I want to keep the focus on the question of whether or not fractional reserve banking is fraudulent. One commenter, Less Antman, makes the point that it’s not fraudulent if people knowingly enter into voluntary relationships with banks that practice fractional reserve banking. The bank never claims that the note is a warehouse receipt for property, it is merely a promise to pay.
In the original article from the first post, Carl agreed that “fractional reserves do not constitute a breach of contract when and where that practice is specified.” However, Carl has since reconsidered this view and pointed me to Issue 112 for further explanation.
The article he referred to is “Titles in Search of Property: Should Fractional Reserve Banking Come to an End?” Carl explains how his understanding of the issue was further developed after reading a Hans-Herman Hoppe article, “Fiduciary Media” published in 1998 in THE QUARTERLY JOURNAL OF AUSTRIAN ECONOMICS.
Hoppe goes deeper into the nature and reality of property itself. Here are two excerpts from Hoppe that set up the relationship of bank notes to actual property:
Since, both B [the bank] as well as A [the depositor], count the same quantity of money simultaneously among their own assets, they have in effect conspired to represent themselves in their financial accounts as owning a larger quantity of money than they actually own: that is, they have become financial impostors, [pp. 26-27]... Fractional reserve banking does not increase the quantity of existing property (money or otherwise), nor does it transfer existing property from one party to another. Rather, it involves the production and sale of an increased quantity of titles to an unchanged stock of property (gold); that is, the supply of and the demand for counterfeit money and illegitimate appropriation. [Hoppe, et. al., p. 33]
[F]iduciary media represent new and additional titles to or claims on an existing and unchanged stock of property. ... They represent an additional supply of property titles, while the supply of property has remained constant. It is precisely in this sense that it can be said of fiduciary media that they are created out of thin air. They are property-less titles in search of property. This, in and of itself, constitutes fraud, .... Each issuer and buyer of a fiduciary note (a title to money uncovered by money), regardless of what he may believe, is in fact - objectively - engaged in misrepresentation for the purpose of personal gain. [Hoppe, et. al., p. 22]
Hoppe has framed the issue clearly in terms of property actually existing in reality. Hoppe says "two individuals cannot be the exclusive owner of one and the same thing at the same time." Therefore fractional reserve banking makes claims that contradict reality.
A person can certainly make a claim that something exists, such as Santa Claus, but that doesn’t mean it exists. Someone who says this is denying reality. This is why Hoppe says even a voluntary contract for fractional reserve banking is not legitimate. It makes the claim that a property title to something exists when it does not.
Now, of course (and Carl goes into this in the article) there is the fact that until people actually agree that this is true, the claim does “exist” as far as how people behave. The practice would only end once people understood fractional reserve banking as a fraudulent claim on property (just like we now understand slavery). But the point I’m focusing on here is the idea of whether or not Hoppe’s point is true, thereby making fractional reserve banking fraudulent.
What do you think?