Mr nescio, I think you have gotten off to a bad start by commenting and (apparently) not reading the paper at all. if you would care to point out which section you have a problem with, it would help me.
I am well aware that nobody has any problem with fractional reserve banking in classical economics and that conventional wisdom is that it is intrinsic to the concept of banking. mr nescio, you have no comment on the concept of a "reserve ratio" which I propose you address in your next response, if any. parts of your response are basically incorrect taking it into account. perhaps you could explain what exactly the term "fractional reserve banking" means and why it is called "fractional". I basically agree with your response but you dont address the issue of the amount of profit taken on the loan by the bank vs. the amount taken by depositors. its true the paper did not look very closely into the issue of private bank loans to individuals that you raise, I didnt get to it, its obviously very important. >Mr. Nuri - > >You have gotten off to a bad start by misunderstanding the nature of >private banking. > >It is true that in traditional private banking, a banker could increase >the money supply by making loans. However for the most part these would >be secured loans which are fully backed by real assets. > >A common example would be a mortgage. The bank would make a loan to >the property owner, but the loan is backed by the property. The bank >would retain a claim on the title to the property, which will remain in >existence until the loan is repaid. > >This claim is a real asset and would be carried as such on the bank's >books. People who hold the bank's currency have a claim on that asset >just as they do on the gold in the bank's vaults. Both the gold and >these other real assets back the loans the bank has made. In a well run >and honest bank all of the money circulating will be backed in this way. > >This can still allow for bank runs, as the real assets owned by the bank >are not as liquid as gold and can't be turned into gold quickly (via >sales to other banks). But it shows that the bank is not counterfeiting >or debasing the currency. Nor is it printing money at will. All of >the money it prints is backed by legitimate and tangible assets in the >form of gold and other property.
