The Mystery of Banking

Category: Economics
Author: Murray N. Rothbard, Joseph T. Salerno


by sausman   2019-07-11
I’m not sure all types of money have this characteristic, but debt-based money in a fractional reserve banking system certainly seems to. The banks are perpetually insolvent because the time structure of their assets (loans) doesn’t match the time structure of their liabilities (“deposits”). At any time a bank run can bring them and the entire economy down. Sure, the government guarantees their deposits, but AFAIK they don’t provide anywhere near enough insurance. Not to mention the moral hazard it creates for banks to act recklessly.

It’s been a while since I read up on the topic, but the origins of fractional-reserve banking sound a lot like fraud that got blamed on the hard money that exposed it. (