Money & Banking

Referring back to yesterday's post, I mentioned the banking tautology of Loans=Deposits. Loans are obligations by a borrower to be paid over time, until the contract is completed at a certain point in the future.

Deposits coincide with the loans issued. Deposits are stored monetary units in a banking institution.

As the money stock rises, that is, as more warehouse receipts are issued, the value of money falls. More money chasing a good makes the price rise, while making the value of the unit fall.

In number theory one could use the abstract fraction of 1/N. All prices are stated in fractions.

Example: Fridge/1 Receipt

The Fridge is priced at 1 receipt.

Rise in money stock by 1 receipt = Fridge/2 Receipts

As N increases, the price of the Fridge rises. It is now priced at 2 receipts.

Additionally, if 2 people are each holding 1 receipt, the Fridge is more expensive for both of them. Their money is now worth less.

This type of rise in prices is indeed subjective, as the supply of Fridges in the economy could rise as well, keeping inflation quelled. Meaning that the price of the Fridge will not rise.      

As demand and supply are also theoretical concepts, this basic ideology holds in all transactions.

Banks are storage centers for money. Some banks can offer a variety of services, and amongst these are loan services.

A Loan is priced in a specific monetary unit, in this example it is warehouse receipts. The specific method of banking, moreover, can allow for further creation of loans, which will result in more warehouse receipts.

Continuing this paradigm, new receipts are continuously created as new Loans are also created. 

Harkening back to the idea of a loan, a contract fulfilled in the future, one can now imagine a monetary system controlled by voluntary contractual agreements. Examples are as follows:

Banking Methods                                                            Loan Types
100% Reserve Banking                                                  Fully Represented by Deposits
Fractional Reserve Banking                                           Partially Represented by Deposits

Law and protocol are essential facets to execute the method proposed by the unique banking strategy. 

Mises points to Gold being the money universally used by everyone traced back to the beginning of time. Corresponding with the idea of history (knowledge acquired by investigation), one can conclude that evincing a notion is merely theoretical.

Early forms of history are manifested in previously written documents, which were observed accounts by another.

This suggests that his regression theorem bares lots of strength in the face of theoretical scholars from academia. Tomorrow I will describe to you money.