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Old August 22nd, 2012 #43
Alex Linder
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To my mind, the key point involves bearing in mind the argument of Jeff Herbener, the economics professor at my Liberty Classroom. Fiat paper money cannot be regulated by profit. The production of all other goods in society is economized and regulated by the principle of profit and loss. Fiat money, propped up by legal tender laws, cannot be regulated by profit, because it is always profitable to create more. The costs of increased production are negligible.

What follows from this is that in the case of banks (which in our system can create money out of thin air by making loans and crediting the borrower with a checking account balance created out of nothing), we cannot say that existing firm size is socially optimal. In any other industry, there is a non-arbitrary test of firm size: the profit-and-loss test encourages firms to reach a size that best satisfies consumers. But there is no profit-and-loss test in the creation of fiat money. As a result, firm size is arbitrary, and does not involve passing a market test.

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