Unlcle Scrooge on FRB

I found this educational cartoon on Facebook the other day:

Image

Obviously, this is exactly what happens when there are more bank notes in circulation than are covered by gold/silver. It does not matter whether they are issued by the government (or central bank) or by private banks in an otherwise unregulated economy. Now, “fractional banks” might not double the note issue; they may add $100 extra dollars in notes, or $10, or even just $1; but that does not change the basic fact that the notes will fall proportionately in value. And it does not change the fact that those who first receive the additional notes are in a position to spend the money before prices have risen, while others will receive this additional money after the prices have risen.

Advertisements

Comments are closed.

%d bloggers like this: