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A question about banking in AC
I'm reading an article by Mises about the trade cycle, and I'm a little confused. The gist of what Mises is saying is that banks loan out more than what they actually have, which manipulates the market into lowering interest rates, which in turn makes otherwise unprofitable investments profitable.
What I'm having trouble is his description of this as an 'intervention' in the market. It seems to me that people willfully interacting with these banks and accepting non-backed paper currency that is accepted by other people shouldn't be considered an intervention; to me it's actually the market in action. Someone help me out with an explanation. I think I know what kind of responses I'm going to get, but I'm still a little confused. |
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