Freedomain Radio

Do you think that in a free society consumers would allow fractional reserve banking to take place?

Definitely not

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It would probably be allowed at a much lower level than it happens today.
By that I mean they'd keep a higher percentage of their deposits in reserve (hopefully).

It's a way to indirectly lend your money to others, so it would give you a return for some risk.  If people thought the bank was a good-enough judge of borrowers to justify the risk, sure.

Fractional reserve lending is tantamount to fraud so I'd have to say that it's unlikely.

JacobSpinney:

Do you think that in a free society consumers would allow fractional reserve banking to take place?

Check out podcast 523 entitled Anarchic Money, where Stef discusses the topic of currencies in an anarchist society.  If I remember correctly, he stats that there would be several competing currencies that would have to be backed by stable assets.  So, if that's the case, I would imagine that if a vender of a particular currency would print to many bills or put too much money in circulation over its assets, it would devalue the currency and people would choose a different one.

Alan Chapman:

Fractional reserve lending is tantamount to fraud so I'd have to say that it's unlikely.

I'm not sure I'd go that far.  If done secretly or duplicitiously it is, but it can be done in a perfectly ethical manner if disclosed to the consumers.

For example I may voluntarily choose to invest some money with a bank that uses a franctional reserve to free up more money for investing and potentially increase my interest rate or reduce the fees on my accounts. 

In the end, the free market would decide which banks were most desirable to the customers (full reserves or fractional) so I can see both existing.

Walter Block analogized fractional reserve lending to a car dealership that issues title to a car to multiple individuals.

Sure, in a free-market people would be free to knowlingly enter into this kind of arrangement, and you're correct that it would be fraud if this was concealed from customers.

Alan Chapman:

Walter Block analogized fractional reserve lending to a car dealership that issues title to a car to multiple individuals.

Sure, in a free-market people would be free to knowlingly enter into this kind of arrangement, and you're correct that it would be fraud if this was concealed from customers.

The car example is interesting given that in some major cities they have established "clubs" that collectively buy cars and then the members can reserve a car when they need it.  

It's a much more efficient use of ones resources than owning a car if you really only need it a few days a month. 

Car rental companies do the same thing, but they can't rent a specific car to multiple individuals simultaneously.