Well, banks in the free banking period backed their notes with their reputation. As do banks today...the difference being the legal obligations banks have to fulfill those backings. While in the era of free banking, it was very much caveat emptor, for better or worse.
I have studied Austrian business cycle theory. It is just that I don't agree with it. Austrian economics fundamentally does not understand the monetary system of today (where the government is not revenue constrained, and the money is not convertible and has a floating exchange rate). Moreover, the business cycles proposed in the ABCT are evident in economies with no central bank. Lastly, ABCT critically faults central banks for keeping interest rates low, thereby inducing mal-investment (without ever proving it, but I digress). Yet at the same time, they assure us that the market is completely rational, made up of rational actors. If those rational actors know that the central bank is artificially keeping interest rates low, would they not adjust their investments accordingly?
These are just some of the flaws in the theory. In any case, it is not the point of the discussion.
Plan for eliminating the national debt in 10-20 years:
Specific cuts; defense spending: http://rolexian.wordpress.com/2011/01/03/more-detailed-look-a
Want DP delivered to your inbox daily? Subscribe here: