Economics is a complex and ever-changing field that seeks to understand the production, consumption, and distribution of goods and services. However, there are some crucial aspects of economics that are often overlooked or not fully explored in traditional economics lessons. In this article, we’ll take a closer look at five things that you may not have learned in your economics classes but are essential to understanding the modern economy.
From fractional reserve banking and the creation of money, to the banking monopoly that has dominated the world for decades, we’ll explore some of the lesser-known but vital aspects of economics that you need to know. So, whether you’re a student, professional, or just interested in learning more about the world around you, read on to discover the five things they didn’t teach you in economics lessons.
1. What Is Fractional Reserve Banking?
Fractional reserve banking is a system in which banks keep only a fraction of their deposits in cash, and lend out the rest. When you deposit money in your account, it gets added to the total amount of money in circulation. Then when you make a withdrawal, the bank has to replace that amount with physical cash from its reserves–which means that if everyone went to their banks at once demanding their money back, there wouldn’t be enough physical cash on hand for everyone’s transaction requests.
This system allows more money to circulate in the economy, and thus creates the danger of a bank run. A bank run can occur when many depositors withdraw their money from a bank at the same time, and the bank is not able to meet the demand for withdrawals because it has loaned out most of the deposits received.
This can cause panic among depositors and lead to a further run on the bank, potentially causing the bank to fail.
2. What Is Austrian Economics?
Austrian economics is a school of thought that originated in Austria in the late 19th century. It differs from other economic theories in its emphasis on the role of individual human action, rather than social or political forces, in determining economic outcomes.
Austrian economists believe that individuals act rationally to achieve their goals and are best able to do so when they have complete control over resources. In other words, they believe that people act according to their own self-interest–and this leads them to make decisions that benefit society as a whole.
The main principles of Austrian economics are:
Prices reflect all available information about supply and demand; therefore, price changes reflect new information about supply/demand conditions (for example, if one farmer’s crop fails due to bad weather while another farmer’s crop thrives). This means that prices adjust automatically without any need for government intervention or regulation; therefore governments should not try to control prices because doing so will lead only toward greater distortions and imbalances (for example by subsidizing certain industries).
While most mainstream statist economists prefer the Keynesian approach to economics, others believe that Austrian economics is a better approach. Austrian economists argue that deflation is good because price reductions are a result of productivity improvements made through the investment of savings. Deflation enables consumers to benefit from lower prices. Additionally, the Austrian School of Economics believes that the human and social element plays an equally important role in understanding prices, market movements, as well as money and value creation.
Austrian economics emphasizes the importance of individual action and choice, while Keynesian economics relies on government intervention to stabilize the economy. This is why Austrian economics is often seen as a superior approach to Keynesian economics, paticularly to anyone that values personal freedom and self-soverignty.
3. Banking Monopolies
A banking monopoly is a situation where there are only a few banks in an economy. This means that there are fewer options for consumers and businesses to choose from, which can lead to higher prices for loans and other financial products.
Bankers also have more power over the economy because they control how much money people have access to–and thus what they can do with their money. If you’re trying to start a business but don’t have enough cash on hand, or if you need extra funds for an emergency medical procedure but don’t want to take out another loan (or maybe even just want some extra spending money), your options may be limited by what banks decide is appropriate for them!
Throughout history, there have been many instances of banking cartels and monopolies. In the United States, one of the most well-known examples is the banking cartel that formed during the Gilded Age in the late 19th century. The so-called “Big Six” banks, including J.P. Morgan & Co., First National Bank of New York, and National City Bank, dominated the financial industry and controlled a significant portion of the country’s wealth.
In the early 20th century, the Federal Reserve System was established in an attempt to regulate the banking industry and prevent the formation of monopolies, or at least, that was the cover story! However, some argue that the Federal Reserve itself has become a banking cartel, with a small group of powerful banks controlling the majority of the country’s money supply.
In recent years, there have been numerous allegations of banking cartels and monopolies in various parts of the world. In 2013, several major banks, including Barclays, Citigroup, and JPMorgan Chase, were accused of manipulating foreign exchange rates in order to increase profits. In 2015, a group of 13 banks were accused of colluding to manipulate the credit default swap market.
Fewer banks means greater centralization. Greater centralization means greater power in fewer hands and greater power in fewer hands means more people suffer.
4. Money Creation
Money creation is a complex process that can be difficult to understand. In this section, we’ll take a look at how money is created and what the role of central banks in creating it.
Money Creation: How Does It Work?
The first thing you need to know about money creation is that it involves two steps: creating credit and then adding value to that credit through lending or investment.
The process begins when banks extend loans or make investments (such as buying bonds) using their own capital reserves; these funds are then used by borrowers or investors who spend them on goods and services from other businesses or individuals around the world–in other words, they’re spent into circulation as currency. Once these transactions have taken place, those who received new funds must pay back their debts with interest over time via regular payments made directly into bank accounts held by lenders/investors so that there’s always enough money available for everyone involved in this cycle without anyone ever having any extra cash lying around!
5. Debt-Based Money System
A debt-based money system is one in which the government, central bank and private banks create money out of thin air by lending it into existence.
A debt-based money system works like this: The government (or central bank) issues bonds to private banks who then buy them with newly created cash. The government then spends this new money into circulation by paying contractors etc., who will pay their employees/suppliers etc., who will also spend their wages on goods and services provided by other businesses etc., until eventually all those businesses have paid off their debts to each other through consumer spending – creating a cycle of economic growth that keeps going round and round until someone stops spending!
The implications of such a system are numerous but here are three important ones:
1) You can never pay off your mortgage because there’s no limit on how much interest you owe
2) Governments can never run out of money because they can always borrow more from private banks
3) Banks don’t need deposits before making loans because they just create them out of thin air when needed (and charge interest).
Interest rates are the cost of borrowing money. The Federal Reserve, which is the central bank of the United States, controls interest rates by adjusting its policy on how much money it makes available to banks and other financial institutions. When they want to increase economic growth and inflation (a rise in prices), they lower interest rates by increasing their monetary supply. This causes more money to be available for lending, which reduces borrowing costs and encourages businesses and consumers alike to spend more freely, or at least that’s the proposed theory.
I hope you found at least something of use here. There are many aspects of all subjects that are often ‘left out’ of traditional state run education systems. Whether it be economics or history or science, it is in the interest of your government that you know what it wants you to know, and less of what they don’t want you to know.
Here at the People Empowerment Project we believe everyone has the right to know both sides to every subject, topic or discussion point. We believe that with the right knowledge, anyone can become the very best versions of themselves.
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