Often in discussions of the ABCT, references are made to the Fed. But the Fed was formed in 1913, and the boom-bust cycle preceded it. So how does the ABCT explain the boom-bust cycle that occurred prior to the establishment of central banks? Not just in the USA, but in other countries?
I too have wondered this.
-=Steve=-
There was a Bank of America that largely had similar powers (I believe).
There was a National Bank of America that largely had similar powers (I believe).
I would recommend Manias, Panics and Crashes by Charles P. Kinderberger or Extraordinary Popular Delusions and the Madness of Crowds by Mackay. All it takes is a credit and/or monetary expansion. It doesn’t have to be done by a central bank.
Mises’ “Theory of Money and Credit” was written in 1912. The ABCT does not depend on central bank monetary manipulation in anyway whatever. In fact, Hayek’s work doesn’t even talk about a central bank (purely endogenous factors), though he obviously recognizes the central bank’s ability to reduce the market rate below the natural rate.
We need a FAQ’s thread imo.
Or a search function. Wait…
All the cycles can be explained through monetary inflation. Including the full reserve banking tulip bubble and spanish gold import bubbles.
Well, one example of the ABCT without a central bank is the collapse of the Spanish economy in the late 1500s. The huge influx of gold and silver from the New World kicked off massive inflation in Spain which spread to the rest of Europe. Of course, statistics are pretty scarce since this was so long ago, but you can find papers on it on the internet where it is referred to as the “price revolution.” I love it when self-professed economic experts can’t understand the laws of supply and demand with respect to money, and have to talk about natural monetary phenomena with a sense of mystery.
Ironically, (and this shows how little people know about ABCT and the gold standard) people try to use this as a refutation of going back to gold. See, they say, what happened to the Spanish when they were on gold? As if tomorrow some explorer is going to find enough gold on an undiscovered continent to triple the world supply.
Bankers issuing more receipts for gold than which is deposited in its vault does not require a central bank.
The US has had a couple of National banks ever since 1791 that could buy gov’t debt and issue counterfeit receipts for gold.
As for the problem with Spain in the 1500’s, I’m not too familiar with that. But the world back then was a mercantilist system which was an economy highly manipulated by gov’t to stimulate exports and prevent imports. When the world uses a commodity (scarce resource) as money then if one country (like Spain) experiences inflation then some other country simultaneously experiences deflation. Without gov’t manipulation, the inflation/deflation problem will be self correcting. Countries experiencing inflation will find cheaper goods abroad and will therefore import more (which exports some of its gold to cool down its inflation). Countries abroad experiencing deflation will have cheaper goods to export to other countries (enabling it to import gold in exchange) and that will reverse its deflation.
I remember reading about how when Mansa Musa, emperor of Mali, made his Hajj pilgrimage to Mecca in the middle ages, he and his entourage spent so much gold while passing through Egypt that it torpedoed the Egyptian economy for a decade.
No, but we may well find economy-disrupting amounts of precious metals in near-Earth asteroids. No, we’re not going to mine any of them today or tomorrow, but we’ll get there in the long run.
-=Steve=-