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Banking and Monetary Policy From the Perspective of Austrian Economics

Ken Follett

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Published in 1st Ed 2018 Edition Kindle Edition

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Austrian economics is a school of economic thought that emphasizes the importance of individual liberty, free markets, and sound money. From this perspective, banking and monetary policy play a crucial role in shaping the economy and affecting the well-being of individuals.

Banking and Monetary Policy from the Perspective of Austrian Economics

by Viktor Mayer-Schönberger

4.1 out of 5

Language	:	English
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The Austrian Theory of Money

According to Austrian economics, money is a medium of exchange that emerges naturally from market interactions. It is not a commodity that is created or controlled by governments. The value of money is determined by its purchasing power, which is affected by the supply and demand for goods and services.

The Role of Banks

Banks play a role in the financial system by facilitating the exchange of money and credit. They accept deposits from savers and lend money to borrowers. This process helps to allocate capital to productive uses, which can promote economic growth.

However, Austrian economists argue that fractional-reserve banking, which is the practice of banks lending out more money than they actually have on deposit, can lead to inflation and economic instability. This is because when banks create new money, they increase the supply of money relative to the supply of goods and services. As a result, the value of money decreases, leading to higher prices.

Monetary Policy

Monetary policy refers to the actions taken by central banks to manage the supply of money and credit in the economy. Austrian economists are generally critical of monetary policy, arguing that it is often ineffective and can have harmful consequences.

One of the main arguments against monetary policy is that it can lead to inflation. When central banks increase the money supply, they make it easier for borrowers to access credit. This can lead to increased spending, which can push up prices.

Another argument against monetary policy is that it can lead to economic cycles. When central banks loose monetary policy, they create an artificial boom in the economy. However, this boom is unsustainable, and it eventually leads to a bust.

Implications for Policymakers

The Austrian perspective on banking and monetary policy has several implications for policymakers. First, it suggests that policymakers should avoid creating new money or engaging in fractional-reserve banking. This can help to prevent inflation and economic instability.

Second, it suggests that policymakers should allow the market to determine the value of money. They should not try to artificially manipulate the value of money through monetary policy.

Third, it suggests that policymakers should focus on creating a stable and predictable economic environment for businesses and consumers. This can help to promote economic growth and prosperity.

Banking and monetary policy are complex and important topics. The Austrian perspective on these issues provides a valuable framework for understanding how they affect the economy and the well-being of individuals. By adhering to the principles of sound money and free markets, policymakers can help to create a more prosperous and stable economy.

Banking and Monetary Policy from the Perspective of Austrian Economics

by Viktor Mayer-Schönberger

4.1 out of 5