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Money & Banking


Money and banking combine as a subject too important to not understand.

Money plays an extremely important role in the operation of any economy. Banking provides the infrastructure and tools for the storing, transfer, and (regrettably) the creation of money. Yet, so few people understand the topics that make up the subject money and banking.

In this section we will examine some of the more complex elements in the topics of money and banking.

Money Matters

You might say that matters regarding money really do matter. Thus, the title of this section.

In this section I will describe many of the issues related to money there really do matter in the full understanding of our economic systems.

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Banking Structure

Many misconceptions about our monetary system arise from people's misunderstanding about the structure and operation of the banking system itself. Are banks really too big to fail? Do banks operate unethically? What limits the growth of loans in deposit liabilities?

In this section, I will clarify some of the misconceptions that lead to erroneous answers to the questions I have raised above.

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Federal Reserve System

Of all the central banks in the world none has more influence than the Federal Reserve System of the United States. In spite of its influence, however, the Federal Reserve remains highly misunderstood, both in the manner in which it operates and the influence it has on financial markets.

In this subheading of the Money and Banking section I hope to clear up some of the widespread misunderstanding. Only with a clear understanding of the Federal Reserve System can we devise a path to improving the money and banking system in the United States, and hopefully throughout the world.

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Perpetual Money Growth

Many economists advocate totally contradictory concepts about the growth of money. On the one hand, they view inflation as bad. On the other hand, they advocate, for various reasons, the perpetual growth of the money supply. Money inflation cannot be both good and bad at the same time. (I guess they don't see that increasing the money supply causes price inflation).

In this section we will examine some of the reasons given for growing the money supply perpetually and provide evidence as to why these ideas are all completely illogical.

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Monetary policy all over the world has followed the advice of the stabilizers.

It is high time that their influence, which has already done harm enough, should be overthrown.

F. A. Hayek, 1932