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The Mystery of Banking, 2nd Edition

The Mystery of Banking, 2nd Edition

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MURRAY N. ROTHBARD


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Book Details
 Price
 2.50
 Pages
 322 p
 File Size 
 1,697 KB
 File Type
 PDF format
 ISBN
 978-1-933550-28-2 
 Copyright©   
 2008
 by the Ludwig von Mises Institute 

PREFACE
Although first published 25 years ago, Murray Rothbard’s
The Mystery of Banking continues to be the only book that
clearly and concisely explains the modern fractional
reserve banking system, its origins, and its devastating effects on
the lives of every man, woman, and child. It is especially appropriate
in a year that will see; a surge in bank failures, central
banks around the globe bailing out failed commercial and investment
banks, double-digit inflation rates in many parts of the
world and hyperinflation completely destroying Zimbabwe’s
economy, that a new edition of Rothbard’s classic work be republished
and made available through the efforts of Lew Rockwell
and the staff at the Ludwig von Mises Institute at an obtainable
price for students and laymen interested in the vagaries of banking
and how inflation and business cycles are created.
In the absence of central-bank intervention, the current financial
meltdown could be a healthy check on the inflation of the
banking system as Rothbard points out in his scathing review of
Lawrence H. White’s Free Banking in Britain: Theory, Experience,
and Debate, 1800–1845 that first appeared in The Review of Austrian
Economics and is included as a part of this new edition to
correct Rothbard’s initial support of White’s work in the first edition.
There have been virtually no bank failures in the United
States since the early 1990s and as Rothbard surmised during that
period where there was “an absence of failure” that “inflation of
money and credit [was] all the more rampant.” Indeed, from January
1990 to April 2008, the United States M-2 money supply
more than doubled from $3.2 trillion to $7.7 trillion. Bankers
were living it up, “at the expense of society and the economy faring
worse” (Rothbard’s emphasis).
Although ostensibly it is dodgy real estate loans that are bringing
the banks down this year, in the seminal book that you hold,
Rothbard shows that it is really the fraudulent nature of fractionalized
banking that is the real culprit for the bankers’ demise.
But central bankers will never learn. “We should not have a
system that’s this fragile, that causes this much risk to the economy,”
New York Federal Reserve President Tim Geithner said
after engineering J.P. Morgan’s bailout of the failed Bear Stearns
investment bank in the first quarter of 2008 with the help of the
central bank. Of course the thought of dismantling his employer,
the government leaving the counterfeiting business, and a return
to using the market’s money—gold—didn’t occur to him. More
government regulation in which “the basic rules of the game
establish stronger incentives for building more robust shock
absorbers,” is what he prescribed.
Surely Murray is somewhere laughing.
My introduction to The Mystery of Banking came in 1992 as
I was finishing my thesis at UNLV under Murray’s direction. I
found the book in the university library and couldn’t put it down.
The book was long out of print by that time and being prior to
the start of Amazon.com and other online used book searches, I
was unable to find a copy of the book for purchase. Thus, I fed
dimes into the library copier one Saturday afternoon and made
myself a copy. When the online searches became available I
waited patiently and bought two copies when they surfaced, paying
many times the original $19.95 retail price (as I write this
AbeBooks.com has three copies for sale ranging from $199 to
$225, and Bauman Rare Books recently sold a signed first edition for $650).
When I discovered Rothbard’s great work I had been a banker
for six years, but like most people working in banking, I had no
clear understanding of the industry. It is not knowledge that is
taught on the job. Murray may have referred to me as “the efficient
banker,” but he was the one who knew the evil implications
of the modern fractionalized banking system: “the pernicious and
inflationary domination of the State.”
DOUGLAS E. FRENCH
LAS VEGAS, NEVADA
JUNE 2008

Table of Contents

Preface by Douglas E. French . . . . . . . . . . . . . . . . . . . . . . . . xi
Foreword by Joseph T. Salerno . . . . . . . . . . . . . . . . . . . . . . . xv
I. Money: Its Importance and Origins. . . . . . . . . . . . . . . . . . . 1
1. The Importance of Money . . . . . . . . . . . . . . . . . . . . . . . 1
2. How Money Begins . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
3. The Proper Qualities of Money . . . . . . . . . . . . . . . . . . . 6
4. The Money Unit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
II. What Determines Prices: Supply and Demand . . . . . . . . 15
III. Money and Overall Prices . . . . . . . . . . . . . . . . . . . . . . . . 29
1. The Supply and Demand for Money and Overall
Prices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
2. Why Overall Prices Change . . . . . . . . . . . . . . . . . . . . 35
IV. The Supply of Money . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
1. What Should the Supply of Money Be? . . . . . . . . . . . . 44
2. The Supply of Gold and the Counterfeiting Process . . 47
3. Government Paper Money . . . . . . . . . . . . . . . . . . . . . 51
4. The Origins of Government Paper Money . . . . . . . . . 55
XIII. Central Banking in the United States I: The Origins. . 191
1. The Bank of North America and the First
Bank of the United States. . . . . . . . . . . . . . . . . . . . . 191
2. The Second Bank of the United States . . . . . . . . . . . . 198
XIV. Central Banking in the United States II:
The 1820s to the Civil War . . . . . . . . . . . . . . . . . . . . . . 207
1. The Jacksonian Movement and the Bank War . . . . . . 207
2. Decentralized Banking from the 1830s to the
Civil War . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 214
XV. Central Banking in the United States III: The National
Banking System . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 219
1. The Civil War and the National Banking System . . . . 219
2. The National Banking Era and the Origins
of the Federal Reserve System . . . . . . . . . . . . . . . . . 229
XVI. Central Banking in the United States IV:
The Federal Reserve System . . . . . . . . . . . . . . . . . . . . . . . 235
1. The Inflationary Structure of the Fed . . . . . . . . . . . . 235
2. The Inflationary Policies of the Fed . . . . . . . . . . . . . 241
XVII. Conclusion: The Present Banking
Situation and What to Do About It . . . . . . . . . . . . . . . . 247
1. The Road to the Present . . . . . . . . . . . . . . . . . . . . . . 247
2. The Present Money Supply . . . . . . . . . . . . . . . . . . . . 252
3. How to Return to Sound Money . . . . . . . . . . . . . . . 261
Appendix: The Myth of Free Banking in Scotland . . . . . . . 269
Index . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 293




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