Rothbard on blog.nath.page

Time Preference

Tue, 30 Jun 2026 00:00:00 +0000

Anne Robert Jacques Turgot, in his criticism of usury laws, described the concept of time-preference and its role in lending at interest. Time-preference refers to the discounting of the future, and the concomitant placing of a premium upon the present. If this rate of discounting is high, the time-preference is high. If the discounting rate is low, the time-preference is low.

Since we prefer a present good to an equivalent amount of the good at some point in the future, lenders will demand, and borrowers will accept, an interest on a loan. Interest is the price of time-preference.

Price-Specie-Flow Mechanism and Automatic Trade Balancing Under the Gold Standard

Sun, 28 Jun 2026 00:00:00 +0000

The Price-Specie-Flow Mechanism

The price-specie-flow (PSF) mechanism is the extension of the quantity theory of money (QTM) to a multi-country scenario. Proponents of the end-neutrality of QTM often implicitly assume a closed economy. But when nations trade amongst each other, the injection of monetary units in a nation can, instead of putting upward pressure on local prices, promote imports, and thus cause an outflow of money, in the short term. The price-specie-flow mechanism accounts for these dynamics.

How Money Broke

Fri, 12 Jun 2026 00:00:00 +0000

Free market interactions led to the emergence of gold as money. Gold was divisible, durable, recognizable, and most importantly, difficult to inflate. Thus, it maintained its purchasing power better than other commodities that were easier to produce.

However, gold suffered from certain drawbacks. While it was divisible, dividing it physically was practical only to a certain point. Also, carrying it in large quantities was costly and cumbersome. Furthermore, verifying the authenticity of gold coins and bars was time-consuming.

Gresham's Law and Fiat Currencies

Thu, 11 Jun 2026 00:00:00 +0000

Gresham’s Law stipulates thus. “Artificially overvalued money will drive out of circulation artificially undervalued money.”

As terrible as the US Dollar has been at inflation in a century, other currencies have proven to be worse. Governments throughout the world have been egregiously inflationary. They have expanded their money supply and devalued their currencies. Entities in these countries have thus resorted to hoarding (a term without a negative connotation to me) US Dollars. The upward pressure on the demand for US Dollars is such that despite the massive expansion in US Dollar supply, we do not see the corresponding amount of price level rises in the US. The abysmal fiscal policies of the rest of the world allows the US to export its price inflation.

Inflation is Legalized Counterfeiting

Tue, 26 May 2026 00:00:00 +0000

In earlier posts, I have regarded inflation as counterfeiting conducted by the government. This is not hyperbole. It is merely calling an activity its proper name.

The Illegal Case

To understand this label, let us go over what happens when an ordinary criminal counterfeits money. Suppose these fake tokens are virtually indistinguishable from already circulating monetary units. The criminal and his associates are able to go to the market and buy goods and services at prevailing rates. These people benefit the most: they did not even have to part with anything of value to obtain these tokens.

Effects of Inflation

Mon, 25 May 2026 00:00:00 +0000

Inflation (that is, the counterfeiting of money by the government) has several destructive effects on the economy. It transfers wealth from late recipients of newly issued monetary units to those who receive them relatively earlier. It hurts the ability of economic actors to perform economic calculation. It degrades the quality of goods and services produced in the economy. Furthermore, it causes boom and bust cycles in the economy.

Wealth Redistribution

The overall effect of the introduction of new monetary tokens is a general increase in price levels. But this effect is neither smooth nor instantaneous. Not everyone acquires an equal amount of these tokens, or at the same time. Also, not all prices rise proportionately, or at the same time.

How Governments Generate Revenue

Sun, 24 May 2026 00:00:00 +0000

Private individuals and businesses must either sell something of value to acquire money or expend time and resources to mine it directly (think of gold mining in the case of a gold standard). Governments, in contrast, do not obtain payment for goods or services they produce; they generate revenues through the seizure of assets. In the past, they might have sent their agents to seize grains, cattle, coins, etc. from people. But in a monetary economy, they simply seize monetary assets, which is a lot easier to do.

Natural Limits on Free Banking Reserve Requirements

Sun, 24 May 2026 00:00:00 +0000

In a free banking system, various banks issue their own banknotes which are redeemable for the gold that they hold. The banks set their policies independently and compete with other banks in the free market. This is distinct from the central banking system we experience today, where a central bank dictates key requirements the chartered banks must obey, and these banks issue a single fiat currency.

One important decision a bank needs to make in a free banking system is how much reserves it shall hold on to at any moment to meet the withdrawal demands of the depositors. If the reserves are less than 100% of the deposits, the bank engages in fractional reserve banking. (Setting aside the question of morality of such a system, free banks with fractional reserves have emerged in the free market and operated for a long time in the past.)

The Immorality of Fractional Reserve Banking

Sat, 23 May 2026 00:00:00 +0000

Before discussing fractional reserve banking, let’s go over the concept of full reserve banking. Suppose a bank takes in total deposits worth $100 million from its depositors. The bank promises the depositors that they may withdraw their deposits anytime. The bank, in this case, simply acts as a warehouse for the money deposited, collecting fees from the depositors in return. At any time, all deposited money remains within the bank; and at any time, any or all depositors may come to collect the money they have deposited. This is full reserve banking: all the deposits remain in reserve.

Gresham's Law and Price Ceilings

Mon, 18 May 2026 00:00:00 +0000

Note that the law applies not just to a particular type of coins, but to the exchange rates between different money commodities as well. Suppose in a bimetallic standard, metal A is pegged to metal B at a ratio of 1:10, but the market value of a unit of metal A is 12x that of metal B. In this case, we have a price ceiling whereby metal A is artificially undervalued, and per Gresham’s Law, will be driven out of circulation.

Gresham's Law Clarified

Sun, 17 May 2026 00:00:00 +0000

Gresham’s Law is frequently oversimplified as “bad money drives good money out of circulation.” This phenomenon has been observed in history whenever debasement of coins has occurred. In such cases, people choose to collect coins with the greater precious metal content and spend the debased coins. Over time, the ‘good’ money, the coins with more precious metal in them, get driven out of circulation by ‘bad’ money, the debased coins.