Real banking

by vimothy

More econ-geekery–this from an Austrian blog post on the terrors of the fractional reserve system. The article itself is somewhat flawed, but the following passage is an excellent description of the relationship between financial intermediation and intertemporal trade:

By fulfilling the role of an intermediary, banks are an important factor in the process of real wealth formation. Banks facilitate the flow of real funding by introducing ‘suppliers’ of real funding to ‘demanders’. When a saver lends money, what he in fact lends to borrowers is final consumer goods he has not consumed. Credit then means that unconsumed goods are loaned by one productive individual to another, to be repaid out of future production.

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