Bankers for five centuries have benefited from a grant of privilege from the state: a legal privilege. Banks are allowed to write contracts that are prohibited to all other profit-seeking agencies. They are allowed to promise depositors immediate payment, yet they lend the depositors’ money to borrowers.
The most detailed study of this grant of legal privilege is Prof. J. H. DeSoto’s 900-page masterpiece, Money, Bank Credit, and Economic Cycles. It is easy to read and comprehend; you just have to stick with it. He shows how this violation of contract law has led to inflation, the boom-bust business cycle, and depression. You can download the book for free.
Non-Austrian School free market economists do not challenge this legal arrangement, either in the name of economics (counterfeiting) or law (special privilege). They accept it. They do more than accept it. The applaud it, but in a value-free, totally neutral academic way. They are apologists for this grant of privilege.
They pay an intellectual price for their cheerleading. They cannot conceptually integrate this grant of privilege into their general theory of economic causation, which rests on a concept of private ownership and enforceable contracts. They make no attempt to square the analytical circle. They remain silent about this anomaly. They pretend that their various rival theories of economic causation are coherent. They aren’t.Gary North, Schizophrenic Economists
As noted, you can grab your own free copy of DeSoto’s work. Yes, it’s long: but Christians should master long works, especially if they are clearly written and detail an injustice – theft, in this case – that God hates.
And it’s about time that Christians took the intellectual lead, from these corrupt and incompetent “rational intellectuals”.
Monetary policy today is set by banks that are not governed by the same theory of contracts that binds individuals.
This has led economists to operate in terms of two theories of economic causation: one for banks and another for individuals. Non-Austrian free-market economists offer a theory of economic causation for the market in general; then they abandon this theory when they get to fractional reserve banking and central banking. They offer no developed theory of economic causation regarding money and banking. They do not explain why this methodological schizophrenia does not undermine their general theory, their monetary theory or both.
The great exception was Murray Rothbard, whose textbook on money and banking, The Mystery of Banking, attacks fractional reserve banking as a violation of the laws of property. That book immediately went out of print. I know. My Institute for Christian Economics got the publishing rights from Rothbard. I failed to publish it. So, years later, I gave the rights to the Mises Institute. You can download it for free.Gary North, Schizophrenic Economists
AND, you can get Rothbard’s book over here!