To: basho who wrote (54230 ) 2/22/2006 10:38:10 AM From: gpowell Read Replies (1) | Respond to For me, the whole issue of the validity and effectiveness of a fractional reserve banking system comes down to whether it is based on specie or fiat money. We agreed, I thought, that left to its own devices the market would choose the former. Anyway, even without that contentious provision, and in the absence of various state sponsored guarantees or privileges, a number of consequences follow: Finally, a further brief comment on Scottish free banking. My principal reason for responding to your Scottish free banking comment was to do with the question of reserves. Here, the evidence is apparently sparse and mixed but from what I can see, in the mid 1700s at least, specie reserves tended to be 2-4% with holdings of notes from other banks adding another 15-20%. More generally, while I don’t pretend to expertise in this area, even a brief review of the literature does indicate there are quite strongly differing views, including it seems by Rothbard with himself! Not on free banking’s existence, nor on the fact that on balance it provides strong support for free market banking, but rather on the degree to which it was “pure”and also the details of its performance.
