 Okay, why don't we go ahead and get started here? So what we're talking about now is Rothbardians versus free bankers on fractional reserve banking. So let me just define the term at the outset to make sure, I assume most of you here know what these terms mean, but just in case you don't. So there was this guy Murray Rothbard, perhaps you've heard of him. And so Rothbardian means, no. The term fractional reserve banking, so here the idea is you go into a bank, I will just use modern context with modern types of money just to make it simple. For those who have never heard this spelled out before, for a lot of you this is gonna be real simple stuff. So you go into a bank and you give them $1,000 and then your checking account balance goes up by $1,000 and so you are walking around town thinking you have in the bank $1,000, but of course they can lend some of that out. All right, and so if instead if they were to keep full reserves in the vault or another some secure place, in a sense backing up all of those checking account deposits we would say they have 100% reserves. If instead though they only had half of the actual money that people think they could show up at any time and say, give me my money please because I was storing it here, give me my money, it's in a checking account. I go to the ATM, it says I have it available so I'd like it. If they actually could only satisfy half of all the total outstanding checking account deposits that way they would have 50% reserves. So fractional reserve banking means when banks conduct their operations such that they only keep on reserve a fraction of what they would need if everybody who thinks in practice they can just show up and get their money out to keep that much in reserve to in a sense back that up. So that's what this debate is about. Also a note, you saw in the title that it had free bankers in quotation marks. Okay, and so this is each year, fewer and fewer people get this, this is Dr. Evil because he would talk about laser beam. Okay, and so the reason in my talk in the title and so that we have free bankers and free banking in quotation marks is because in a sense that's a misnomer. All right, if what you mean by free banking is you don't want there to be a coercive political state apparatus that imposes regulations and penalties and other things to influence the development of the banking sector in the market economy, well in that sense any standard Rothbardian is a free banker too, right? Because they're an anarcho capitalist and so there's not gonna be a state to lay down regulations insisting on a certain reserve requirement. Okay, so it's just for convenience because the way this debate has played out in the journals, the group of people and I'll in a minute show you who the participants have been or some of the major participants, the ones that are arguing in favor of saying, hey, even in a free society total libertarian world, we think that banks should be allowed to set whatever reserve requirement they want, right? Just like what the fees would be on a checking account or how many armed guards a bank has, that's not a matter of government regulation and certainly that's not something intrinsic to the legal code and even in a libertarian world that that's just bank policy and how many tellers they'll have or how long they'll be open for on Friday afternoons, these are all things that banks should decide based on profit and loss considerations. Likewise, the so-called free bankers in the context of this debate, they argue that banks should set whatever reserve requirements is profit maximizing and they think in practice it would be well below 100%. Okay, whereas the 100% reservists of course are gonna say no, we think in a free society the banks would tend to have towards 100% reserves or outright 100% reserves and also there's some economic dispute in this debate that I'm gonna focus on as we go through this. But again, so my point being in a sense, I'm a free banker and Joe Soleriano's a free banker and Walter Block's a free banker in a certain sense, but in the context of this debate we wouldn't be and it's just for matters of convenience. It's not because actually we're for necessarily government regulation since it wouldn't exist. Okay, let me also just mention and I'm partly stressing this because when I was younger I didn't realize this, if you join these debates on the internet, number one, you should reconsider your life choices but number two, you'll often see it just bandied about that oh yeah, only those wacky Rothbardians and I know I contributed perhaps to that belief with the title of my talk being Rothbardians versus but don't walk away thinking oh yeah, it's only this crankish group of economists and the following in the wake of Murray Rothbard and his weird views about banking policy who could endorse 100% reserve banking. That's not true at all. So there's a rich history in this. So for example, Irving Fisher was, he had a quite famous proposal and if you go Google Irving Fisher 100% reserves you'll see it that in the 1930s they came out. The Chicago School of that time was in favor of 100% reserve banking because they thought that would have helped prevent some of the problems of the Great Depression. Friedrich Hayek also at times in his career came out in favor of it such that Larry White actually has written an article, I'm not gonna get the title perfect but along the lines of how come Hayek didn't agree with the free bankers, something like that. So this isn't controversial, my claim here that people in the free banker camp acknowledged that Hayek at least at points in his career said things that were favorable to the 100% reserve people. Milton Friedman also at some points in his career wrote in favor of 100% reserve banking for various technical reasons. And then more recently, so this was just a few years ago at one of those, I think it was at like the Jackson Hole Conference, you know where monetary economists go and present papers. Nobel laureate Ed Prescott, okay so not some crank at some obscure university but a Nobel laureate presented a proposal with a co-author for 100% reserve banking because they thought studying what happened during the financial crisis of the fault, you know that it struck in the fall of 2008 Prescott and his co-author thought, oh you know what if we actually, if there were an option of 100% reserve checking account balances, a lot of the stuff that you know that the imbalances that developed that reared their ugly head in the fall of 2008, maybe that could have been mitigated, okay. So these people aren't all you know coming at it from the perspective that I'm gonna outline in a little bit here from the Austrian you know, Mises Rothbard line in terms of why they would be in favor of 100% reserve banking. So don't misunderstand, I'm not saying these people are all crypto Austrians, but the point is this idea that the only people who could possibly be in favor of 100% reserve banking are weirdo Rothbardians, that's not true, okay. There's other things weirdo Rothbardians are unique for, but not this one. Later in the week I'll dwell on those other ones. Okay, so just to give you an idea of some of the names of the people involved here, so in the so-called free banker camp, and also by the way, the reason I put Austrian quotation marks here it's not that I'm throwing elbows at somebody, it's because Seljan himself doesn't like labels. So he doesn't wanna be called an Austrian economist, not because he has a problem with Austrian economics, but because that constrains him, and he's his own man, that sort of thing, right. So that's why I'm putting the label here, I'm not taking digs at people. So Seljan and White are the two most famous and prolific in the free banker camp who come at this stuff either explicitly as Austrians or from a very Austrian friendly point of view. And so they understand the points that Rothbardians bring up in this debate. Steve Horowitz is another one who's written a lot on this. On the other side, again, it's not that I'm enumerating everybody, but just some of the big names you'll see if you read some of the classic exchanges on this topic. You got Guido Hulsman, Walter Block, Joe Salerno. Oh wait, that's Eric Clapton, sorry, my mistake. You've got the present Murphy, and then also when I was younger, I was on the other side. Okay, and I wasn't thinking clearly back then. Okay, but this wasn't merely a vehicle for me to use a cheap joke here. This is true that when I was younger, I actually agreed more with the people who called themselves free bankers. And so that's partly why I'm stressing things that, you know, to get rid of misconceptions because some of that stuff that I used to think too and then as I read more and realized what the claims actually were. Okay, so again, these are some of the people who, if you read the exchanges, have been weighing in on both sides of the issue. Okay, another thing that it's necessary to clear up, you'll see this right at the outset in some of these debates is that some people will say, and even trained economists, like I've seen this happen, where they'll learn that, are you kidding me? There's some economists out there who are in favor of 100% reserve banking, not realizing that there's this whole tradition of top flight, Nobel Prize winning economists who fall into that camp for various reasons. And they'll say, don't they understand, that's how banking works. Like you couldn't have banking. How could you have somebody, you know, savers, go, they give funds to the intermediary institution, and then it lends it out to other people. And how would that even work without having fractional reserve banking? All right, and so this, and this is how many people think about it, not just economists, because the idea is being, well, yeah, if I'm gonna give my money to the bank, and then they have to be able to lend it out to earn interest, otherwise, how are they gonna pay me interest? So that's the dilemma that people have, they think that this has to be something intrinsic to banking itself, that fractional reserve banking necessarily goes hand in hand with just banking, because otherwise, how would it even be profitable? So that's not correct. All right, so, and what's happening here is your blend, if that's where you're coming from, you're blending together two distinct functions that banks serve in the modern world, okay? So one thing is they can maintain what's called demand deposits, meaning you can get that money upon demand, that's where the title comes from. And so just think of like a checking account, like that's what a demand deposit would be. And so why would you use a demand deposit that's 100% reserves, because it's for safety and convenience, where all the reasons that there's, why would you keep your money in a bank? Well, because it's somebody mugs you, they're not gonna get access to all of your monetary wealth, if you've got a bunch of it in the secure institution, just the convenience, you're writing big checks to people, you're sliding your debit card, all that stuff is possible because of this number one, this point number one here, it's your money and you're just storing it somewhere safely and then they come up with convenient ways that you can transfer it to others that don't involve you physically being in possession of it and handing it over to somebody because then that's inconvenient and also it's risky because you could be liable to getting mugged, all right? So that is what a demand deposit or a checking account balance would be. And then a whole separate function of what modern banks do in practice is to act as credit intermediaries. And so this, you can call these things time deposits, meaning the person deposits the money for a given amount of time, right? It's not a demand deposit, they can't request that upon demand, their money's tied up for a contractually specified length of time. And so think of that like as a genuine savings account. Okay, so again, even here it gets tricky because for a lot of you, probably the distinction between a checking and a saving account at your local bank that you use in practice, you don't really see what the difference is, but theoretically speaking, these are distinct functions that banks serve, okay? And so here, the easiest way to think about is a certificate of deposit or a CD, if you know what that is, right? So you might be driving and you see the banks saying, ah, you know, CDs at 1.2% or whatever it is. And so there the idea is, let's say you give the bank $1,000 and then they give you a piece of paper that's legally binding saying the bearer of the certificate, 12 months in the future is entitled to $1,050, let's say, okay? So that would be a 5% implicit rate of return or yield on that thing. And so what you're doing is you're lending your money to the bank for a year, okay? It's, and if you lend, you give them $1,000, they're giving you a claim on the money, that's not money that you hold, right? The CD is not money, it's not part of the money supply. And if you, oh shoot, I need money, two weeks from now, the bank doesn't owe it to you. You can't just show up and say, hey, you know what? That $1,000 has been rolled over for two weeks. Can you give me that plus a little bit of the interest? That's not what you're entitled to. It says no, on this date, you know, that's 12 months in the future, you get $1,050. So what you can do is sell that thing in the secondary market if you want, and somebody else might give you a little bit more than $1,000 for it because they know if they hold onto that thing, they're gonna get $1,050 in 11 months and change. So, but it's not contractually guaranteed to you. And if interest rates shift in the meantime from when you gave that $1,000, the amount you get for that, then like if interest rates go way up in the meantime, then maybe you can sell it and only get $700 back. Okay, so that's the way these things work, all right? So that's, but either way, notice that's a totally distinct function. And so the last little clue here, just in case you're confused, under 100% reserves, there would have to be some way that banks would be paid for providing the services of offering demand deposits, okay? So yes, they have to make that money somehow. And in practice, if they're allowed to engage in fractional reserve banking, then yeah, they just eat those costs because they're lending the money out and earning interest from other borrowers. And so they're implicitly paying for it that way. And then they're giving you less, they have a spread. So that's the way a fractional reserve bank does it. But if a bank were being run according to 100% reserves, they would have those two distinct functions. So there would still be savers using banks and banks would still perform their role as credit intermediaries. Just think through for a second, why that's important. Just make sure I'm not losing anybody. So something like buying a house. If you wanted to, there's a young couple, they both have jobs and so it maybe makes sense for them to go ahead and get into a house before they can pay for it themselves. And so what happens, they go to a bank, they get a 30 year mortgage or whatever or maybe in a free society without government intervention, maybe 10 year mortgages would be the norm. I think it would be lower than 30. But let's say that's the case. So the way that works in practice is lots of people around the community save a little bit and give it to the bank. And then the bank has lots and lots of people doing that and gives interest to those savers. And then the bank's staff identify the credit worthiness of the various loan applicants. And so if you didn't have the bank doing that, it would be really difficult for a young couple to take out a mortgage. You wouldn't be able to go to knock on 1,000 doors of people in your neighborhood and say, hey, can you each lend us $1,000 or whatever the number has to be to make it work out. And we'll pay you back a little bit each month. Because then that particular couple, they lose their jobs or they skip town or whatever, you've lost all your savings. If you were the one lending them all your money. So that's why it makes sense. All the savers go through some of these central institutions that then disperse the money. And so that's how they deal with risk. So that is totally compatible, consistent with 100% reserve banking. It's just the people, for example, who buy a CD and then give funds to the bank that then it lends it out, they would know they can't show up next Tuesday and get access to their money. That's not the arrangement they had with the bank. If the bank is doing that though, it does somehow have to come up with compensation that has to charge for the cost of running the 100% reserve system. Okay, another element of this debate is fraud versus economic consequences. So Rothbard and some people in that tradition, for example, DeSoto, Hoppe, Block, they think it's important in order to get people to see the weirdness or why fraction reserve banking just doesn't make any sense. They wanna show that it's inherently fraudulent. So they argue that there's a sense in which it's multiple people with claims on the same piece of property. So you put your $1,000 into a bank, into a checking account and you think it's yours and then if the bank goes and lends out 900 of it to somebody else, you're still walking around town thinking you have $1,000 in the bank and yet somebody else now thinks he or she has $900 in the bank and you're both pointing to the same $1,000 that's in the vault. That's the idea or maybe they took the $900 and gave it to somebody else and they're looking at the currency, the green pieces of paper. So they think, yep, this is in my possession and yet you're still conducting your operations as if you have the full $1,000 at your disposal because it's available to you upon demand. So some people in these debates argue that that's nonsensical. There's fraud going on there. The bank is simultaneously promising to two people, you can show up and collect this money if you want. We've got it for you when they know in practice they can't. If there's a bank run, then the lie is exposed and the bank is caught with its pants down. So some people stress that and there's a whole legal history that DeSoto gets into about the difference between lending something to somebody versus giving to them in a caretaker fashion. If you check a coat at your restaurant, you go into a restaurant and there's a coat check and you give them the garment and then they give you a ticket, you don't think that actually what they're doing is lending the coat out to other people who need it and they're just saying, no, we'll have a garment for here when you come and trust us. You see how that works and if you saw that they were doing that, so it wouldn't merely be that, okay, I better not show up and give you this ticket and you don't have my coat, it's beyond that. If you found out that they were lending the coat out to other people, you'd say, what are you doing? So there's that type of arrangement and so DeSoto and some others in this tradition argue that historically, that's how it should have been handled and then it was government intervention they claim that where the bankers had a lot of sway in the legal community and with the government and that's how they got the rulings to be such that it was considered, oh no, when you make a deposit with a bank, really what you're doing is lending them money. So they still owe you money back but the property switches, the title switches hands. That's the way the legal ruling went and so people in this tradition argue that it shouldn't have gone that way, that that is nonsensical, okay? The way the free bankers then counter that is they'll say, they'll argue with history and say, look, if this was a voluntary choice, everybody has known for a long time that the bank doesn't have your money in a little drawer with your name on it, everybody knows Fraction Reserve Banking happens, otherwise how could they pay you interest on checking accounts? So it's voluntary, the market has ruled and in history we don't see a lot of 100% reserve banks, do we? And so it shows that doesn't pass the market test. All right, so I'm just here summarizing some of the back and forth but what I wanna stress is that that's, when I was younger, I thought that was the crux of the debate and what Joe Salerno has stressed is that that's really not the issue when it comes to the business cycle, okay? So for Salerno and I agree with him, the really interesting and fruitful part of the discussion as economists, because we're not legal theorists, is to focus on does Fraction Reserve Banking cause the Austrian boom bus cycle, all right? And so it's not that Salerno is conceding one way or the other on the fraud issue, he's just saying let's not focus on that and let's instead as economists focus on this issue of the business cycle and so that's what I have done also. And so here, it really does I think clear up some of the misconceptions and so if you were leaning towards the free banker side saying come on, it's voluntary, I don't really, how could it be fraudulent if everybody knows what's going on and the 100% reservists have a response to that by the way. So Hoppe or Walter Block, they'll say something like if somebody, we have a voluntary contract and someone agrees that you're gonna give them $100 and he's gonna give you a square circle, that's still a nonsensical contract even if it's voluntary, right? Cause a square circle doesn't make any sense. So that's how they deal with that sort of argument but the point is, as Salerno says, we can put that to the side and that's an interesting issue but as economists let's focus on whether or not Fraction Reserve Banking causes the business cycle. So here for just a little bit of context before I move on, let me just make sure you realize this. Don't get caught into a trap where if somebody asks you, oh so you Austrians, what do you think about what causes the business cycle? If you say the Federal Reserve or if you say central banks cause it then the obvious retort is to say, oh well apparently you don't know your history, don't you know there were all sorts of financial crises and panics and depressions with a small D like in the United States even before the Federal Reserve and even in periods where there might not have been a national bank established, okay? And so strictly, and that's correct. So strictly speaking, the theory of the business cycle that Mises developed in what has been translated as the theory of money and credit, his 1912 book, that's a theory of how Fraction Reserve Banking or what he called the issuance of fiduciary media causes the boom-bust cycle, right? So central banks exacerbate the problem but the issue's not central banking per se. The issue is fiduciary media, okay? And so this leads into my next point about the nuanced position of Mises. When I was younger and looking at this debate I thought both sides had great points that the so-called free bankers could produce lots of quotes from Mises in support of their position, so it seemed to me. And the anti-free bank are 100% reservists, let's say. They also could produce a bunch of quotes from Mises that seemed to support what they were saying. And so I concluded at the time that Mises either was contradicting himself or that his views just changed over, he had a long career and his views changed. And that's what I thought was happening. But actually, within the last several years the more I was studying this and reading the work of Solerdo in particular showed me that no, on most of these issues, so I'm putting a question mark here that maybe somebody can produce a quote that I won't be able to explain in this way. But for just about all the ones, the major ones that ostensibly look like it's Mises praising free banking, so he is, but it's not because he's admitting that very low reserve requirements are consistent with an economy that's free from the business cycle. That's not what he's claiming. If you go and look at a lot of these ones, Mises is consistently saying on the one hand that the issuance of fiduciary media, so fiduciary media just means money that's, it's like a ticket that the bank issues that's not backed up by actual money in the vault. So it's a claim on money that's not backed up by genuine money in the vault. So to issue fiduciary media means to engage in fraction reserve banking. So Mises has crystal clear quotes even in human action, right? It's not just when he's younger, but even in human action where he says that the issuance of new fiduciary media sets in motion the boom bus cycle, period, end of story. And he says now, if it's just a little bit, then it's gonna be a small business cycle. But the point being, there's no such thing as a correct amount or an amount of fiduciary media that would not set into motion the business cycle. So he says that explicitly. Elsewhere in human action, he's in favor of what he calls free banking. So it looks like, well, man, this guy, he's inconsistent. If you read it though, with this interpretation, everything makes perfect sense is that Mises doesn't trust the state, at least as of his writing in human action. Elsewhere in his career, by the way, he does explicitly call for a legal requirement of 100% reserves, all right? So just to show you that even to go so far as that is something that Mises dabbled with at one point in his career where he thought that was the only way to ensure a sound money. But for the passages in human action, it's clear what he's saying is you can't trust the state, right? Even if they insisted on 100% reserve requirement, the next time there's a major war and they wanna run the printing press, they would just relax that requirement. And so they would tell the banks, don't worry, you can go ahead and issue money above and beyond what you have and issue credit above and beyond what you have from savers giving you in the vault, go ahead and do that, it's fine. So his point was the best way to ensure the long run stability of the money and banking sector and to prevent the boom bus cycle which emanates from fractional reserve banking is to just not have the government get involved at all because Mises thought normal market forces would constrain banks so that if any one bank expanded too rapidly by lowering its reserve requirements, then there would be adverse clearing with respect to the other banks. And so pretty soon the reserves of the one bank that was expanding rapidly. So let's say all the banks in the community have 95% reserves and then one bank gets aggressive and lowers its reserve ratio down to 50%. So it's issuing more loans, it's doing more business, it's earning more interest payments, so that looks good. But the point is that banks' customers now, they have more notes in their possession, other things equal than all the other banks' customers do. So in the course of normal operations, there's gonna be more notes issued by the expanding bank than all the other ones. So at the end of the week or the month when the banks all settle up with each other, the other banks are gonna have more claims on the expanding bank than vice versa. And so on net, they're gonna say, okay, here, we've got 1,000 ounces of gold that you owe us and we only owe you 200 ounces of gold and so you owe us on net 800 ounces. So go ahead and settle up. And so the point is that the genuine money stock would flow out of that one expanding bank's vaults in the other ones. So that's why in equilibrium, no single bank can expand too rapidly relative to its peers. Okay, and so I've shown you that one bank can't have significantly lower reserve requirements than everybody else, but now why can't all the banks, just as a cartel, agree to inflate? Well, as long as it's an unregulated sector, just like it's as open as opening a pizza shop or something, somebody else can set up a bank, right? So if all the existing banks collude and get together and say, let's all agree to lower reserve requirements to 50%, we'll all inflate in unison. And so our reserves won't get drained from each other because we'll all do it together. Somebody could just start a new bank that has 60% reserves and then that bank would over time get all of the reserves from the other ones, okay? So that's the kind of logic Mies has had in mind. And so that's why he was saying is a practical matter the best way to constrain the practice of issuing fiduciary media or to keep reserve requirements high is to not have the government be involved with it at all. Just leave it to genuine market forces because he thought competition would quickly penalize any one bank that tried to expand too rapidly, okay? Notice how central banks do the opposite of what they're supposed to do. What would check that feedback mechanism might just walk you through where if all the banks collude together, you could just start up a new bank. Well, what if it's hard to open a bank, right? Right now, you can't just open a bank. That's there's all sorts of regulations you have to jump through. So that's the way they limit competition. And the other problem with expanding too rapidly is if there's a run, you get caught with your pants down. And so what does the central bank do? It's the primary reason for its existence is what it's a lender of last resort. That's what it says it's doing. So just think through what that means. When private banks get into trouble and they're illiquid, right? Then the central bank comes in and rescues them. So again, the very things that Mises thought in the market would penalize overly aggressive expansion on the part of the banks, that's what the central bank bites very nature dismantles or minimizes, okay? So you see how it's the opposite of what you think that the public has been taught. The central bank weeds out, fly by night organizations and keeps the public using sound currency when it's the other way around. But in terms of this debate, what I'm saying is certainly in human action, the other ones that have been brought to my attention, when Mises at times praises free banking, it's not because he's saying fractional reserve banking is actually benign and promotes coordination in the loan markets. That's not what he's saying. He's just saying that that's the best way practically to, in other words, don't trust the government to maintain 100% reserves because you can't trust them to do that. Okay, the one last thing I'll say on this before moving on is it gets a little bit subtle, but Mises does at times admit that if it weren't for fractional reserve banking, the purchasing power of money would have risen rapidly at certain points in history. Like as more people started using gold over the earth that that would have increased the purchasing power of gold. So there would have been price deflation measured in gold ounces except for the credit expansion that fractional reserve banking offered. So at best you can put that as one of the things in favor of fractional reserve banking to be held up against the fact that it causes the business cycle. So I still have not seen anybody showing me quotes from Mises saying that doesn't cause the business cycle. Incidentally, maybe Mises was wrong, right? So this isn't a definitive knockdown argument but my point is it's not merely some crankish thing that Murray Rothbard believed that the position that Salerno's advancing here that fractional reserve banking per se is what causes the Austrian boom bus cycle was something that Mises himself, I think pretty clearly developed and believed in and since Mises developed Austrian business cycle theory that's a pretty good indication that the two are linked. Okay, so what is the free banker response on this type of issue? So Seljan et al, they argue that under free banking it's a pretty subtle point. And so if you're really into this stuff I encourage you to read in this literature and see it because this was more nuanced than I initially thought going into it. And so what he argues is that they only issue additional fiduciary media when the community wants to save more. Okay, so let me just take a minute here we still got plenty of time. Let me just make sure you get his argument. So the claim is again, what's fiduciary media? It's let's imagine it's gold. Gold is the money in this economy. And so prices are quoted in ounces of gold or pounds of gold, what have you. And there's banks that are private, right? We're imagining a free society here. There's no political system. So there's free banks, they're private and they issue claims on the gold, right? So rather than walking around with 10 pounds of gold on you which is heavy, you have pieces of paper that saying the bearer of this note is entitled to one ounce of gold, let's say. All right, and you got a bunch of those things in your pocket or you have a checking account and you have a checkbook you can write checks on. And so what Seljan and White and these people are arguing is to say the only situation in which the private banks would find it profitable to print up more of these tickets and issue them as loans into the community and thereby lower the rate of interest, right? So that's what Mises is saying would set up the boom bus cycle. That the banks, they issue more fiduciary media. It's not backed up by genuine saving in order to advance those more loans out there. The rate of interest comes down. It's not the correct interest rate. It sets up an artificial boom and then when the banks chicken out and stop pumping in so much extra credit, the bust happens, right? So that's Mises' position. The way the free bankers counter that is they say no, actually the only time if you run through the logic and you see what are the incentives facing a commercial bank in this type of system that they're envisioning, there's only time they would wanna issue more fiduciary media and thereby push down the rate of interest is when people in the community wanna save more. So they're agreeing that yes, if you have an initial equilibrium and then all of a sudden the banks wanna lower the reserve ratios and print up more tickets even though there's not more gold in the vault. So there's more people in the community holding tickets saying the owner of this ticket can go to Acme Bank at any branch and get an ounce of gold. There's more of those tickets now that the community is holding in order to get that flow to go out there the rate of interest dropped. So somebody like Salerno or me would say, ah, see issuing more fiduciary media pushed down the rate of interest even though there wasn't saving. It wasn't that people deposited more gold with the banks. There's the business cycle, right? That's the wrong rate of interest. That's not the natural rates, too low. It's artificially low. It sets up the boom, bust cycle. And the free banker response is no, the very act of someone in the community choosing to hold more notes issued by Acme Bank or whatever is implicitly the owner of that note or the holder of that note making a loan to the bank. All right, so it's a very clever argument. So if it were correct, I think it would go through, right? In other words, they would have shown in their type of system the only time the banks would issue more fiduciary media lower the rate of interest is when the community voluntarily saved more. And again, the bank would just be an intermediary. So that's what they're trying to do. So it's a very clever approach. I just don't think it, it doesn't make sense to me economically. I don't think it's correct. So one thing is, and I'll show you a paper here at the end if you wanna go see the source, Mies has explicitly dealt with that type of argument in 1912 in the theory of money and credit. And he said, some people think that holding fiduciary media involves an implicit lending of funds to the bank. And Mies says, that's not correct. And so his argument is if I'm holding a note like from Acme Bank or let's say Citibank that says the owner of this can present it at any Citibank and get an ounce of gold upon demand. And so the free bankers are arguing that there I've implicitly lent the ounce of gold to Citibank, right? Because I could go get it, but I'm choosing not to. And so it's remaining in their possession as I walk around town with this note rather than going and turning it in and getting the gold ounce. So they're saying in a sense I've lent Citibank the gold ounce. And so therefore the interest rate should have fallen because I just engaged in more lending. But what Mies is arguing is that no, when you understand what fiduciary media is in how it is accepted by most people in the community at par with the genuine underlying base money, then you realize it's not alone, okay? And this is why Mies goes through the whole thing. I'm not gonna, we don't have time and also I don't wanna bore you too much here, but why Mies has developed this notion of fiduciary media, okay? And so it's claims on money that are instantly redeemable and that the community accepts as being interchangeable with money, but it's not actually money proper. That's what fiduciary media are. And why did he develop that? Because he thought this was necessary to understand the business cycle. Because what happens is the weird thing about claims on banks, at least reputable ones, is that the public treats those things as basically interchangeable with actual money. So when you're walking around a developed market economy with notes from Citibank saying the owner of this is entitled to an ounce of gold, you can go into the store and spend it just as well as you can spend the actual gold ounces. Okay, and so the point is you're not actually making a loan to the bank because you still have a present good. Anything that having the actual gold in your possession would entitle you to, or any services it provides by having gold in your cash balances is also satisfied by holding fiduciary media, okay? And so don't get lost here because this people get into arguments. There's a dispute about whether acquiring larger cash balances constitutes saving. And that question is not relevant to the particular one here. What the free bankers need to argue is that you've got cash in your, you've got gold in your possession. And I agree that by adding that to your cash balances, you're saving. You know, like I saved an ounce of gold. So now I have an extra ounce of gold in my cash balances. And now if I go and give it to a bank and they give me a note saying the owner of this note can get an ounce of gold, that that's an additional act of saving on top of it. Right, because that's what they need, that's what they would need to argue. And I'm saying that doesn't follow. All right, that just swapping the form in which you're holding your cash doesn't constitute an additional act of saving. And so that shouldn't further push down the rate of interest. And I have a little reductio ad absurdum. So in the free banker vision or worldview, why would it be good? How does it promote coordination or equilibration like they say you can have a situation where imagine everybody all of a sudden wants to save more. They want to hold more cash. They get fearful for the future. Under 100% reserve banking, this would they claim lead to a painful adjustment process where people don't want to spend as much. They reduce their spending because they're trying to build up their cash balances. And so prices would have to come down and more gold would have to be mined, right? If we're in a 100% reserve community that uses gold as the money, if all of a sudden everybody wanted to double the amount of gold in his or her possession, then what happens is a combination of more gold gets mined and prices quote in gold come down until the point at which the real purchasing power of your gold holdings has doubled for everybody. And they're saying that's a painful process. What if instead the banks could just print more tickets, right? And then that would satisfy everybody they're purchasing power measured in terms of gold and tickets would go up. We don't have to go and go the costly method of digging up more gold. And we don't have to wait for the painful, sluggish process of prices coming down because prices are sticky. They just are and that's their argument. And so as I pointed out, what's weird in that situation, just if you go through their logic is if you said, okay, let's imagine that it's a situation where everybody just wants to double his or her holdings and the banks just print up more tickets. And so everybody just gets more tickets and not everyone has twice as much gold measured in tickets that they borrowed from the bank. And now I say, okay, how did that happen? Isn't that, you know, that pushes down interest rates. Isn't that going to cause the boom bus cycle? They're saying, no, because they're implicitly making a loan. And so if you think it through, how was it possible that everybody in the community all of a sudden had more tickets is because everybody lent himself that extra money, right? You see that? And so if you say to someone, where'd you get those tickets from? You'd say, oh, I lent it to myself. And that's how you doubled your cash holdings, all right? And so it's, when you think it through that way, you realize, wait, there's something screwy there that can't be right. Okay, whereas when it's just one-off, things in one person, you know, is holding the notes and maybe you could see it and somebody else borrowed it because normally the bank expands and some business will borrow the notes, spend it, and then someone else in the community will be the reservoir while that note will end up and they'll add it to their cash balances. And so the free bankers argue, oh, that person where it landed implicitly lent the money to the expanding business owner. But when I make it symmetrical like they were, everyone in the community just expands his or her cash holdings, which the banking system accommodates by printing out more tickets, you can see that process doesn't work. That means everybody implicitly lent himself the extra funds available to bolster his cash balances. That doesn't make any sense. And certainly, you're not creating genuine savings through that, all right? So that's the way I would handle that particular claim. Another claim that Seljan often dwells on is pointing at the historical successes of the free banker vision. And the two he singles out are Scotland and Canada. And so again, I'm not putting words in his mouth. Clearly you can go and if you read the paper, I'll link to it at the end here, you'll see that Seljan holds these up as the best examples historically of free banking in action. And so that's ironic, because as Murray Rothbard detailed, Scotland suspended species redemption for more than a decade, okay? And so again, what that means is during the period that the free bankers point at Scotland and say this is a good example, you know, nothing's perfect, but this is a good example of our principles and operation. You can see it working here that the Scottish banks, if you showed up and said, yep, I have gold on deposit with you, you see, here it is, here's the receipt, I'd like my gold, please. They would say, no, you have notes from us, that should be good enough for now. And it wasn't just that they suspended redemption for a week or two, again, it was for a long period of time. And that happened during the alleged period of the free banker success story. As far as Canada, Seljan pointed to in one of his blog posts, this book on Canadian banking history saying this outlines how great the Canadian system worked, at least when it first started before, you know, there was more and more political intervention. But again, and Seljan gives these years for when the banking system in Canada approximated his free banking ideals and said it was remarkably stable. So I went and looked up, you know, I went and pulled the book up and I saw, so this is the book he was talking about in the chapter dealing with the time period in question, this is what it says. So it's banking under the Confederation, the expansion between 1867 and 73, then depression, then bank failures and losses. Okay, and so it's, which is ironic because this is, if Murray Rothbard wanted to point to historical example to show this is the danger of unrestrained fractional reserve banking, this is the poster child. This is literally exactly what the 100% reservists say would happen is that, oh yeah, there's an expansion, there's this apparent prosperity, but then there's an economic crash and then there's bank failures. That's exactly what it does here. And so, and with some of the back and forth, the last thing I'll leave you with here is for more reading. So I, the stuff I'm drawn on this talk, I had come out in a recent paper in the QJ in the spring of 2019, more than quibbles, problems with the theory and history of fractional reserve free banking if you wanna see more of this. And just so he doesn't think I'm ignoring him. So Seljan did respond to this talk I just gave. He had an earlier response to that, which you can see if you just Google Bob Murphy on free banking in Canada, you'll see. But if you go look at it, it's not that I'm ignoring his response, it's that we're talking past each other. Like what Seljan does is just point out, oh, well there's certain other things that were good in the Canadian system like the allocated credit. And that's difficult to quantify number one, but also that's not really what the claim was. The Rothbardian type claim that I think goes back to Mises is that fractional reserve banking per se causes the business cycle, the boom-bust cycle. Because when banks lend money that hasn't first been deposited with them from savers, they're in a sense acting as if there's more savings than there really are. That pushes down interest rates, that's not the correct interest rate, and that causes the boom-bust cycle or at least that's the claim. And so to point to an example where there was clearly a boom-bust cycle right after the system was instituted is entirely consistent with that. So Seljan doesn't go through and try to explain why it doesn't cause the boom-bust cycle. He just points to other issues. So partly it's disappointing because we're talking past each other. The last thing I'll mention is one of the things Seljan does is he'll contrast the US experience with the Canadian experience. And it's true, the US like during the 1930s, there were a lot of bank failures in the US there weren't in Canada and that has to do with various restrictions like on what's called unit banking laws in the United States. So what Seljan can do is show systems that had a lot more government intervention than the places that he's holding up as ideal free banking scenarios had a lot worse things happen in their financial system. And yeah, of course that's true, right? Just like I wouldn't, but it's like saying price controls aren't a big deal because look at New York City right now look at the price controls. Would you rather live in New York City or the Soviet Union, right? You see what I'm saying? That doesn't exonerate price controls. It just means yeah, that by itself isn't as bad as outright full blown central planning. So likewise, if Seljan's pointing to a country that had fraction reserve banking backed up by government privileges and cartels for the banks and also had restrictions on branch banking or had other sorts of things that the banks had to buy government bonds where yeah, that's gonna be worse than a place that's a free banking ideal. But as we've seen, even the place he holds up as the ideal they still suspend species redemption. In the other example, they still have depression and bank failures. Okay, that's my time. Thanks everybody.