receipts for gold had many fateful consequences. In the
first place, it meant that any deposit of money could now take its
place in the balance sheet of the bank. For the duration of the
deposit, the gold or silver now became an owned asset of the
bank, with redemption due as a supposed debt, albeit instantly on
demand. Let us assume we now have a Rothbard Deposit Bank. It
opens for business and receives a deposit of $50,000 of gold from
Jones, for which Jones receives a warehouse receipt which he may
redeem on demand at any time. The balance sheet of the Rothbard
Deposit Bank is now as shown in Figure 7.1.
Although the first step has begun on the slippery slope to
fraudulent and deeply inflationary banking, the Rothbard Bank
has not yet committed fraud or generated inflation. Apart from a
general deposit now being considered a debt rather than bailment,
94 The Mystery of Banking
10Michie, Banks and Banking, p. 20. The answer of the distinguished
legal historian Arthur Nussbaum is that the “contrary view” (that a bank
deposit is a bailment not a debt) “would lay an unbearable burden upon
banking business.” No doubt exuberant bank profits from issue of fraudulent
warehouse receipts would come to an end. But grain elevators and
other warehouses, after all, remain in business successfully; why not genuine
safekeeping places for money? Arthur Nussbaum, Money in the Law:
National and International (Brooklyn: Foundation Press, 1950), p. 105.
11The economist, Jevons, in a cry from the heart, lamented the existence
of the general deposit, since it has “become possible to create a fictitious
supply of a commodity, that is, to make people believe that a supply
exists which does not exist . . .” On the other hand, special deposits, such
as “bills of lading, pawn-tickets, dock-warrants, or certificates which establish
ownership to a definite object,” are superior because “they cannot possibly
be issued in excess of the good actually deposited, unless by distinct
fraud.” He concluded wistfully that “it used to be held as a general rule of
law, that a present grant or assignment of goods not in existence is without
operation.” William Stanley Jevons, Money and the Mechanism of Exchange,
15th ed. (London: Kegan Paul, 1905), pp. 206–12, 221.
The Rothbard Deposit Bank
Assets Equity & Liabilities
Gold coin or Warehouse receipts
bullion $50,000 for gold $50,000
Total Assets $50,000 Total Liabilities $50,000
FIGURE 7.1 — A DEPOSIT BANK
nothing exceptionable has happened. Fifty thousand dollars’
worth of gold has simply been deposited in a bank, after which
the warehouse receipts circulate from hand to hand or
from bank to bank as a surrogate for the gold in question. No
fraud has been committed and no inflationary impetus has
occurred, because the Rothbard Bank is still backing all of its
warehouse receipts by gold or cash in its vaults.
The amount of cash kept in the bank’s vaults ready for instant
redemption is called its reserves. Hence, this form of honest, noninflationary
deposit banking is called “100 percent reserve banking,”
because the bank keeps all of its receipts backed fully by
gold or cash. The fraction to be considered is
Reserves
Warehouse Receipts
and in our example the fraction is
$50,000
$50,000
or 100 percent. Note, too, that regardless of how much gold is
deposited in the banks, the total money supply remains precisely
the same so long as each bank observes the 100 percent rule.
Only the form of the money will change, not its total amount or
Deposit Banking 95
its significance. Thus, suppose that the total money supply of a
country is $100,000,000 in gold coin and bullion, of which
$70,000,000 is deposited in banks, the warehouse receipts being
fully backed by gold and used as a substitute for gold in making
monetary exchanges. The total money supply of the country (that
is, money actually used in making exchanges) would be:
$30,000,000 (gold) + $70,000,000 (warehouse receipts for gold)
The total amount of money would remain the same at
$100,000,000; its form would be changed to mainly warehouse
receipts for gold rather than gold itself.
No comments:
Post a Comment