Re: Frayed Ends: Business, Economics, and Tax Policy 3.0
I highly doubt it, especially if you had any idea of the consequences.
Fractional reserve banking has probably been one of the very most important innovations driving a higher standard of living than anything else I can think of. The problem is more (a) at what level are reserves set, and (b) are people reporting their reserves honestly.
As I understand it, you are right in a technical sense that fractional reserve banking did originate through fraudulent behavior....though not by bankers, but by goldsmiths. People who owned some wealth in gold who also wanted to keep it safe would put it in a vault, and goldsmiths had the best vaults. It was centuries before banks developed.
The goldsmiths would then use the gold in their vaults to collateralize loans. At the beginning, they only used their own gold, not the gold stored with them by other people. After awhile, they noticed that among all the people storing gold with them, a certain additional amount was always on hand, and just like in The Producers, they started using other people's gold to collateralize loans as well. Thus began what eventually developed into fractional reserve banking.
Let's say reserves are at 15%. Depending upon the velocity of money, an injection of a new $10,000 into the banking system could lead to a total of $85,000 in circulation (Source: Federal Reserve Bank of St. Louis publication in my archives). That gives a lot of auto workers jobs, a lot of construction workers jobs, a lot of businesses the line of credit they need to smooth out cash flow when revenues come in fits and starts.
It's hard to imagine any person who cares about the well-being of others to advocate the abolition of fractional-reserve banking. Reform, sure. Abolish? No way.
I highly doubt it, especially if you had any idea of the consequences.
Fractional reserve banking has probably been one of the very most important innovations driving a higher standard of living than anything else I can think of. The problem is more (a) at what level are reserves set, and (b) are people reporting their reserves honestly.
As I understand it, you are right in a technical sense that fractional reserve banking did originate through fraudulent behavior....though not by bankers, but by goldsmiths. People who owned some wealth in gold who also wanted to keep it safe would put it in a vault, and goldsmiths had the best vaults. It was centuries before banks developed.
The goldsmiths would then use the gold in their vaults to collateralize loans. At the beginning, they only used their own gold, not the gold stored with them by other people. After awhile, they noticed that among all the people storing gold with them, a certain additional amount was always on hand, and just like in The Producers, they started using other people's gold to collateralize loans as well. Thus began what eventually developed into fractional reserve banking.
Let's say reserves are at 15%. Depending upon the velocity of money, an injection of a new $10,000 into the banking system could lead to a total of $85,000 in circulation (Source: Federal Reserve Bank of St. Louis publication in my archives). That gives a lot of auto workers jobs, a lot of construction workers jobs, a lot of businesses the line of credit they need to smooth out cash flow when revenues come in fits and starts.
It's hard to imagine any person who cares about the well-being of others to advocate the abolition of fractional-reserve banking. Reform, sure. Abolish? No way.
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