In The Case Against the Fed, Murray Rothbard presents some interesting historical facts about the way banking law evolved. The audio to this is available at www.mises.org.
Rothbard details the way in which bailment law developed differently for warehouses, grain elevators, and banks. In an ordinary warehouse the owner is of course responsible for the items he is storing for the customer. In grain elevators, which deal in fungible grain, the practice of issuing fake warehouse receipts and keeping only a fraction of the actual grain for which receipts exist on hand was treated as fraud and banned. However, the same exact practice was not banned for banks which deal in the fungible commodity of money.
Rothbard presents a good explanation of the way banks create bubbles and how the federal reserve makes this possible by causing the banks to act together in a cartel like structure. I strongly recommend The Case Against the Fed for anyone who wishes to understand the true causes of the great depression and the current financial meltdown.
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I read that book too and I thought it was really interesting. So what do you think, is it a mistake to allow banks to operate on the fractional reserve system?
ReplyDeleteI know there is some debate amongst Austrian economists on this issue. I think it will be impossible to eliminate it as a practice but just by eliminating the Federal Reserve we could greatly curtail it. In an ideal world I think it would be treated as fraudulent on its face, just like generating false grain elevator receipts and banned. But you can’t go back and time and rewrite the banking laws or change them over night.
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