Bagus, Howden, and Block on 100% Reserve Banking in a Free Society
Many economists, such as George Selgin and Lawrence White, argue that in a free society with a necessarily free banking system fractional reserve banking would be both legal and efficient. Philipp Bagus, David Howden, and Walter Block have authored a new article that argues otherwise. In in a new article “Deposits, Loans, and Banking: Clarifying the Debate,” they make the case that fractional reserve banking would be illegal in a free society.
The article abstract reads as follows:
The relationship between banking deposits and loans is contentious. While the defense of a 100 percent reserve clause to eliminate fractional reserves has commonly been asserted on economic and ethical grounds, Huerta de Soto (2006) arguments are largely ignored. Rozeff (2010) is an example. We show that treating a loan and a deposit interchangeably is impermissible due to both established and a priori legal principles. At best, fractional reserves may be considered an aleatory contract but this is incompatible with the reason individuals hold money—mitigating uncertainty. Deposit and loan contracts are distinct, and may not be contractually melded together.
Source: http://foundationsofecon.blogspot.com/2013/07/bagus-howden-and-block-on-100-reserve.html
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