19 Oct 2013

Mises’ Momma Didn’t Raise No Fool on Banking Regulations

Banking, Mises 21 Comments

For some reason this passage from pages 443-444 of Human Action cracked me up:

People may uphold the opinion that banknotes are more handy than coins and that considerations of convenience recommend their use….But all this has no reference whatever to the problem in question. It does not provide a justification for the policies urging the public to resort to the use of banknotes. Governments did not foster the use of banknotes in order to avoid inconvenience to ladies shopping. Their idea was to lower the rate of interest and to open a source of cheap credit to their treasuries.

21 Responses to “Mises’ Momma Didn’t Raise No Fool on Banking Regulations”

  1. Daniel Kuehn says:

    I wonder if he would have or if he did write something like this before the General Theory. The whole “inconvenience to ladies shopping” thing was the standard line for quite a long time.

    • Current says:

      He wrote something quite similar in an article called “Monetary Stabilization and Cyclical Policy” in 1928, which is collected in “The Causes of Economic Crises”, see p.125.

      “‘inconvenience to ladies shopping'” thing was the standard line for quite a long time.”

      Was it? Do you mean that economists claimed the governments encouraged banknotes for the convenience of money users? I don’t believe you, which 19th century or early 20th century economist said that?

      • Daniel Kuehn says:

        Thanks for the citation.

        Well the arguments had always been double coincidence of wants problems or (more relevant for banknotes), a shortage of money relative to the needs of trade.

        The big pre-Keynesian monetary theories of the interest rate you hear are Franklin and Fisher for the most part. Later historians of thought have ascribed those views to the mercantilists too (as did Keynes), but that wasn’t generally understood to be their view until much later AFAIK.

        • Major_Freedom says:

          “Well the arguments had always been double coincidence of wants problems or (more relevant for banknotes), a shortage of money relative to the needs of trade.”

          How can you tell when there is a “shortage of money”?

          • skylien says:

            I guess his answer would include things like increasing unemployment, negative GDP, falling inflation expectations, falling CPI etc..

            • Major_Freedom says:

              Well, I guess it would have to, wouldn’t it? After all, we can’t point to any relative excess profits in the money production industry, as money users signal they want more money produced via their relative spending and cash holding preferences.

              That’s how we know the market wants more cell phones or more cars.

              • skylien says:

                Yes, basically it is inferred from their a priori understanding of how the economy has to work. Consumption function, price rigidities, animal spirits etc…

                And their implied believe that there are either literally never any wide spread malinvestments/structural imbalances (as they call it supply issues) in the economy that actually can trigger all those phenomena listed above as well, or that their policies won’t (significantly) affect the markets way of naturally clearing such supply issues (also creative destruction) anyway.

                I would just like to know how they know that there are no supply issues or/and how their policies won’t affect the market mechanism of creative destruction.

  2. Major_Freedom says:

    I think it’s funny because it reminds us of the bait-and-switch made by proponents of fiat money. The true motivation is like what Mises said, but every time free market money arguments are put forth, the responses tend to be along the lines of “convenience”, as if that is the actual motivation from the powers that force fiat money into exchanges (via taxation in same fiat money).

    • Daniel Kuehn says:

      Well it’s both right? Do we have to choose one?

      • Major_Freedom says:

        I slept with your wife for two reasons. One, I am selfish. Two, I think it would be convenient for her while you’re away.

        You find out and ask me why I did it, but for some reason I only kept telling you “It is convenient for her”.

        Both reasons can be true, but don’t you think it would be a little dishonest of me to only give you the “It’s convenient” excuse?

        Suppose I actually succeeded in convincing your friends that I did it for her convenience. Wouldn’t you try to make it clear that I did for my own selfish ends? Wouldn’t you try to convince them that I am pulling the wool over their eyes?

        • Daniel Kuehn says:

          The convenience point is the much easier point to grasp since most of the world has a loanable funds view of the interest rate.

          • Major_Freedom says:

            I think most of the world knows about power and corruption far more than the intricacies of banking.

            • Daniel Kuehn says:


              But what does that have to do with anything?

              • Major_Freedom says:

                My point is that power and corruption, not convenience, is the main impetus for fiat money.

              • skylien says:


                Common, you act like the Federal Reserve act was written at a secret meeting by some fat cats owning the biggest banks in America…

              • Bob Murphy says:

                Skylien, that’s a scurrilous lie! There were foreign central bankers at the secret meeting too.

              • skylien says:

                *Come on* of course…

              • Ken B says:

                skylien, come on, Common, you act like the Federal ResConstitution was written at a secret meeting by some fat cats owning the biggest estates in America…

              • Major_Freedom says:

                Ken B, another scurrilous lie!

                Everyone knows there was 100% consent from every single last one of the existing property owners who lived at the time the Constitution was written and enforced. That means we are all paying land taxes “the way we pay rent to a private landlord”, so shut up you hypocrites…

              • skylien says:

                Ken B,

                Just small details that don’t fit in your comparison:
                1: The Constitutional Convention wasn’t secret;
                2: The participants were selected delegates of the states;
                3: Who says that I am a constitutionalist and think the founding fathers were half gods?
                4: Even if we ignore all 3 points so far, how does that make anything better? I mean if John punches Joe in the face, is it any better if Paul punches Marc in the face too?

          • Rick Hull says:

            Fair enough — point being that MF may see it that way, but the world’s population does not. How about a slight twist: MF is not in fact sleeping with X but instead providing “counseling services” and “physical therapy”. No one is really sure what’s going on behind closed doors.

            Who is gonna argue with counseling and physical therapy?

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