The Demand for Money by ZRA214

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									Banking -
                  Rothbard




    ECO 473 - Money & Banking - Dr. D. Foster
Rothbard – Loan Banking

 Banks as intermediaries for lending
 • Funds come from investors (savers).
    Counts as bank “equity.”
    Rothbard Bank example…
 • MS is unaffected by bank’s actions/activities.
    The funds will always end up in someone’s pocket!
    They cannot be inflationary!
 • Can expand by selling bonds and CDs.
    Borrowed funds.
 • Ex: venture Kists, invest. bank, finance co. …
Rothbard – Deposit Banking

 Banks as warehouses
 • Convenient & safe place to store gold.
    Ownership receipts issued.
    Receipts are redeemable “on demand.”
    Receipts start getting traded for one another.
    Stored gold is a “bailment” not a loan.
    Historically – goldsmiths.

 • Problem – nobody ever has to pick up the gold!
    Unlike grain, the gold doesn’t get consumed.
    Goldsmiths can print receipts and start lending!!
Rothbard –
Fractional Reserve Banking

 Modern banks serve both functions
 • Collect deposits & issue loans.
    Courts have ruled deposits as bank debt.
    Deposits are owned by the bank!
    If 100% reserves, then no effect on MS.
 • With fractional reserves come trouble ...
    Create money = inflation.
    Banks are always “insolvent.” [Not bankrupt.]
    Contraction of credit = recession/depression.
 • Bank notes gave way to Demand Deposits.
Banking -
                  Rothbard




    ECO 473 - Money & Banking - Dr. D. Foster

								
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