May, 2010

Reliving the 1930s


Why is the money supply dependent on interest rates and government spending?

It turns out the great economist Irving Fisher told us back in the 1930s: banks create and destroy credit money by granting and calling loans. As Fisher wrote:

“Thus our national circulating medium is now at the mercy of loan transactions of banks; and our thousands of checking banks are, in effect, so many irresponsible private mints.”