Sent: Sunday, December 03, 2017 12:36 AM
To: Walter Block
Subject: economics of banking
Hi Walter, Can you recommend a good book on the economics of banking. I have a basic understanding of fractional reserve banking but I just want to clarify my thinking on it. Specifically – if I go a bank or credit union and take out a mortgage to buy a house, where does the bank get the money to lend me? I used to think that if the bank took in, say, $1,000,000 in deposits and it had a 10% reserve requirement, it could lend out $900,000. But I’ve read something recently that the bank just creates the money it lends you out of thin air. If so, what is your take on it? Thanks, M
Dear M: Yes, here are some recommendations:
Rothbard, Murray N. 1963, 1985, 1990 What Has Government Done to Our Money? Auburn, AL.: Mises Institute; http://www.mises.org/rothbard/rothmoney.pdf
Rothbard, Murray N. 1969. “The Austrian Theory of the Trade Cycle,” p. 78-79, in Economic Depressions: Their Cause and Cure, Lansing, Michigan: Constitutional Alliance http://mises.org/tradcycl/econdepr.asp; http://mises.org/daily/3127/Economic-Depressions-Their-Cause-and-Cure
Rothbard, Murray N. 1963. America’s Great Depression. Princeton, N.J.: D. Van Nostrand Co. Reissued by Nash Publishing Co., Los Angeles in 1972 with introduction to the 2nd Edition. Revised edition, New York University Press, 1975. New York: Richardson and Snyder, 1983.
Fundamental study, showing application of Austrian business cycle theory to the U.S. Depression of October 1929 and following. Emphasizes the role of Herbert Hoover as precursor of the New Deal as well as business and banking interests behind interventionism.
Rothbard, M. 1963. America’s Great Depression. Kansas City: Sheed Andrews.
Rothbard, Murray N. 1983. The Mystery of Banking. New York: Richardson and Snyder.
A presentation in form suitable for an elementary textbook of Rothbard’s views on money and banking. He argues for the pure gold standard and 100 % reserve banking. Much historical material is presented. http://mises.org/daily/3116; http://mises.org/Books/mysteryofbanking.pdf
Here’s a biblio on fractional reserve banking:
I. Anti Fractional reserve banking frb::
Baxendale (2010) is a report on a series of interview which demonstrate that the common man is ignorant of banking, not to mention the fractional reserve aspects of it: Baxendale, Toby. 2010. “Public attitudes to banking.” June 15; http://www.cobdencentre.org/2010/06/public-attitudes-to-banking/
Bagus, 2003; Bagus, Howden and Block, 2013; Barnett and Block, 2005, 2008, 2009; Baxendale, 2010; Block, 2008; Block and Caplan, 2008; Block and Garschina, 1996; Block and Humphries, 2008; Block and Posner, 2008; Davidson, 2008; Davidson and Block, 2011; Hanke, 2008; Hazlitt, 1979; Hollenbeck, 2013, 2014; 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, 2010; North, 2009; Polleit, 2010; Reisman, 1996, 2009; Rothbard, 1975; 1990, 1991, 1993; Salerno, 2010A, 2010B, 2011.
Bagus, Philipp. 2003, ‘The Commons and the Tragedy of Banking’, November 12, http://mises.org/story/1373
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; http://onlinelibrary.wiley.com/doi/10.1111/ajes.12023/abstract; http://bastiat.mises.org/2013/07/fractional-reserve-banking-paper/
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; http://mises.org/journals/qjae/pdf/qjae8_2_4.pdf
Barnett, William and Walter E. Block. 2008. “Time deposits, dimensions and fraud,” Journal of Business Ethics; www.WalterBlock.com/publications; http://www.springerlink.com/content/100281/?k=walter+block&sortorder=asc&v=condensed&o=20; www.WalterBlock.com/publications
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; http://www2.units.it/~etica/2009_1/BARNETT_BLOCK.pdf
Baxendale, Tony. 2010. Free Banking, the Balance Sheet and Contract Law Approach; March 15; http://www.cobdencentre.org/2010/03/free-banking-the-balance-sheet-and-contract-law-approach/
Block, Walter and Bryan Caplan. 2008. “Walter E. Block versus Bryan Caplan on Fractional Reserve Banking.” Nov 1; https://www.lewrockwell.com/block/block110.html
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; http://www.mises.org/journals/rae/pdf/rae9_1_3.pdf.
Block, Walter and John Humphries. 2008. “Humphries vs Block on fractional reserve banking.” November 17; http://alsblog.wordpress.com/2008/11/17/fractional-reserve-banking/
Block, Walter versus Eric Posner. 2008. “Posner vs. Block on fractional reserve banking.” November, 29; https://www.lewrockwell.com/block/block114.html
Davidson, Laura. 2008. “Fractional Reserve Banking Is Indeed Fraudulent,” November 17;
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;
http://www.springerlink.com/content/j76323752648720g/; http://dx.doi.org/10.1007/s10551-010-0590-2; 10.1007/s10551-010-0590-2
Hanke, Steve. 2008. “Banking Crises: Plus Ça Change…” GlobeAsia, November, pp. 168-169; http://www.freemarketfoundation.com/Hanke%5CBanking%20Crises–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. 2014. “The Fraud in Fractional Reserve Banking.” November 26; http://us2.campaign-archive2.com/?u=7e6cc2f6072b7ebfaa847047f&id=189c14aa12&e=53fc31c1bb
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, http://www.mises.org/journals/qjae/pdf/qjae1_1_2.pdf
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.” http://mises.org/daily/4817
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; http://www.independent.org/pdf/tir/tir_05_1_hulsman.pdf
Hulsmann, Jorg Guido. 2002a. “Free Banking and the Free Bankers.” Review of Austrian Economics. Vol. 9, No. 1. pp. 3-53; http://www.mises.org/journals/rae/pdf/rae9_1_1.pdf
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. http://www.independent.org/publications/tir/article.asp?a=90
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; http://mises.org/daily/4499
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; http://mises.org/daily/3870
Rothbard, Murray N.  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; http://www.mises.org/rothbard/rothmoney.pdf
Rothbard, Murray N.  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; http://mises.org/story/1829; http://mises.org/rothbard/100percent.pdf
Rothbard, Murray N.  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; http://mises.org/journals/rae/pdf/RAE2_1_15.pdf
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;
Joseph T. Salerno. 2011. “Dr. Joseph Salerno Explains Everything You Ever Wanted to Know About Money (But Were Afraid to Ask)”, The Daily Bell, July 3;
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; http://www.coordinationproblem.org/2010/01/my-teenage-daughter-gets-fractional-reserve-banking.html
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; http://www.fmnn.com/Analysis/241/6794/banking.asp?nid=6794&wid=241
Selgin, George. 2007B. “Notes on free banking: fractional reserves and economic development, part I” February 14. Free Market News Network; http://www.fmnn.com/Analysis/241/6939/notes.asp?nid=6939&wid=241
Selgin, George. 2007C. “Notes on free banking: fractional reserves and economic development, part II” February 15. Free Market News Network; http://www.fmnn.com/Analysis/241/6949/notes.asp?nid=6949&wid=241
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; http://mises.org/journals/rae/pdf/rae9_2_5.pdf
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. http://www.independent.org/publications/tir/article.asp?a=91
White, Lawrence H. 2007A. “Huerta de Soto’s Case Against Fractional Reserves,” Free-Market News Network (08 Jan) http://www.freemarketnews.com/Analysis/240/6709/case.asp?wid=240&nid=6709
White, Lawrence H. 2007B. “Huerta de Soto’s View of the History of Banking,” Free-Market News Network (30 Jan) http://www.freemarketnews.com/Analysis/240/6827/soto.asp?wid=240&nid=6827
White, Lawrence H. 2007C. “Huerta de Soto on Attempts to Justify Fractional-Reserve Banking,” Free-Market News Network (05 Feb) http://www.freemarketnews.com/Analysis/240/6877/soto.asp?wid=240&nid=6877
III. Larry White and I disagree as to how to categorize these, so, at his suggestion, I’m creating a third or “ambivalent” section
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,” Anti-State.com, 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. 488-4963:53 pm on December 5, 2017