The Faults of Fractional-Reserve Banking - Thorsten Polleit - Mises Daily

The Faults of Fractional-Reserve Banking - Thorsten Polleit - Mises Daily: "'any contractual agreement that involves presenting two different individuals as simultaneous owners of the same thing (or alternatively, the same thing as simultaneously owned by more than one person) is objectively false and thus fraudulent.'[4] A 'fractional reserve banking agreement implies no lesser an impossibility and fraud than that involved in the trade of flying elephants or squared circles.'"

"Arguing in favor of fractional-reserve banking would in fact be tantamount to saying that it is legal (or rightful or even lawful) that Mr. A does whatever he wishes with Mr. B's property — without requiring Mr. B's consent."

"fractional-reserve banking is not, as Mr. Wolf notes, 'a natural consequence of market forces.' It is a result of, and has been upheld by, government law.


In a free-market system, the practice of fractional-reserve banking would be illegal by its very nature. And so fractional-reserve banking would be ended (sooner rather than later) under the auspices of a functioning law of private-property rights."

"fractional-reserve banking under commodity money necessarily causes economic problems on a grand scale. This is because banks then engage in circulation-credit expansion — that is, they issue money through lending that is not backed by real savings.

Circulation bank credit is inflationary, and it causes economic disequilibria and overindebtedness of the private sector — in particular on the part of governments. It is also the very cause of the 'boom-and-bust' cycle."