The Mystery of Banking

The Mystery of Banking
came in 1992 as
I was finishing my thesis at UNLV under Murray’s direction. I
found the book in the university library and couldn’t put it down.
The book was long out of print by that time and being prior to
the start of Amazon.com and other online used book searches, I
was unable to find a copy of the book for purchase. Thus, I fed
dimes into the library copier one Saturday afternoon and made
myself a copy. When the online searches became available I
waited patiently and bought two copies when they surfaced, pay-
ing many times the original $19.95 retail price (as I write this
AbeBooks.com has three copies for sale ranging from $199 to
$225, and Bauman Rare Books recently sold a signed first edition
for $650). 
xii
The Mystery of Banking
Front Matter.qxp 8/4/2008 11:37 AM Page xii

---

When I discovered Rothbard’s great work I had been a banker
for six years, but like most people working in banking, I had no
clear understanding of the industry. It is not knowledge that is
taught on the job. Murray may have referred to me as “the effi-
cient banker,” but he was the one who knew the evil implications
of the modern fractionalized banking system: “the pernicious and
inflationary domination of the State.”
D
OUGLAS
E. F
RENCH
L
AS
V
EGAS
, N
EVADA
J
UNE
2008
Preface
xiii
Front Matter.qxp 8/4/2008 11:37 AM Page xiii

---

Front Matter.qxp 8/4/2008 11:37 AM Page xiv

---

F
OREWORD
L
ong out of print, 
The Mystery of Banking
is perhaps the
least appreciated work among Murray Rothbard’s prodi-
gious body of output. This is a shame because it is a model
of how to apply sound economic theory, dispassionately and
objectively, to the origins and development of real-world institu-
tions and to assess their consequences. It is “institutional econom-
ics” at its best. In this book, the institution under scrutiny is cen-
tral banking as historically embodied in the Federal Reserve
System—the “Fed” for short—the central bank of the United
States. 
The Fed has long been taken for granted in American life and,
since the mid-1980s until very recently, had even come to be ven-
erated. Economists, financial experts, corporate CEOs, Wall
Street bankers, media pundits, and even the small business own-
ers and investors on Main Street began to speak or write about
the Fed in awed and reverential terms. Fed Chairmen Paul Vol-
cker and especially his successor Alan Greenspan achieved mythic
stature during this period and were the subjects of a blizzard of
fawning media stories and biographies. With the bursting of the
high-tech bubble in the late 1990s, the image of the Fed as the deft
and all-seeing helmsman of the economy began to tarnish. But it
was the completely unforeseen eruption of the wave of sub-prime
xv
Foreword v6.qxp 8/4/2008 11:37 AM Page xv

---

mortgage defaults in the middle of this decade, followed by the
Fed’s panicky bailout of major financial institutions and the onset
of incipient stagflation, that has profoundly shaken the wide-
spread confidence in the wisdom and competence of the Fed.
Never was the time more propitious for the radical and penetrat-
ing critique of the Fed and fractional-reserve banking that Roth-
bard offers in this volume. 
Before taking a closer look at the book’s contents and contri-
butions, a brief account of its ill-fated publication history is in
order. It was originally published in 1983 by a short-lived and
eclectic publishing house, Richardson & Snyder, which also pub-
lished around the same time