No institution more clearly relies on trust than the bank. That is precisely what makes banks a lightning rod for suspicion. From the time modern banking emerged, it has been the subject of intense misgivings. Many of these suspicions are with us still.
This issue gets much more attention in Specialization and Trade than it does in standard economic textbooks, but reading Vause’s essay makes me think that there is even more involved. The role of materialism is one example. That is people, including most economists, want to see value reduced to tangible properties of things, such as capital and labor input. A prerequisite for understanding finance is a willingness to acknowledge the large intangible components of value, including the components that consist of trust and financial intermediation.
Everything is a tradeoff. There is a form of banking that requires much less trust – full reserve banking (with third party audits of the reserves). The adoption of full reserve banking would trade the need to trust bankers in exchange for less monetary creation.
“A prerequisite for understanding finance is a willingness to acknowledge the large intangible components of value…”
Don’t make excuses for finance. Treat finance as a factor like land, labor and capital, and look at the evolution of costs accruing to these four factors.
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Just yesterday I found your “Basic Macroeconomic Equation System”
http://arnoldkling.com/econ/macro/firstmodel.html
and worked thru it. Thank you! I especially like your trick question about the Paradox of Thrift. (S=I, and Investment is exogenous in the model!)