by J. G. Hülsmann. [Mentioned by Blumen]
Section titles and extracts:
Some Types of Banking Products
Free Banking under Product Differentiation
"...in a free market with proper product differentiation, fractional-reserve banking would play virtually no mometary role."
Banking Crises under Product Differentiation
Free Banking under Homogenized Fractional Reserves
"It is difficult to bring about... increased acceptance [of IOUs + RP i.e. fractional reserv banknotes (RP= redemption promise)] as long as people perceive each of different IOUs + RP as a heterogeneous good because in this case each of them commands a different set of market prices, which makes the IOU unsuitable as a medium of exchange. Therefore, the fractional-reserve bankers have an incentive to cartelize themselves in order to eradicate the differences between the various IOUs + RP that the individual banks issue and to offer some sort of homogenized IOU + RP.
...each bank would redeem at par the IOUs + RP of all cartel members, and as consequence the various IOUs + RP would command the same market price."
Confusion of Money Titles and Fractional-Reserve IOUs
"...the confusion between money titles and fractional-reserve IOUs brings into operation what is commonly known as Gresham's Law... When genuine money titles and fractional-reserve IOUs are confused... the latter will drive the former out of the market.
...the economywide confusion about the nature of fractional-reserve IOUs sets in motion an error cycle that gives rise to a periodic recurrence of booms and busts.
...By the very nature of fractional-reserve banking, more IOUs exist in circulation than money proper. The economywide confusion of such IOUs with genuine money titles thus entails a systematic dissociation between the real world and what market participants believe the real world to be.
...even if it were possible to calculate something such as a probability distribution of redemption demands, acost-benefit analysis... would be impossible because in the case of a confusion between IOUs and money titles it is impossible to give a clear-cut account of (opportunity) costs... if IOUs are held to be the same thing as money titles, then it not at all clear what belongs to whom because multiple claims exist for any given quantity of money at any point in time. As a consequence, the bankers, insofar as they rely in their decisions on a money calculus at all, systematically underestimate the cost of their decisions."
Fraudulent Fractional-Reserve Banking
"Given that fractional-reserve bankers are among those who stand to profit from a confusion of money titles and fractional-reserve IOUs, it is not farfetched to suppose that at least some of them have fallen prey occasionally to the temptation of promoting such confusion.
...intellectual confusion might have stemmed from ambiguities of language, in particular from ambiguities of the word promise."
The Modern Monopoly of Fractional-Reserve Banking
"...in times of normal business the customers have no interest in the discussion of the imperfect nature of their fractional-reserve money titles. Their position as buyers of a commodity X would be impaired if they had to confess that the money title they are offering as payment for X was not a perfect substitute for the money that the title purports to represent.
...[The] ultimate effect [of poor judgement in 19th century Anglo-Saxon cases] was to give fractional-reserve banking a de facto monopoly.
[Footnote 10: "...the present-day dominance of fractional-reserve banking has resulted not from the greater benefits of this type of business, but from its legal privilige".]
The Economics of Political Cover-up
Conclusion
References
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