[ExI] Free banking and fractional reserve banking (Re: Serfdom and libertarian critiques)

F. C. Moulton moulton at moulton.com
Sat Feb 26 07:01:33 UTC 2011

J. Stanton wrote:
> [I hope that, since this discussion is more about banking at this point,
> I can still respond to these messages even though the libertarian
> quarantine has been re-established.]
In the your reply you confuse different concepts.  This is not about
libertarianism it is about fundamental definitions.  Below I try to draw
the distinction again.
> F. C. Moulton wrote:
>> I am somewhat baffled by your comments because your comments ignore
>> reality.  Libertarians have long complained about government privileged
>> banking.  And obviously all anarchists by definition are opposed to
>> government granted privilege in commerce or any other area.  Plus
>> economists discuss free banking and it is easy to find.  Since I have
>> been providing so many text links here are some video links:
>> http://www.youtube.com/watch?v=5P7W1G1hbiQ
>> http://www.youtube.com/watch?v=0PyS2NtW3xA
> This is a common point of confusion. "Free banking" still allows banks
> the privilege of creating money by issuing debt ("fractional reserve
> banking"), a fraudulent practice that any of us would go to jail for,
> and which is a special power granted only to "banks" by governments

Currently most banks are chartered by governments but remember this is
not necessary.  If governments got out of the bank regulation business
then we would probably  still have banks.  Consider the situation where
the government is not involved in giving any special privilege to
Banks.  Opening a bank is just like opening a flower shop as far as the
government is concerned.  You could start the Stanton Bank and engage in
taking deposits and clearing checks and you could charge a fee for
holding peoples money.  I could start Moulton Bank and tell people that
unlike your Bank the Moulton Bank was a fractional reserve bank and
would pay some percentage on deposits and a large amount on Certificates
of Deposit and no extra charge for clearing checks.  Note that there is
no fraud involved.  This is such crucial point I will repeat it one more
time: there is not fraud involved.  Each bank is very clear about what
it does. People can take their choice; they would know their risks.  At
your bank inflation would reduce the value  of the deposits; in my bank
there is the possibility of my bank making a bunch of bad loans and
going out of business and depositors being left short.  Some people
choose one risk and some the other.  But the key is that there is also
no government privilege.   So please do not confusion government
privilege, fractional reserve banking and free banking.  There are very
important differences.


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