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There is no such thing as “fractional reserve banking”, the textbook models on banking taught in schools across the globe are dead wrong. See: Richard A. Wern

by hn0 8y ago

There is no such thing as “fractional reserve banking”, the textbook models on banking taught in schools across the globe are dead wrong. See: Richard A. Werner, A lost century in economics: Three theories of banking and the conclusive evidence https://www.sciencedirect.com/science/article/pii/S1057521915001477 https://www.sciencedirect.com/science/article/pii/S105752191... Richard A. Werner, Can banks individually create money out of nothing? — The theories and the empirical evidence https://www.sciencedirect.com/science/article/pii/S1057521915001477 https://www.sciencedirect.com/science/article/pii/S105752191... Zoltan Jakab and Michael Kumhof, Banks are not intermediaries of loanable funds - and why this matters https://www.bankofengland.co.uk/working-paper/2015/banks-are-not-intermediaries-of-loanable-funds-and-why-this-matters# https://www.bankofengland.co.uk/working-paper/2015/banks-are... German Bundesbank, Die Rolle von Banken, Nichtbanken und Zentralbank im Geldschöpfungsprozess https://www.bundesbank.de/Redaktion/DE/Downloads/Veroeffentlichungen/Monatsberichtsaufsaetze/2017/2017_04_geldschoepfungsprozess.pdf https://www.bundesbank.de/Redaktion/DE/Downloads/Veroeffentl... Piti Disyatat, The bank lending channel revisited https://www.bis.org/publ/work297.pdf https://www.bis.org/publ/work297.pdf Beardsley Ruml, Taxes For Revenue Are Obsolete https://m.huffpost.com/us/entry/542134 https://m.huffpost.com/us/entry/542134

perilunar 8y ago
Thanks for the references. I'll read them when I get time. On a side note, it seems bizarre to me (as a layman) that economists still debate the the nature of banks and the creation of money, given they are the foundation of the economy. Kind of like physicists not understanding thermodynamics, or something.
- hn0 8y ago
  Economists generally follow the idea that all trade is barter trade and that money is just an indirection layered on top the “real” economy, which alleviates some of the issues with bartering goods. That’s all fine, but historians and anthropologists have found zero edvidence that the monetary system developed out of barter. Rather, banking seems to have co-evolved alongside interpersonal informal credit systems (contract based, not spot-trade) and religious practices in early agricultural city states. The first written records are bookkeeping documents of grain supplies and outstanding debts between citizens. In time, people started trading these documents against each other. E.g. If you need to pay Garry for fixing your plumbing, but Sally still needs to pay you for the 8 eggs she borrowed, you can just tell her to pay it to Garry instead and you’l be even. What coins are in this model are abstract tokens representing the ledgers inside the third party’s accounting table which denote the debts and credits people hold against eachother. In other words, it’s all about accounting. Economics courses do not include accounting, generally. The real issue economists fail to “get” it is that it invalidates many of the axioms on which they construct their theory. Economics is still very much a deductive science. Because there is such a large hivemind around these fundamental founding myths the field has been able to get by with simply ignoring outside criticisms, this includes a number of “own goals”. If you have some econ 101 knowledge you might want to look up the “anything goes” theorem. Many nobel prizes can be thrown out of the window. I found Steve Keen’s “Debunking Economics” and Phillip Mirowski’s “More Heat Than Light” to be very revealing.

by hn0 8y ago

perilunar 8y ago

Thanks for the references. I'll read them when I get time. On a side note, it seems bizarre to me (as a layman) that economists still debate the the nature of banks and the creation of money, given they are the foundation of the economy. Kind of like physicists not understanding thermodynamics, or something.

hn0 8y ago
Economists generally follow the idea that all trade is barter trade and that money is just an indirection layered on top the “real” economy, which alleviates some of the issues with bartering goods. That’s all fine, but historians and anthropologists have found zero edvidence that the monetary system developed out of barter. Rather, banking seems to have co-evolved alongside interpersonal informal credit systems (contract based, not spot-trade) and religious practices in early agricultural city states. The first written records are bookkeeping documents of grain supplies and outstanding debts between citizens. In time, people started trading these documents against each other. E.g. If you need to pay Garry for fixing your plumbing, but Sally still needs to pay you for the 8 eggs she borrowed, you can just tell her to pay it to Garry instead and you’l be even. What coins are in this model are abstract tokens representing the ledgers inside the third party’s accounting table which denote the debts and credits people hold against eachother. In other words, it’s all about accounting. Economics courses do not include accounting, generally. The real issue economists fail to “get” it is that it invalidates many of the axioms on which they construct their theory. Economics is still very much a deductive science. Because there is such a large hivemind around these fundamental founding myths the field has been able to get by with simply ignoring outside criticisms, this includes a number of “own goals”. If you have some econ 101 knowledge you might want to look up the “anything goes” theorem. Many nobel prizes can be thrown out of the window. I found Steve Keen’s “Debunking Economics” and Phillip Mirowski’s “More Heat Than Light” to be very revealing.