Comments please: Fractional reserve banking in a free banking atmosphere, with privately issued notes, and voluntary contracts between banks and clients. An application of marginal utility analysis to fractional reserve banking. The client agrees to allow the bank to create new banknotes, thus dim…

Lots of confusion, as always. Two main points : Some people just assume that IOUs will be accepted as if they were money ? Why ? Financial magic. FRB tends to be conflated with the creation of fiduciary media. Why ? Who knows. Fact is, FRB can work to a probably (very) limited extent without c…

Markets are a risky place. That just goes with the territory.

Nirgraham, I think you’re argument stems more from contract law - which is political - than from economics. If your point is that fractional reserve banking is fraud, fine, I don’t know about that but I won’t confirm or deny. That said, it hasn’t been shown why fractional reserve banks aren’t econ…

And the contrary hasn’t been shown either. Fact is that this is an empirical matter and I have history on my side. Ermm, fudiciary media is defined as those notes that aren’t backed by base money. So, yeah, as a matter of definition FRB necessitates the creation of fudiciary media.

I tend to define insolvent as having a negative balance. Am I wrong? If not, it is impossible for a 100% reserve bank to become insolvent. If all deposits are simply stored, and all loans are made from real savings, as 100% reserve implies, the absolute worst possible scenario, barring a bank robbe…

Actually, what theory and history show is that people reject inflated paper unless they are forced to use it at the point of a gun. Nope. But as I said, I’m not doing your thinking for you.

Sorry, but theory has nothing to say here. This depends on how risk averse the population are and how much they value the interest they earn. Historically, you’re wrong. Simply put people did value the interest they earn on reserves more than they value the extra security from 100% reserves.

Theory explains what is money, what is inflation, what inflation leads to etc. Printing notes has nothing to do with risk and interest - it’s basically counterfeiting. Also, there’s no special upside to so called credit-money but it causes a good deal of problems. It won’t survive in a real free m…

I think you make some good points here about the banking industry and how it would operate in a free market, as you said, from a practical standpoint. However, from a traditional Austrian School perspective we wouldn’t be focused on the specific operations of particular industries. From a tradition…

Hi Jack. Regarding this part: “If all deposits are simply stored, and all loans are made from real savings, as 100% reserve implies,…” Where does the money for the loan come from in this example? Do you mean a totally separate loan operation having nothing to do with the stored money? Adam

Fractional Reserve Banking

Economics Economics Questions

azazel August 7, 2009, 10:46am 82

https://forum.freecapitalists.org/t/full-reserve-banking/6820

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Fractional Reserve Banking

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