Introduction to Austrian Economic Analysis

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10. Banking and the Business Cycle

  • Introduction to Austrian Economic Analysis
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06/23/2006Joseph T. Salerno

The tenth and final lecture from Joseph Salerno's Introduction to Austrian Economic Analysis seminar.

Loan banking is non-inflationary. Interest rates on loans are merely reflective of price spreads. All speculation, on the free-market, is self-correcting and speeds adjustment, rather than cause economic trouble.

100% reserve banking is sound, but fractional reserve banking is inflationary. An inflationary boom is caused by commercial banks extending more credit than any private pools of saving have justified. Money has been created out of thin air. Prices must be allowed to fall to adjust supply and demand. Doing less just postpones the final reckoning. Saving helps during recessions.

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