Free Market “Credit”
tofamoustocare replied to your link: How Big Should the Banks Be?
Are you saying your opposed to credit?
Savings and investments are fundamental to a healthy economy. Credit extended to some should come from the real savings of others, not created out of fiat (central bank) or fraudulent accounting (fractional reserve banking). Consumption must be restricted in order to be redirected for the creation of capital.
Therefore, there must first be savings before others may borrow. This is why the manipulation of interest rates is so dangerous. Interest rates, in a free market, are determined by the amount of funds available for lending. Interest rates are, in essence, the price of current goods in terms of future goods. Since all individuals prefer, ceteris paribus, to achieve their ends sooner than later, the interest rate serves to cater to the time preference of the individuals within a given economy.
If there’s plenty of money saved, then interest rates naturally drop to entice borrowers. If there is not much to lend, then interest rates rise to incentivize savings. It’s an organic process wherein times of plenty allow for investments in projects with longer processes of production, and times of economic difficulty encourage savings and allow for funds to be used on more immediate demands.
Economy-wide busts are mitigated by not creating an artificial boom in the first place.
See Rothbard’s Economic Depressions: Their Cause and Cure and his classic Man, Economy, and State, as well as Mises’ The Theory of Money and Credit and The Causes of the Economic Crisis for more.
The point Tom Woods was making in that post is that we must remember that banks do not currently operate in a free market. They are, instead, shielded from the many regulatory protections that would emerge in a free market by government . As he explains, those proposals amount to (at best) a “second-best alternative” to “root-and-branch monetary reform.”
Notes:
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freemarketliberal said:
Are you against Free Banking?
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laliberty posted this
