Search This Blog

Monday, September 20, 2010


How fractional reserve banking swindles customers.

Amplify’d from
The nineteenth-century
English economist Thomas Tooke correctly stated that "free trade
in banking is tantamount to free trade in swindling." But under
freedom, and without government support, there are some severe
hitches in this counterfeiting process, or in what has been termed
"free banking." First: why should anyone trust me? Why should
anyone accept the checking deposits of the Rothbard Bank? But
second, even if I were trusted, and I were able to con my way
into the trust of the gullible, there is another severe problem,
caused by the fact that the banking system is competitive, with
free entry into the field. After all, the Rothbard Bank is limited
in its clientele. After Jones borrows checking deposits from me,
he is going to spend it. Why else pay money for a loan? Sooner
or later, the money he spends, whether for a vacation, or for
expanding his business, will be spent on the goods or services
of clients of some other bank, say the Rockwell Bank. The Rockwell
Bank is not particularly interested in holding checking accounts
on my bank; it wants reserves so that it can pyramid its own counterfeiting
on top of cash reserves. And so if, to make the case simple, the
Rockwell Bank gets a $10,000 check on the Rothbard Bank, it is
going to demand cash so that it can do some inflationary counterfeit-pyramiding
of its own. But, I, of course, can't pay the $10,000, so I'm finished.
Bankrupt. Found out. By rights, I should be in jail as an embezzler,
but at least my phoney checking deposits and I are out of the
game, and out of the money supply.

No comments:

Post a Comment