Banking, Austrian Theory of

The fundamental issue arising in banking and monetary policy is whether governments can improve the monetary institutions of the unhampered market. All government intervention in this field boils down to schemes that increase the quantity of money beyond what it otherwise would be. The libertarian case for the abolishment of government intervention in money and banking rests on the insight that the latter serves only redistributive purposes.

Banking and monetary policy are concerned with modifications of the quantity of money and money titles. Although policymakers might ultimately seek to control interest rates, unemployment, or the stock market index, attempts to realize any of these goals through monetary policy presupposes the ability to modify the quantity of money. For example, to reduce short-term interest rates, policymakers must ...