Hello, I am a layperson only recently exposed to the Austrian school of economics. I’m fascinated by it and I’m buying what you’re selling. I do have a question: I’ve read a few books by Murray Rothbard and he’s critical of the fractional reserve banking system. What I do not understand: without f…

To slowly kill FRL i would (now its the right moment) require a 40% reserve ratio. Little by little I would increase this 5% a year until we have a 100% reserve system.

I’m not an expert or an economist. I have looked into some gold vaults. These are interesting places that store your gold and charge a storage fee. They also buy and sell gold on the open market by wire transfer of funds. And they issue gold-grams or the equivalent. A gold-gram is currency 100% back…

I’m glad someone stickied this. I’m a newcomer to the Mises forum, though I’ve been plowing through Rothbard’s MES like a madman for the last two months. I, like so many others, have yet another question about the fractional reserve system. I understand how a bank keeping 100% reserves can make mo…

I don’t think it’s necessary to actually outlaw FRB. Market competition between banks will naturally punish and limit the practice. See Rothbard’s History of Money and Banking (pdf link) - specifically, see the chapter titled: A Free Market “Central Bank”.

Thanks for the link, I will look into that. In MES, he definitely sounds like he wants to outlaw it – “Most present legal systems do not outlaw this practice; in fact, it is considered basic banking procedure. Yet the libertarian law of the free market would have to prohibit it.” Though at the same …

But a fractional reserve bank that claims to have all deposits on hand (i.e. full reserve bank) would be a fraud.

Then I must ask – why doesn’t Rothbard acknowledge this? Does he really believe that’s how we think banks work? To say such a profound thing that fractional reserve banking would be illegal in libertarian law but then leave out the question about banks as they currently stand (i.e. technically they …

Here’s the problem for the FRB bank: If they have less than 100% reserves there exists a possibility any given depositor won’t get their money back, In an attempt to obviate this problem they can inform their depositors that there is a possibility that they will not get their money back if they do…

Most consumers are not that smart. The limiting factor for FRB is competition from other banks. When a bank receives deposits in the form of banknotes from a competing bank it will not hold those notes, but will instead immediately present them for redemption in gold. Every bank’s ability to float …

Fractional reserve banking

Economics Economics Questions

bedwere May 20, 2009, 12:59pm 149

The problem is given by the government that insures deposit accounts in bankrupt FRB.

If a consumer had the freedom to choose between a full reserve bank and an uninsured fractional reserve bank, that would be fair market competition.

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Fractional reserve banking

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