[...]... products of Rothbard s creative genius, and many of his theoretical breakthroughs have not yet been adequately recognized by contemporary monetary theorists, even of the Austrian School Rothbard s presentation of the basic principles of money-andbanking theory in the first eleven chapters of the book guides the reader in unraveling the mystery of how the central bank operates to create money through the. .. eruption of the wave of sub-prime xv Foreword v6.qxp xvi 8/4/2008 11:37 AM Page xvi The Mystery of Banking mortgage defaults in the middle of this decade, followed by the Fed’s panicky bailout of major financial institutions and the onset of incipient stagflation, that has profoundly shaken the widespread confidence in the wisdom and competence of the Fed Never was the time more propitious for the radical... debasement profits the State can be seen from a hypothetical case: Say the rur, the currency of the mythical kingdom of Ruritania, is worth 20 grams of gold A new king now ascends the throne, and, being chronically short of money, decides to take the debasement route to the acquisition of wealth He announces a mammoth call-in of all the old gold coins of the realm, each now dirty with wear and with the picture... to the operation of the market economy As in the case of his exposition of the theory, Rothbard s treatment of the history of the Fed is fundamentally at odds with that found in standard textbooks In the latter, the history is shallow and episodic It is taken for granted that the Fed, like all central banks, was originally designed as an institution whose goal was to promote the public interest by. .. century In the German edition of The Theory of Money and Credit published in 1912, Ludwig von Mises, Rothbard s mentor, integrated these principles with value and price theory to formulate the modern theory of money and prices Rothbard elaborated upon and advanced Mises’s theoretical system Thus the second reason that the monetary theory presented in the book remains fresh and relevant is that Rothbard. .. percent of gold, minting the gold for his own use and pouring the coins into circulation for his own expenses In short, the number of grams of gold in the society remains the same, but since people are now accustomed to use the name rather than the weight in their money accounts and prices, the number of rurs will have increased by 20 percent The money supply in rurs, therefore, has gone up by 20 percent,... on the optimal monetary policy, which was supposedly hit upon in the heyday of the Greenspan Fed during 1990s Rothbard rejects such a superficial and naïve account of the Fed’s origins and bolstering of the banking system development Instead, he deftly uses sound monetary theory to beam a penetrating light through the thick fog of carefully cultivated myths that surround the operation of the Fed Rather... Unfortunately, the befuddled reader cannot make heads or tails out of these facts without the guidance of a coherent theory For the privilege of being bewildered, misled, and eventually bored to tears by this indigestible intellectual stew, students get to pay $100 or more for the textbook Foreword v6.qxp xviii 8/4/2008 11:37 AM Page xviii The Mystery of Banking Rothbard will have none of this shabby and... orphan book, there were a number of other factors that stunted the circulation of The Mystery of Banking First, several reviewers of the original edition pointedly noted the lax, or nonexistent, copy editing and inferior production standards that disfigured its appearance Second, in an important sense, the book was published “before its time.” In 1983, its year of publication, the efforts of the Volcker... AM Page 12 The Mystery of Banking changes in definition, by the kings of England Similarly, rapid and extensive debasement was a striking feature of the Middle Ages, in almost every country in Europe Thus, in 1200, the French livre tournois was defined as 98 grams of fine silver; by 1600 it equaled only 11 grams A particularly striking case is the dinar, the coin of the Saracens in Spain The dinar, . how inflation and business cycles are created. In the absence of central-bank intervention, the current finan- cial meltdown could be a healthy check on the inflation of the banking system as Rothbard. slowly. In the case of sound monetary theory, many of its fundamental principles had been firmly established during the nineteenth century. In the Ger- man edition of The Theory of Money and Credit. Rothbard s presentation of the basic principles of money-and- banking theory in the first eleven chapters of the book guides the reader in unraveling the mystery of how the central bank operates to