Credit Expansion and the Social Trust

Abstract

We explain the impacts of credit expansion on social trust from the perspective of Austrian economics, and get the conclusion that credit expansion will lower social trust whether or not the masses are familiar with Austrian economics. Even if the public are not familiar with Austrian economics, the problems such as corporate default and unemployment, which resulted from economic bust caused by credit expansion, will lead to the reduction of trust between different individuals and the creation of self-doubt. If the masses have known Austrian economics, then they would know that the nature of fractional reserve system is to infringe on private property rights, that credit expansion triggers inflation which will cause income and wealthy redistribution, that credit expansion is a way to consolidate the common interests between state, banks and industrialists. All those known knowledge will make the masses reduce their trusts to the state, bankers and the industrialists, which ultimately reduces social trust. To eliminate credit expansion from its roots, we have to implement the system of free banking on the gold standard accompanied with a 100 percent reserve system which not only involves banknotes’ issuing but also demand deposits