Hi all,
I am looking for books to read on the subject of money to get an in depth understanding of it. Here is one question I am trying to understand.
I have recently started reading Austrian Economics works. I just finished Rothbard's "What has Government Done to Our Money?" and it went a long way in explaining what money is and the problems of fractional reserve banking and inflation. However, I found myself in a discussion of whether that means that owning money (gold) in such a system would mean holding an investment of the economy as a whole. If there is a fixed money supply, money would increase in value relative to goods and services being produced, as they are produced more efficiently over time.
My question is what would that mean for borrowing, lending and interest rates? Because money increases in value over time, a borrower would automatically be paying back something more valuable.
Anyway, I am not looking for long answers, if you have a brief one that would be much appreciated.
Finally (again), after reading Rothbard's introduction to money, what other Austrian books could I read to get a more in depth understanding of money?
Thanks,
P.L
If this has already been addressed in another thread, could you link me to it?
Thanks
The natural interest rate would accurately reflect real time-preferences. That is, it would depend on how future-oriented people are. This would mean we would not get unsustainable booms and busts and instead get steady growth. Lenders would pay savers interest just below the natural rate, and charge a slightly higher rate to borrowers.
However, I found myself in a discussion of whether that means that owning money (gold) in such a system would mean holding an investment of the economy as a whole.
What do you mean by holding an investment of the economy as a whole?
I recommend you jump straight into Rothbard's Man, Economy and State now that you have read his primer.
Government Explained 2: The Special Piece of Paper
Law without Government
I think you are right about that.
In countries with high inflation all loans take it into account, with interest being say 5% plus rate of inflation,
So in countries with what you are describing, which is deflation, the interest rate might be lower than otherwise, because of the factor you mentioned. Or maybe the lender would say, "Had I not loaned you the money I would have had that profit anyway. So you are getting the normal interest rate, take it or leave it. "
Bottom line, it doesn't really matter what arrangement the borrower and lender make between themselves, does it? They are both adults, going into the deal with eyes open.
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It's easy to refute an argument if you first misrepresent it. William Keizer