Comments on: Free Markets, Free Men, and Fractional Reserve Banking, Part I

By: lars ferrer

lars ferrer — Tue, 15 Sep 2009 02:48:52 +0000

Hello
I am not any type of financial expert, but I have been studying fractional reserve lending and it seems very unfair to me. I am a cabinet maker. It was impossible for me to get a small business loan, so I financed my business with credit cards. Big mistake probably will cause my business to fail. But a bank and its share holders get to literally create money and charge interest on it. It seems immoral to me. The vast majority of money in the system is debt money created by banks which causes inflation, which means society as a whole is actually paying for the money that is loaned out. MY question to you is why do banks deserve this huge advantage? Why couldn’t the federal reserve actually be a government entity that did the fractional reserve lending at low or no interest. It seems to me then small business could get the capital it needs at reasonable interest rates.
sincerly lars

By: David Z

David Z — Tue, 12 May 2009 18:20:04 +0000

I’d add that a localized rise in prices is not inflation, per se.

If it’s relatively scarce and in demand, the price goes up. Along with exciting economic activity, more money is being pooled in a localized area.

…That money must first be withdrawn from some other area.

When prices rise due to e.g., a change in the general demand for a good/service, or when prices rise due to a change in the supply of a good/service, this isn’t inflation. Inflation is an increase in the money supply, and drawing artificial borders around so-called “localized areas” to make a case-specific example of localized inflation is flat out wrong. In the example the money supply hasn’t grown, it’s just been reallocated.

By: Chris

Chris — Wed, 11 Mar 2009 05:06:26 +0000

The debate is fine, but flawed. It seems there is an assumption (at least on the pro-fractional side) that more is better. We are always measuring success by “more” production, etc. We have indeed enslaved ourselves to Money just as William Jennings Bryan wished against. We no longer use currency to facilitate the necessary trading to make our lives work (I make shoes, but I need a bunch of carrots and a chair…). Instead, we use our skills to grow our GDP, and our CPI, and our dividends, and our BLAH BLAH BLAH…

It may not even matter, fractional or 1:1. It seams, though, from my perspective, that fractional banking creates a stronger devotion to constant-expansion economics, where we are slaves to our economic needs.

A 1:1 currency stands a better chance of being an economic servant to our daily lives. Think of money as a trade lubricant instead of a success metric.

In short, “Growth as a goal should not be assumed for this debate”