The unresolved problem of gratuitous credit in Austrian banking theory

Raymond Niles

The Review of Austrian Economics, 2017, vol. 30, issue 1, No 5, 83-105

Abstract: Abstract Ludwig von Mises called gratuitous credit, the ability banks have to create new credit, the chief problem in a theory of banking. This paper traces how Mises and succeeding generations of Austrian-school economists have grappled with this problem, but have failed to find resolution. The result is that Austrian economists disagree on a variety of issues in banking and business cycle theory, such as whether there is an endogenous business cycle under free banking, or cycles only occur under central banking. Before a resolution can be attempted, current thinking must be clarified. This paper divides Austrian economists into five schools of thought. It points to a possible resolution in the economic development writings of Joseph Schumpeter.

Keywords: Gratuitous credit; Endogenous money; Free banking; Central banking; Austrian business cycle theory; 100 % reserves; Fractional reserves; Precautionary reserves; Business cycle (search for similar items in EconPapers)
JEL-codes: B25 B26 B53 E14 E32 G01 (search for similar items in EconPapers)
Date: 2017
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Citations: View citations in EconPapers (1)

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DOI: 10.1007/s11138-016-0352-1

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