Inflation, Money, and Banking

Today's Mises Daily by Frank Hollenbeck has offered the opportunity for me to comment on various issues related to money and credit. So I took it.

FH: The use of the simplified, Keynesian version [for measuring inflation] in economic textbooks and by the professional economist has caused immense damage.

BM: It certainly has caused immense damage for the vast majority of the population; however, given that the purpose of this measure is to distract attention from the ongoing wealth extraction, depending on where you sit, this version has been tremendously successful.

FH: …the FED should not be concerned with consumer price inflation, but the increase in all prices which we are incapable of measuring (the weights being impossible to calculate). The recent increase in asset prices, such as stocks or agricultural land prices should be a strong warning signal.

BM: It would be a warning if they felt it was a bad result.

FH: The real solution is to end fractional reserve banking. The central bank would then be superfluous.

BM: The real solution is to end the monopoly of central banking; then individual banks would be free to suffer the consequences of their poor reserve-requirement forecasts.  This would provide all the discipline necessary.

FH: If banks were forced to hold 100 percent reserve, neither the banks nor the public could have a significant influence on the money supply. Banks would then be forced to extend credit at the same pace as slow moving savings.

BM: I thank Mr. Hollenbeck for making clear that it would require force to end fractional reserve banking, at least as the term is commonly used.

FH: The money supply could then be what it should always have been, a means of measuring exchange value, like a ruler measuring length, and as a store of value.

BM: Today’s dollar or Euro or (insert your favorite here) does a perfectly fine job of measuring length – every dollar always equals four quarters. Every Euro always equals a Euro. 

What else could a dollar or Euro be a constant measure for?  Can any economic good, ever, hold a constant relationship to any other economic good? 

As to a store of value, there is no such thing….unless we have given up on the idea of value being subjective.