Mises Institute scholar Guido Hülsmann on fractional reserve banking versus 100% redeemeable gold in the Independent Institute’s excellent journal The Independent Review.
Has Fractional-Reserve Banking Really Passed the Market Test?
by J. G. HülsmannSome economists suggest that because fractional-reserve banking is the rule in Western banking systems today, it has passed the “market test,” whereas the alternative arrangement of 100 percent reserves for money titles has not. In reality, the present-day dominance of fractional-reserve banking is not a matter of having passed the market test but of legal restrictions that have hindered product differentiation in banking.
Accounting for Fractional-Reserve Banknotes and Deposits – or, What’s Twenty Quid to the Bloody Midland Bank?
by Lawrence H. WhiteContrary to Hülsmann, fractional-reserve banking prevailed over warehouse banking by offering customers a better deal, not by government intervention. No examples of the legal suppression of an explicit money warehouse have ever been discovered, although examples of legally protected money warehousing can be found today, in such services as fully guaranteed gold storage and bank safe-deposit boxes (which U.S. law treats as a bailment).
