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More About This Title Paper Money Collapse, 2nd Edition: The Folly of Elastic Money
English
Paper Money Collapse: The Folly of Elastic Money, Second Edition challenges the mainstream consensus on money and monetary policy. While it is today generally believed that the transition from 'hard' and inflexible commodity money (such as a gold standard) to entirely flexible and potentially unlimited fiat money under national central banks allows for superior economic stability, Paper Money Collapse shows that the opposite is true. Systems of highly elastic and constantly expanding money are not only unnecessary, even for growing economies, they are always extremely destabilizing. Over time, they must lead to substantial imbalances, including excessive levels of debt and distorted asset prices, that will require ever faster money production to sustain. Ultimately, however, there is no alternative to a complete liquidation of these distortions. Based on insights of many renowned economists and in particular of the Austrian School of Economics, the book explains through rigorous logic and in precise language why our system of flexible fiat money is incompatible with a market economy and therefore unsustainable. Paper money systems have always led to economic disintegration—without exception—throughout history. It will not be different for our system and we may be closer to the endgame than many think.
The updated second edition incorporates:
- A new introduction and an extended outlook section that discusses various "endgames"
- Responses to criticisms, alternative views, and a critical assessment of 'solutions'
- Comments on recent policy trends, including attempts to exit the 'easy money' policy mode
- An evaluation of new crypto-currency Bitcoin
Paper Money Collapse: The Folly of Elastic Money, Second Edition clarifies the problem of paper money clearly and eloquently, and proposes multiple routes to a solution.
English
DETLEV S. SCHLICHTER is an independent economist and investment strategist. He spent 19 years as a trader and portfolio manager in international financial markets, including stints at J.P. Morgan, Merrill Lynch, and Western Asset Management. In his career, Detlev has overseen billions in assets for institutional clients around the globe. He is a frequent commentator on economics and financial markets via his website detlevschlichter.com. Detlev lives with his wife and three children in Hampstead, London.
English
Foreword xiii
Acknowledgments xvii
Prologue Contra the Mainstream Consensus—What This Book Is About 1
The Ruling Mainstream Consensus on Money 2
The Growth-versus-Inflation Trade-Off 7
What This Book Shows 8
Understanding Our Fiat Money System 11
What Is Different from the First Edition? 14
Support from Eminent Economists 19
A Note on Pronouns in the Text 20
Notes 21
Part One The Basics of Money
Chapter 1 The Fundamentals of Money and Money Demand 25
The Origin and Purpose of Money 26
An Anthropologist’s Challenge 29
What Gives Money Value? 34
(Almost) Any Quantity of Money Will Do 36
The Demand for Money 38
Are “Sticky” Prices a Problem? 42
Other Functions of Money 46
The Unique Position of the Paper Money Producer 51
The Monetary Asset versus Other Goods 54
Notes 61
Chapter 2 The Fundamentals of Fractional-Reserve Banking 65
The Origin and Basics of Fractional-Reserve Banking 69
Who Owns “Deposited” Money? 74
Exposing Misconceptions about Fractional-Reserve Banking 77
“Free Banking” Is Limited Banking 83
Summary of Part One 87
Notes 89
Part Two The Effects of Money Injections
Chapter 3 Money Injections without Credit Markets 95
Even, Instant, and Transparent Money Injection 95
Even and Nontransparent Money Injection 98
Uneven and Nontransparent Money Injection 102
Notes 107
Chapter 4 Money Injections via Credit Markets 109
Consumption, Saving, and Investing 110
Interest 111
Interest Rates Are Not Determined by Factor Productivity 113
Money Injection via the Loan Market 119
The Process in More Detail 120
Policy Implications of the Austrian Theory 130
Addendum: Gordon Tullock’s Critique of the Austrian Business Cycle Theory and Some Words on “Forced Saving” 133
An Example: U.S. Housing Boom and Bust 143
Summary of Part Two 150
Notes 154
Part Three Fallacies about the Price Level and Price-Level Stabilization
Chapter 5 Common Misconceptions Regarding the Price Level 159
The Fallacy That a Stable Price Level Means “Neutral” Money 160
The Fallacy That Hard Money Is Unstable Money, Part 1—History 164
The Fallacy That Hard Money Is Unstable Money, Part 2—Theory 170
Notes 179
Chapter 6 The Policy of Stabilization 181
Problems with Price Index Stabilization 181
Addendum: The “Free Bankers” and the Theory of Immaculate Fractional-Reserve Banking 187
Summary of Part Three 193
Notes 195
Part Four A History of Paper Money and How We Got to Where We Are Now
Chapter 7 A Legacy of Failure 199
Paper Money Experiments 201
1914–2014: A Century of Monetary Decay 206
Notes 215
Part Five Beyond the Cycle: Paper Money’s Endgame and the Future of Money
Chapter 8 The Beneficiaries of the Paper Money System 221
Paper Money and the Banks 223
Paper Money and the State 225
Paper Money and the Professional Economist 231
Notes 234
Chapter 9 The Intellectual Superstructure of the Present System 235
The Alternative View: Individualism and Laissez-Faire 237
The Mainstream View: Collectivism and Interventionism 241
The Political Appeal of Mainstream Macroeconomics 244
The Myth That Everybody Benefits from “Stimulus” 247
Monetarism as Monetary Interventionism 250
The Savings Glut Theory and the Myth of Underconsumption and Underinvestment 253
Inflationism and International Policy Coordination 259
Notes 265
Chapter 10 Endgames—Inflationary Meltdown or Return to Hard Money? 269
Paper Money Collapse 270
Alternatives: Return to Hard Money 277
A Return to a Gold Standard 278
The Separation of Money and State 284
Bitcoin—Money of No Authority 288
Notes 300
Epilogue Money, Freedom, and Capitalism 303
About the Author 309
Index 311
