No Free Lunch: Economics for a Fallen World: Third Edition, Revised

Chapter Eleven: Money, Money, Money! 269 something that should be avoided as well. Aside from the possible moral objections of debt-based money, it leads to financial instability as opposed to asset-based money with 100% reserves. It always works just fine…until it doesn’t—like the Great Depression and the 2008-2009 “Great Contraction.” IT’S A WRAP! Unfortunately, we don’t and aren’t likely to live in the first “best” world anytime soon. People always want something for nothing, so we tolerate fractional reserve banking since we “earn interest.” Of course, as promising economic students, you know there is no free lunch. Earning interest on a demand deposit (a checking account) only comes with higher prices and financial instability, eating away the very return we thought we were getting. So if we live in a world of central banks, fiat money, and fractional reserve banking, is there anything we can do to make it less problematic? Actually, there is. We’ll now go a bit more in depth with monetary economics to understand what exactly money is in a modern economy, and what tools we have to stabilize monetary policy. But, this will have to wait until the next chapter!