Fractional reserve banking

Bryan's post at EconLog critiquing Rothbard on fractional reserve banking is entirely correct.

And it brings back memories of the Rothbard Graduate Seminar that I attended in the summer of '99 in Auburn. I pressed a couple of the folks there: if we were in a free banking system and people chose, with full knowledge, to use deposit accounts that paid interest in exchange for the bank being able to lend that money out to others, we could hardly call the arrangement fraudulent. The answer I'd then received, if I recall correctly, was that such an arrangement was fine, but it shouldn't be called banking.

I'd be pretty surprised if the nominal change resulted in less confusion. Jimmy Stewart reminded folks pretty well how banking as we now know it works.


And the Simpsons reminded us a bit more recently.