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Murray Rothbard, in The Case for a 100 Percent Gold Dollar (1974), maintains that fractional-reserve banking is fraudulent. Viewing it as coercive and unlawful, he argues that banks ought to be allowed to serve only as warehouses for money. He insists that all deposits become bailments, not debts or credits. 1 Money would always be an asset, never a liability. A proper bank would, in his view and by law, hold all deposits intact and become a 100 percent reserve-storage or safety-deposit bank, although to call such a business a bank under these conditions is something of a misnomer because such a so-called bank makes no loans.
Rothbard's firm belief that fractional-reserve banking constitutes fraud rules out fractional-reserve free banking even in a free market. This position, I argue, goes against basic ideas of liberty and the free market, both of which Rothbard champions. When he regards fractional-reserve banking as fraudulent and proposes its illegality, he introduces his own ethical judgment based on his own assessment of the merits of any and all exchange transactions that may occur between banker and depositor. He introduces his own idea of the appropriate property rights in a bank deposit, his own idea of what appropriate money must be, and his own idea oflibertarian law. Although he is entitled to his opinions, the market participants in a condition of liberty in free markets decide all these matters for themselves, and their reasoning and valuations may differ from Rothbard's. They may not regard fractional-reserve banking as fraudulent, and they may want to transact via fractional-reserve banking arrangements. They may wish to circulate media of exchange that are someone else's liabilities.
Rothbard's position has since been espoused in books by both Jes?s Huerta de Soto (2001) and J?rg Guido H?lsmann (2008) as well as in articles, such as one by Hans-Hermann Hoppe, H?lsmann, and Walter Block (1998) that argues against fiduciary media. These latter-day adherents to Rothbard's position show no diminution in the strength of their convictions, despite the criticisms presented by George Selgin and Lawrence H. White (1996), who have argued against Rothbard's position and supported free banking. For example, H?lsmann writes in his book, "There is no tenable economic, legal, moral, or spiritual rationale that could be adduced in...