Walter Block vs. Bryan Caplan On Fractional Reserve Banking
Interesting exchange between Walter Block and Bryan Caplan on the issue of fractional reserve banking, along with a reading list of articles and books that are pro- and con.
posted by stefankarlsson at 12:28 PM
4 Comments:
Useless discussion. Both parties fail to mention the freedom of contract. A fractional reserve bank can state that handing over gold or cash is giving the bank credit. Rothbardians want to forbid such contracts.
Jeffrey Rogers-Hummel's speech is an excellent one. It is available at fee.org.
Johan
Rothbardians don't want to ban credit contracts. What they want to ban is contracts that claim the metaphysical impossibility of two parties having right to the same money at the same time because this metaphysical impossibility constitute fraud.
I would think that in a 100% reserve, free banking environment, we'd see a large promotion of Certificates of Deposit, which banks could safely lend for a period of time.
As opposed to lending checking and savings deposits and saying, "No, it's still here, you can withdraw any time." Of course it's NOT still there...
Under freedom of contract, the bank can state that the customers only have access to a common pool of cash. If that pool is empty, the bank cannot and will not turn liabilities into cash. This is the "option clause" that Scottish banks used and Jeffrey Rogers-Hummel talks about. Rothbardians will have large difficulties with banning such contracts.
Btw, even if a contract contained a "metaphysical impossibility", why should it be forbidden? By which standard?
I also agree with "anonymous" that if FRB was banned, banks would issue short term certificates where savers could place money and receive interest. There would be a work-around but with higher transaction costs. Credit would decrease with a fraction.
Johan
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