I keep reading that, while under free banking credit expansion would be checked by the limited clientele of each bank, if there is a central bank that pumps in reserves for everybody at the same rate, then every bank can expand together and no bank will lose reserves to another on net. But I don’t …

Sorry Tunk I just wrote out a response about the differences in price discrepancies between with/without central banking but did not know how to tie that back into the matter of note redeemability. Is this the reason that non-clients wish to redeem their notes, generally: when bank’s embark on expa…

Well, according to what I’ve understood from Rothbard, the reason why nonclients will call for redemption just has to do with the fact that they are clients of a different bank with which they have their own deposit arrangements that they prefer. So if Bank A creates a demand deposit and loans it to…

But why in the first place does the client of Bank B want to switch his Bank A notes for Bank B notes? Why did he choose Bank B over Bank A? Is not the reason that people prefer one bank to the next either the greater returns they receive or the safety of their savings, both things being indicative …

He’s a client of Bank B for whatever reason that he’s a client of Bank B. It doesn’t really matter with respect to my question. All that matters is that he will ask his bank to redeem all checks/notes from banks other than his own, under central banking or free banking. But under central banking, su…

I still think that the depreciation of notes is required to explain this. When all banks expand their note circulation equally, there is no ‘stronger’ note or ‘weaker’ note. Clearing houses do not set prices on different paper. So there is no reason for anyone to ‘get in’ or ‘get out’ of any kind of…

George Selgin explains that very well in his book “ The Theory of Free Banking ”. Scottish banks do not usually practice credit expansion in concert. Remember the note dueling era. Chapter 2 : “Initially there might not be much movement towards rationalization of note exchange. That Ruritania’s ban…

One more thing ( chapter 9 ) : Note and deposit exchange rates would reflect potentials for capital losses depending on the soundness of underlying bank loans and investments. Chapter 2 showed how note brokerage systematically eliminates note-discounting except when it is based on risk-default gener…

Sorry if I’m being irritating, Topffer, but could you explain this logic, in a step-by-step way? Selgin is asserting this without illustrating it, just like Rothbard, and expecting his audience to grasp it. But I’m still new to all this. Why would reserves flowing out always be equal to reserves fl…

I discuss the argument at greater length here .

Question about banks and reserves

Economics Economics Questions

John_James April 6, 2012, 2:24pm 2

I’m not completely sure about the answer to your question, but I just wanted to make sure you were aware of some of the resources on the subject that might help…

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Question about banks and reserves

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