Comments on: 18. “Unanswered Quibbles with Fractional Reserve Free Banking” http://libertarianpapers.org/2011/18-bagus-howden-unanswered-quibbles-with-fractional-reserve-free-banking/ A Journal of Libertarian Scholarship Wed, 24 Apr 2013 18:59:49 +0000 hourly 1 http://wordpress.org/?v=3.5.1 By: Rob Read http://libertarianpapers.org/2011/18-bagus-howden-unanswered-quibbles-with-fractional-reserve-free-banking/comment-page-1/#comment-6724 Rob Read Mon, 01 Aug 2011 18:51:42 +0000 http://libertarianpapers.org/?p=1812#comment-6724 The authors of the article argue strongly that the distortions caused by increased central bank pumping are radically different from those caused by changes in demand for money under a 100% reserve system.

I’m not sure I fully understanding the case they make.

When central banks pump money:

- Supply of money exceeds demand at initial price level and bank interest rates fall.
- The lowered interest rates cause mal-investment as projects containing a high proportion of interest in their costs appear more profitable
- Eventually (when money pumping stops) prices and interest rates move back to equilibrium
- By this stage the mal-investments are revealed as unprofitable and may need to be liquidated

When demand for money decreases under 100% reserve system then assuming some of the money released from cash balances goes into the loan market then the same process will take place as described above. (Assume that the change in cash balances does not affect underlying time preference)

I guess the effects may not be intense because only a portion of the new money goes out via the loan market but nevertheless I am not really seeing the differences as being as fundamental as stated in the article.

Can anyone clarify what I am missing?

]]> By: What type of Free Banking do we want? » The Cobden Centre http://libertarianpapers.org/2011/18-bagus-howden-unanswered-quibbles-with-fractional-reserve-free-banking/comment-page-1/#comment-6723 What type of Free Banking do we want? » The Cobden Centre Wed, 20 Jul 2011 08:47:45 +0000 http://libertarianpapers.org/?p=1812#comment-6723 [...] Unanswered Quibbles with Fractional Reserve Free Banking [...]

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