• Unit 5: Credit and Banking

    In unit 5 we focus on explaining and defining the concepts of money and banking as understood by Mises. His book, The Theory of Money and Credit, was written in 1912 and has formed the foundation of Austrian monetary theory for more than a century. In this unit you will explore the topology of money, followed by an in-depth discussion of fiduciary media and the consequences of its issuance by banks.

    Completing this unit should take you approximately 3 hours.

    • Upon successful completion of this unit, you will be able to:

      • differentiate between money in the narrower sense and money substitutes as described in Mises’ Typology of Money;
      • explain the term "fiduciary media" as described by Mises;
      • differentiate between commodity credit and circulation credit;
      • describe maturity matching, also known as the "golden rule" in banking;
      • describe the process involved in lending of fiduciary media;
      • differentiate between a bank's solvency and liquidity; and
      • evaluate whether the issuance of fiduciary media would exist on a free market.

    • 5.1: Lecture

      • Lecture Page

        Mises' theory of money and credit argues that money began as a solution to the problem of exchange. People needed a better means of exchange than directly exchanging one commodity for another. For Mises, money is basically anything that is used as a medium of exchange. Watch this lecture to examine the topology of money, the issuance of fiduciary media by banks, and the consequences thereof. The second half of the course explores how digitization is leading us to rethink the fundamental phenomenology of money.

        Topics covered include:

        • Types of money
        • Fiduciary media
        • The Golden Rule in banking
        • The Solvency and Liquidity of banks
        • Commodity credit vs. circulation credit

        Key points:

        • Fiduciary media is money substitutes not backed by money holdings
        • The lending of fiduciary media increases the supply of the medium of exchange
        • The lending of fiduciary media does not require anyone to forgo a present good
        • Money is, in essence, a medium of exchange. Its other functions are derivative from this

    • 5.2: Discussion

      • Discussion Page

        Since you have watched the video lecture for unit 5, it's time to watch Saifedean moderate a discussion on the unit's theme by addressing questions asked by your fellow classmates. As you watch the discussion unfold, take notes to help you retain information. Make sure you watch the entire discussion seminar video; otherwise, you may skip over important points. To get the best learning experience and mastery of the major concepts covered in this unit, you'll want to watch all videos in their entirety.

        Topics discussed include:

        • The work of Antal Fekete
        • The Bitcoin lightning network
        • Can fiduciary media be created on top of Bitcoin?