changes in the quantity of money, thereby distorting money prices, causing economic actors to make rational decisions based on flawed information.

The specifics about the operation of the banking system I will cover in the Money and Banking section.