Fractional Reserve Banking and Specific Performance Contracts

From: Chris Armoutidis
Sent: Friday, January 31, 2020 7:43 AM
Subject: Fractional Reserve Banking

Dear Dr Block

I have a question about fractional reserve banking and it’s legitimacy, I understand how FRB is fraudulent if it’s a demand deposit contract since it would present more than one person as the simultaneous exclusive owners of one and the same thing, which is a logical and physical impossibility.

However I’m not really clear on why it can’t be a loan contract I found an article by Stephan Kinsella that seems to support this view

I was hoping you could clarify this for me I’m really struggling with it, thank you for all your work.

Dear Chris:

I don’t have time to give a full review of Stephan Kinsella’s article on FRB.

Maybe this will help. I disagree with this statement of his: “to do” contracts are generally not enforceable due to specific performance, but can only result in damages if non performance actually occurs.” That is, I think specific performance contracts are licit, he does not. I think the person may properly be compelled to engage in the specific performance, and does not merely owe damages for non performance.

Here are some readings in support of my view on specific performance contracts; see below for material on fractional reserve banking

In the view of Boldrin and Levine, 2008, p. 254: “Take the case of slavery. Why should people not be allowed to sign private contracts binding them to slavery? In fact economists have consistently argued against slavery – during the 19th century David Ricardo and John Stuart Mill engaged in a heated public debate with literary luminaries such as Charles Dickens, with the economists opposing slavery, and the literary giants arguing in favor.”

Andersson, 2007;  Block, 1969, 1979, 1988, 1999, 2001, 2002, 2003, 2004, 2005, 2006, 2007A, 2007B, 2009A, 2009B; Boldrin and Levine, 2008; Frederick, 2014; Kershnar, 2003; Lester, 2000; Mosquito, 2014;  Nozick, 1974, pp. 58, 283, 331; Steiner, 1994, pp. 232-233; 2013, pp. 230-244; Thomson, 1990, pp. 283-284.

Andersson, Anna-Karin. 2007. “An alleged contradiction in Nozick’s entitlement theory.” Journal of Libertarian Studies, Vol. 21, No. 3, Fall: 43–63;

Block, Walter E. 1969. “Voluntary Slavery.” The Libertarian Connection, Vol. I, No. 3, April 13, pp. 9-11.

Block, Walter E. 1979. Book review of Nancy C. Baker, Baby Selling: the Scandal of Black Market Adoptions, New York: The Vanguard Press, 1978; in Libertarian Review, January, Vol. 7, No. 12, pp. 44-45.

Block, Walter E. 1988. “Rent-a-womb market,” Thunder Bay Ontario Daily; June 26.

Block, Walter E. 1999. “Market Inalienability Once Again: Reply to Radin,” Thomas Jefferson Law Journal, Vol. 22, No. 1, Fall, pp. 37-88;

Block, Walter E. 2001. “Alienability, Inalienability, Paternalism and the Law: Reply to Kronman,” American Journal of Criminal Law, Vol. 28, No. 3, Summer, pp. 351-371;

Block, Walter E. 2002. “A Libertarian Theory of Secession and Slavery,” June 10;

Block, Walter E. 2003. “Toward a Libertarian Theory of Inalienability: A Critique of Rothbard, Barnett, Gordon, Smith, Kinsella and Epstein,” Journal of Libertarian Studies, Vol.17, No. 2, Spring, pp. 39-85;

Block, Walter E. 2004. “Are Alienability and the Apriori of Argument Logically Incompatible?” Dialogue, Vol. 1, No. 1.

Block, Walter E. 2005. “Ayn Rand and Austrian Economics: Two Peas in a Pod.” The Journal of Ayn Rand Studies. Vol. 6, No. 2, Spring, pp. 259-269

Block, Walter E. 2006. “Epstein on alienation: a rejoinder” International Journal of Social Economics; Vol. 33, Nos. 3-4, pp. 241-260

Block, Walter E. 2007A. “Secession,” Dialogue. No. 4; pp. 1-14;

Block, Walter E. 2007B. “Alienability: Reply to Kuflik.” Humanomics Vol. 23, No. 3, pp. 117-136;;jsessionid=0685BBB744173274A5E7CE3803132413?contentType=Article&contentId=1626605

Block, Walter E. 2009A. “Yes, Sell Rivers! And Make Legal Some Slave Contracts” The Tyee. July 25;

Block, Walter E. 2009B. “Privatizing Rivers and Voluntary Slave Contracts” July 27;

Boldrin, Michele and David K. Levine. 2008. Against Intellectual Monopoly. Cambridge: Cambridge University Press;

Frederick, Danny. 2014. “Voluntary Slavery,” Las Torres de Lucca 4: 115-37,


Kershnar, Stephen. 2003. “A Liberal Argument for Slavery,” Journal of Social Philosophy, 34 (4): 510-36

Lester, Jan Clifford. 2000. Escape from Leviathan. St. Martin’s Press.

Mosquito, Bionic. 2014. “The Sanctity of Contract.” April 19;

Nozick, Robert. 1974. Anarchy, State and Utopia, New York: Basic Books,

Steiner, Hillel. 1994. An Essay on Rights, Oxford: Blackwell Publishers;

Steiner, Hillel. 2013. “Directed Duties and Inalienable Rights.” Ethics 123 ( January): pp. 230–244

Thomson, Judith Jarvis. 1990. The Realm of Rights, Cambridge, MA, Harvard University Press


I. Anti Fractional reserve banking frb::

Interview, shows common man is ignorant of frb

Bagus, 2003; Bagus, Howden and Block, 2013; Barnett and Block, 2005, 2008, 2009; Batemarco, 2014; Baxendale, 2010; Block versus Posner, 2008; Block and Caplan, 2008; Block and Garschina, 1996; Block and Humphries, 2008; Block and Posner, 2008; Davidson, 2008, 2012; Davidson and Block, 2011; Fuller, 2019; Hanke, 2008; Hazlitt, 1979; Hollenbeck, 2013, 2014A, 2014B; Hoppe, 1994; Hoppe, Hulsmann and Block, 1998; Howden, 2013; Huerta de Soto, 1995, 1998, 2001, 2006, 2010; Hulsmann, 1996, 2000, 2002a, 2002b, 2003, 2008; Murphy, 2011, 2018A, 2018B; North, 2009; Polleit, 2010; Reisman, 1996, 2009; Rothbard, 1975; 1990, 1991, 1993; Salerno, 2010A, 2010B, 2011; Shostak, 2017A, 2017B.

Bagus, Philipp. 2003, ‘The Commons and the Tragedy of Banking’, November 12,

Bagus, Philipp, David Howden and Walter E. Block. 2013. “Deposits, Loans and Banking: Clarifying the Debate,” American Journal of Economics and Sociology, Volume 72, Issue 3, pages 627–644, July;

Barnett, William II and Walter E. Block. 2005. “In defense of fiduciary media— a comment; or, what’s wrong with “clown” or play money?” Quarterly Journal of Austrian Economics; Vol. 8, No. 2, Summer, pp. 55-69;

Barnett, William and Walter E. Block. 2008. “Time deposits, dimensions and fraud,” Journal of Business Ethics;

Barnett, William and Walter E. Block. 2009. “Financial Intermediaries, the Intertemporal-Carry Trade, and Austrian Business Cycles; or; Crash and Carry: Can Fraudulent Time deposits lead to an Austrian Business Cycle? Yes.” Journal Etica e Politica / Ethics & Politics; Vol. XI, No. 1, pp. 455-469;

Batemarco, Robert. 2014. “Austrians, Fractional Reserves, and the Money Multiplier.” September 2;

Baxendale, Tony. 2010. Free Banking, the Balance Sheet and Contract Law Approach; March 15;

Block, Walter versus Eric Posner. 2008. “Posner vs. Block on fractional reserve banking.” November, 29;;

Block, Walter and Bryan Caplan. 2008. “Walter E. Block  versus Bryan Caplan on Fractional Reserve Banking.” Nov 1;

Block, Walter and Kenneth M. Garschina. 1996. “Hayek, Business Cycles and Fractional Reserve Banking: Continuing the De-Homoginization Process,” Review of Austrian Economics, Vol. 9, No. 1, 1995, pp. 77-94;

Block, Walter and John Humphries. 2008. “Humphries vs Block on fractional reserve banking.” November 17;

Davidson, Laura. 2008. “Fractional Reserve Banking Is Indeed Fraudulent,” November 17;

Davidson, Laura. 2012. “Against Monetary Disequilibrium Theory and Fractional Reserve Free Banking.” Quarterly Journal of Austrian Economics; Vol 15, no. 2, pp. 195–220.

Davidson, Laura and Walter E. Block. 2011. “The Case Against Fiduciary Media: Ethics Is The Key,” The Journal of Business Ethics. Vol. 98, Issue 3, pp. 505-511;; 10.1007/s10551-010-0590-2

Fuller, Edward. “100% Banking and Its Advocates: A Brief History” October 23;

Hanke, Steve. 2008. “Banking Crises: Plus Ça Change…” GlobeAsia, November, pp. 168-169;–Plus%20%C3%87a%20Change,%20November%202008.pdf

Hazlitt, Henry. 1979. “Gold versus Fractional Reserves Part 1 .” The Freeman. May;

Hollenback, Frank. 2013. “Insuring Deposits, Ensuring Insolvency.” July 24;

Hollenback, Frank. 2014A. “Confusing Capitalism with Fractional Reserve Banking.” August 6;

Hollenback, Frank. 2014B. “The Fraud in Fractional Reserve Banking.” November 26;

Hoppe, Hans-Hermann. 1994. “How is Fiat Money Possible? or, The Devolution of Money and Credit,” Review of Austrian Economics, 7(2), pp. 49-74.

Hoppe, Hans-Hermann, with Guido Hulsmann and Walter E. Block. 1998. “Against Fiduciary Media,” Quarterly Journal of Austrian Economics, Vol. 1, No. 1, pp. 19-50,

Howden, David. 2013. “A Simple Math Question for Bankers.” December 28;

Huerta de Soto, Jesús. 1995. “A Critical Analysis of Central Banks and Fractional-Reserve Free Banking from the Austrian Perspective,” Review of Austrian Economics, 8(2), pp. 25-38.

Huerta de Soto, Jesús. 1998, ‘A Critical Note on Fractional-Reserve Free Banking’, The Quarterly Journal of Austrian Economics 1(4), 25-49.

Huerta de Soto, Jesús. 2001. “A Critical Note on Fractional Reserve Free Banking,” The Quarterly Journal of Austrian Economics, Vol. 1, No. 4, Fall, pp. 34-35

Huerta de Soto, Jesús. 2006. Money, Bank Credit and Economic Cycles (Ludwig von Mises Institute, Auburn AL.)

Huerta de Soto, Jesús. 2010. “Economic Recessions, Banking Reform, and the Future of Capitalism.”

Hülsmann, Jorg Guido. 1996, ‘Free Banking and the Free Bankers’, Review of Austrian Economics 9(1), 3-53.

Hulsmann, Jorg Guido. 2000. “Banks Cannot Create Money”, The Independent Review: A Journal of Political Economy, vol. 5, no. 1, summer, 101—110;

Hulsmann, Jorg Guido. 2002a. “Free Banking and the Free Bankers.” Review of Austrian Economics. Vol. 9, No. 1. pp. 3-53;

Hulsmann, Jorg Guido. 2002b. “Free Banking Fractional Reserves: Reply to Pascal Salin.” Review of Austrian Economics, Vol. 1, No. 3.

Hulsmann, Jorg Guido. 2003. “Has Fractional-Reserve Banking Really Passed the Market Test?,” Independent Review 7/3, Winter, 399-422.

Hülsmann, Jorg Guido. 2008. The Ethics of Money Production Auburn AL: Ludwig von Mises Institute

Murphy, Robert P. 2011.  The Fractional-Reserve Banking Question.” June 14;

Murphy, Robert P. 2011. „Why Fractional Reserve Banking Poses a Threat to Market Stability.“ May 4;

Murphy, Robert P. 2018B „George Selgin Misunderstands Rothbard’s Position on Fractional-Reserve Banking“ September 10.

North, Gary. 2009. “What Is Money? Part 5: Fractional Reserve Banking.” October 10;

Polleit, Thorsten. 2010. “The Faults of Fractional-Reserve Banking.” December 23;

Reisman, George. 1996. Capitalism. Ottawa, Il.: Jameson Books; pp. 954-963

Reisman, George. 2009. “A Pro-Free-Market Program for Economic Recovery,” November 20;

Rothbard, Murray N.  [1963] 1975. America’s Great Depression (Sheed and Ward, Kansas City).

Rothbard, Murray N. 1990. What Has Government Done to Our Money?, Auburn, AL: Ludwig von Mises Institute;

Rothbard, Murray N. [1962] 1991. “The Case for a 100 Percent Gold Dollar,” In Search of a Monetary Constitution, Leland B. Yeager, ed., Cambridge, MA: Harvard University Press, pp. 94-136, and Auburn, AL: Ludwig von Mises Institute. See also “The Logic of Action One” pp. 364-384;

Rothbard, Murray N.  [1962] 1993. Man, Economy, and State. Ludwig von Mises Institute, Auburn, AL

Rothbard, Murray N. 1988.  The Myth of Free Banking in Scotland,  Review of Austrian Economics;

Salerno, Joseph T. 2010A. Money, Sound and Unsound. Auburn, Ludwig von Mises Institute

Salerno, Joseph T. 2010B. White contra Mises on Fiduciary Media,” May 14;

Salerno, Joseph T. 2011. “Dr. Joseph Salerno Explains Everything You Ever Wanted to Know About Money (But Were Afraid to Ask)”, The Daily Bell, July 3;

Shostak, Frank. 2017A. “Money Creation and the Boom-Bust Cycle.” January 2;

Shostak, Frank. 2017B. “Why Fractional-Reserve Banking Would Be Limited in an Unhampered Market.” January 16;

I am in enthusiastic support of publication of this paper, pretty much as is; well, with a minor revision. This is an important paper and deserves to be published. It is beautifully written, and makes a substantive contribution. The only recommendation I would make is that the author cite more of the literature in support of his thesis. I don’t require that each and every publication on the following list be mentioned by this author, and integrated into his paper, but, at least he should be aware of this literature, and utilize more of it.

II. pro frb:

Horwitz, 2010; Horwitz and Bodenhorn, 1994; McElroy, 2013, 2014; Rozeff, 2010; Sechrest, 1987, 1989a, 1989b, 1991a, 1991b, 1993, 2007; Selgin, 1994, 1998, 2007A, 2007B, 2007C; Selgin and White, 1996; White, 1992, 1995, 1999, 2003, 2007A, 2007B, 2007C

Horwitz, Steven and Howard Bodenhorn. 1994.  “A Property Rights Approach to Free Banking,” Journal des Economistes et des Etudes Humaines, 5 (4), December, pp. 505-519.

Horwitz, Steven. 2010. “My Teenage Daughter Gets Fractional Reserve Banking.” January 11;

McElroy, Wendy. 2013. “Fractional-Reserve Banking: Not Fraud, Not Folly.” May 13;

McElroy, Wendy. 2014. “Fractional-Reserve Banking is Not Fraud.” November 13;

Rozeff, Michael S. 2010. “Rothbard on Fractional Reserve Banking: A Critique,”
The Independent Review, Vol. 14, No. 4, Spring, pp. 497-512

Sechrest, Larry. 1987. “White’s Free Banking Thesis: A Case of Mistaken Identity,” Review of Austrian Economics, November, Vol. II, 247-57.

Sechrest, Larry. 1989a. Review of George Selgin’s The Theory of Free Banking, Journal of Economics, Vol. XV, 196-98.

Sechrest, Larry. 1989b. “Free Banking vs. Central Banking: A Geometrical Analysis,” South African Journal of Economic and Management Sciences, November, Vol. II, 83-97.

Sechrest, Larry. 1991a. “Free Banking in Scotland: A Dissenting View,” Cato Journal, Winter, Vol. 10, No. 3, 799-808.

Sechrest, Larry. 1991b. “Banking, Central and Free”, pages 145-51, Magill’s Survey of Social Science: Economics, Salem Press.

Sechrest, Larry. 1993. Free Banking: Theory, History, and a Laissez-Faire Model, Westport, Connecticut: Quorum Books.

Sechrest, Larry. 2007. “Free Banking Basics,” The Free Radical, July/August, Vol. 76, 40-41.

Selgin, George. 1994. “Free Banking and Monetary Control.”  Economic Journal 104: 1449-59.

Selgin, George. 1998. The Theory of Free Banking: Money Supply under Competitive Note Issue.  Totowa, New Jersey:  Rowman & Littlefield

Selgin, George. 2000. “Should We Let Banks Create Money?” The Independent Review, v.V, n.1, Summer, pp. 93–100

Selgin, George. 2007A. “Is fractional-reserve banking inflationary?” January 23. Free Market News Network;

Selgin, George. 2007B. “Notes on free banking: fractional reserves and economic development, part I” February 14. Free Market News Network;

Selgin, George. 2007C. “Notes on free banking: fractional reserves and economic development, part II” February 15. Free Market News Network;

Selgin, George A., and White, Lawrence H. 1996. “In Defense of Fiduciary Media – or, We are Not Devo(lutionists), We are Misesians!,” Review of Austrian Economics, Vol. 9, No. 2, pp. 83-107;

White, Lawrence H. 1992. Competition and Currency: Essays on Free Banking and Money. New York: New York University Press

White, Lawrence H. 1995. Free Banking in Britain: Theory, Experience, and Debate, 1800-1845, 2nd ed. London: Institute of Economic Affairs

White, Lawrence H. 1999. The Theory of Monetary Institutions. Oxford: Basil Blackwell

White, Lawrence H. 2003.  “Accounting for Fractional-Reserve Banknotes and Deposits,” Independent Review 7/3, Winter, 423-41.

White, Lawrence H. 2007A. “Huerta de Soto’s Case Against Fractional Reserves,” Free-Market News Network (08 Jan)

White, Lawrence H. 2007B.  “Huerta de Soto’s View of the History of Banking,” Free-Market News Network (30 Jan)

White, Lawrence H. 2007C. “Huerta de Soto on Attempts to Justify Fractional-Reserve Banking,” Free-Market News Network (05 Feb)

III. Ambivalent. These are of interest but there is some question as to on which side they lie:

Callahan, 2003; van den Hauwe, 2006, 2008;  Williams, 1984.

Callahan, Gene. 2003. “The Libertarian Case Against Fractional-Reserve Banking,”, July 22

van den Hauwe, Ludwig. 2006. “The Uneasy Case for Fractional-Reserve Free Banking, Procesos de Mercado, Vol. III, No. 2, pp143-96;

van den Hauwe, Ludwig. 2008, forthcoming. “Credit Expansion, the Prisoner´s Dilemma, and Free Banking as Mechanism Design, Procesos de Mercado,

Williams, Jeffrey C. 1984. “Fractional Reserve Banking in Grain,” Journal of Money Credit and Banking. 16 (4): pp. 488-496

Larry White and I disagree as to how to categorize these, so, at his suggestion, I’m creating this third or “ambivalent” section


12:00 pm on April 27, 2020