Confused about "The Mystery of Banking" and "The Creature from Jekyll Island". Please help.

Economics Economics Questions
1

I’ll cut to the questions and skip the intro…

In Rothbard’s “The Mystery of Banking” on p.81, the Total for the Equity and Liabilities reads 21,800, even though it is clearly 100,000. A typo that people just never took out of the book?

In Rothbard’s “The Mystery of Banking” on p.183, Rothbard nearly praises Scotish free banking as compared to the English banking. Then in the appendix, he criticzes Scottish free banking, attacking the same guy who he used sources from in the previous chapter. Did Rothbard change his mind and just decided to publish an appendix instead of changing the book?

Perhaps it is just me, but the Griffin’s “The Creature from Jekyll Island” and Rothbard’s “The Mystery of Banking” disagree with each other how the Fed finances government debt (or “Open market operations”). In Griffin’s version (dubbed “The Mandrake Mechanism”), he says the government issues bonds and the Fed directly buys them, and then they go to government deposits, checks, banks, etc etc, sifting through the money supply like that. (p. 195). However, Rothbard’s explanation is fundamentally different. On p. 172, he talks about how the Treasury, when monetizing the debt, gives the bonds to the banks to buy, and then the money supply is inflated. The federal reserve steps in and buys old government bonds (I assume he means from commerical banks) so they have more money to buy the bonds and etc etc. Then he goes to say that the Federal Reserve only directly bought Treasury bonds during World War II, while Griffin states in his book that the Federal Reserve has used the Mandrake Mechanism for much of its existence.

Finally, (and I asked this question before, no one responded), on p482 of “The creature from Jekyll Island”, Griffin says that the acceptance bills during the roaring twenties were an astronomical “1.7 trillion dollars wide”. For a time period that had a money supply of 70 billion max, something seems absurdly wrong.

I hope for all of these I’m just confused, and instead am not seeing mistakes. Problems like this (such as the last one on The creature from Jekyll Island) make me loose faith in the credibility of the book, and discourage me from reading more from the author and/or using the book for sources.

Anyways, I hope you guys respond, and thanks for the help as always!

2

Another question, this time on fractional reserve banking. There seems to be a difference in explaining how it works. When I deposit money, Rothbard says that the bank prints extra bank notes to pyramid off that money and loan those out. However, I though that the bank takes the money I deposited and gives that out, and then that leaves me with money that isn’t there in my account.

I understand how it has evolved over the years, but if I deposit $100 of cash in a bank, where does it go? What happens if people don’t want $100 in cash for a loan, but a bigger amount?

3

Bump, and confused as to why aorubio suggested my question.

4

In Harry Browne’s book “How you can profit from the coming devaluation” p41-42, assuming a 1/6 fractional banking he says:

"On Monday, we receive a $1000 in new deposits. On Tuedsay, we send the entire $1000 to the Reserve Bank as our reserve.
Instead of viewing the $1000 as our total deposit structure, we sill use it as the reserve base and build a much larger deposit structure on top of it.
We then make new loans totaling $5000 - by opening new checking accounts for the borrowers. Whenever anyone asks for a loan, we just add the amount of the loan to his chiecking account balance…

What happens when the borrowers go out and spend their new checking account deposits?..The other banks have been doing the same thing … and so our checks are cancelled out by their checks, provided we’re all inflating at the same rate. … That’s the job of the Federal Reserve System - to assure that uniformity of inflation."

This should answer your question except I have always had another one. I could never figure out how the loan money of Bank A wouldn’t end up as NEW RESERVES for bank B (or for Bank A for that matter) creating infinite money inflation.

5

I really didn’t know what the button means or does so I clicked it. I still don’t know. Can you kindly explain to me?

I am new to the forum.

6

" Suggest as an Answer" simply means that you believe the post you are suggesting answers the question set forth in the first post. At this point others would have to verify the answer. I.e if we had a forum topic “What is 2+2?” and someone answered “4” you could suggest “4” as an answer at which point someone else with a more than a kindergartener’s level of arithmetic would verify your answer.

@ The OP: There are people on this forum who understand the FRB better than I do. I understand it’s wrong, that it’s inflationary, why it’s inflationary and the other basic stuff that comes from basic reading on the Austrian School. But I haven’t read the Griffin volume so I can’t clarify why he and Rothbard appear to be at odds. Sorry.

I think Rothbard was only comparatively (as you said “nearly”) praising Scottish banking over English banking and then including the appendix to clarify that Scottish banking was not perfect by Rothbardian standards.

Perhaps Griffin, and again I’m woefully ignorant of the Creature, so this is just a guess, was adjusting for inflation?

Although

7

Okay, thanks guys for answers to some of the questions…

I guess another question would be, if they don’t techincally lend out our deposited money, why do they give us interest? Is it just to entice us to use their bank and give them cash, or do they actually lend out cash occasionally?

When the fed acts as “a lender of last resort”, how do they do that? Do they just simply buy up as many bonds in banks as they can? Or do they give money to Congress?

Thanks

8

bump