This is more than a book about theory, which, no matter how logically presented, never seems to satisfy advocates of competing theories. “It’s just your theory among many.” The real novel addition is found in later chapters that provide explanations and links to sophisticated studies that show how the wealth-generating free market has been crippled by excessive money growth and burdensome regulation. Since at least 1980, monetary authorities have sought to forestall recessions via monetary pumping that has led to larger and larger financial bubbles. These may be difficult to deflate, despite their assumption that a complete collapse can be avoided by timely reforms. But, as the authors point out, reforms may fail if the damage is too great. The collapse of the Soviet Union could not be avoided by Gorbachev’s late attempt at perestroika and glasnost. It is the hubris of the West’s monetary and regulatory class that such an event is impossible on our side of the old Iron Curtain. But is it?

The errors stem from misunderstanding by authors of textbooks, some central bankers themselves, and even Nobel laureates of what money actually is and how it is created. Most textbooks get money creation wrong, believing that banks lend out customer deposits; whereas, the vast majority of money is created by the lending process itself and does not require prior customer deposits at all. Gone is fractional reserve banking, whereby banks had to maintain a fraction of their deposit liabilities in base money either in their vaults or an account at the central bank. As the authors point out in the early chapters, by and large central banks provide all the reserves (base money) that the banks demand in order to satisfy their customers’ lending demands. In other words, there is no real mechanism to instill discipline in banks and their borrowing customers.