Reserve banking

Does fractional reserve banking endanger the economy? A debate

On April 16, 2018, two free-market economists debated a topic that has long divided libertarians. Fractional Reserve Bank refers to the common practice of banks to hold only part of their depositors’ money and lend out the rest. In The mystery of the bank (1983), anarcho-capitalist economist Murray Rothbard called fractional reserve banking “a shell game, a Ponzi scheme, a fraud in which false warehouse receipts are issued and circulated as the equivalent of the ‘money supposed to be represented by the receipts’. Other libertarian economists, such as Larry White and Steve Horwitz, have argued that the practice is perfectly defensible.

At the Soho Forum, a series of debates in New York sponsored by the Reason Foundation, Robert Murphy debated George Selgin on the following resolution: “Fractional reserve banking poses a threat to the stability of market economies.

Murphy, a research assistant professor at the Free Market Institute at Texas Tech University, argued in the affirmative. He has a doctorate. in Economics from NYU has ties to the Institute for Energy Research, the Mises Institute, the Fraser Institute, and the Independent Institute. He is the author of hundreds of articles and several books explaining economics to the layman, including Choices: cooperation, enterprise and human action.

Selgin, who opposed the resolution, is senior fellow and director of the Center for Monetary and Financial Alternatives at the Cato Institute and professor emeritus of economics at the University of Georgia. His research covers a wide range of topics in the field of monetary economics, including monetary history, macroeconomic theory, and the history of monetary thought. He is the author of The free banking theory, Banking deregulation and monetary order, Less than zero: the case for a lower price level in a growing economy, and more recently Good Money: Birmingham Button Makers, Royal Mint and the Beginnings of Modern Coinage.

The Soho Forum hosts Oxford-style debates, in which the public votes on the resolution at the start and end of the event. The side that gains the most ground is victorious. “In this case, Selgin won by convincing 14% of the public to play on his side.

Next month at the Soho Forum: George Mason University economist Bryan Caplan versus Harvard economist Edward Glaeser on whether “all government support for higher education should be abolished” . The debate is linked to Caplan’s recent book, The case against education: why the education system is a waste of time and money. Buy your tickets here. Watch Nick Gillespie’s interview with Caplan here.

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