One of Charles Rist's quotes, which is most relevent to the world now, and speaks directly to Greenspan's financial bubbles is:
§ A policy aimed at monetary stability will secure a relative stability of prices, but the economic history of the 1920's teaches us that a policy whose goal is stabilization of prices may result in inflation of money and credit, and very unsound speculation. - Charles Rist
Here's an excerpt from Charles Rist's book I mentioned focusing on the mistakes organizations like the Fed make when they confuse money with credit. An increase in credit increases not increase the Money Supply, such as M3, but instead increases Monetary Velocity. This leads the Fed to implement horribly mistaken policies.
Charles Rist referred to the qauck school of economists, of the Milton Friedman sort, as Currency Cranks.
"History of Monetary and Credit Theory from John Law to the Present Day"
Chapter One - Confusion between Credit and Money p. 39.
The use of the bank-note, as later that of the cheque, increases the credit capacity of banks by weaning the public from the habit of using coin. Thanks to this ingenious social device a large part of the sums deposited with the banker is used by him to grant credits to borrowers, while at the same time it remains at the disposal of its owners for making payments to each other. That is the entire "mystery" of credit.
But in all this there is no increase in money, there is merely a more rapid circulation of existing money. Henry Thornton, whose perceptions were very sharp, saw this quite clearly: If at any given moment an inventory were made of the wealth of a society, the notes issued by the bank, included among the bearer's assets, are counterbalanced by commercial drafts among the liabilities of the signatory; credit and debit equal each other and cancel each other out. "The case of gold, on the other hand, differs from that of paper inasmuch as the possessor of gold takes credit for that which no man debits himself." 1
1 Henry Thornton: An Enquiry into the Nature and Effects of the Paper Credit of Great Britain (1802) p.21.
Chapter One - Confusion between Credit and Money p. 41.
But this velocity is not constant. It can increase or diminish, an that in two ways: either the minimum to which I have referred is raised, as the practice of resorting to credit becomes more widespread; here it is the velocity of circulation of the cash deposited with banks that increases - or, the velocity of circulation remaining the same for each unit of money delivered to the banks, the number of these units is increased, as the public resort more and more to the practice of concentrating their monetary resources at the banks. Here there is an increase in the velocity of circulation, not of the money placed in the banks, but of the total stock of money within the country.
The two phenomena may occur simultaneously, may strengthen each other, cancel each other out, or act in different directions. But they do not arise from the same causes. The second phenomenon is slow and steady in its working, the first displays rapid alternations of growth and decline, corresponding to phases of boom and slump, or to a prolonged rise or fall in prices. It is by far the more important. The second is of interest because, up to a certain point, it can compensate for an inadequate supply of precious metals.
Chapter One - Confusion between Credit and Money p. 41.
The expression velocity of circulation, a favourite term among English writers, is, it is evident, full of ambiguities in its application to banking phenomena. It would be better to restrict its use to the movement of monetary units deposited at the banks, and to use the expression "concentration of coin in the banks" for what has been called the velocity of circulation of the total stock of money within the country.
It is possible to go still further, and to call the changes in the velocity given by the banks to the cash deposited with them simply an increase or decrease of banking credit.
Chapter One - Confusion between Credit and Money p. 41.
The failure of John Law's unfortunate attempt to establish a bank of issue in France dominated the ideas of the eighteenth century about credit. His contention that to create money is to create wealth was vigorously rejected by all of his contemporaries. The efforts made in the course of the century by so many writers, including Smith, Hume, and Turgot, to reduce the role of money in the national economy to nothing or to insignificance, were directed against Law rather than against mercantilist ideas about money, which had already worn thin. Had not Law announced that an increase in the quantity of money was the only way of stimulating the national economy?
Charles Rist, "History of Monetary and Credit Theory from John Law to the Present Day" Chapter I, Confusion between Credit and Money, p. 44
In the "Wealth of Nations" Adam Smith calls John Law's System "the most extravagant project both of banking and stock jobbing that, perhaps the world ever saw." (Adam Smith, Wealth of Nations, Bk, II, Chapter II. Cannan edition, Vol. I, p. 301) The nineteenth and twentieth centuries have at times been less critical of Law. Certain passages written in restrained and reasonable manner are quoted as expressing the real essence of Law's thought. Actually, they are tactical concessions to the necessities of the moment.
It has also been said that he was an unrecognized forerunner, because certain bankers today have taken up some of his most debatable formulas. It would be more correct to regard these belated disciples as backsliders. The eighteenth century was not mistaken in its attitude. It saw through the fundamental confusion between credit and money that Law deliberately and persistently maintained throughout all of the vicissitudes of his tormented career. I would go further: credit had no interest for him except as a means of making the public familiar with paper money.
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