%0 Journal Article
%T Free Banking and the Structure of Production: A Contrast of Competing Banking Systems
%A Dan Mahoney
%J Libertarian Papers
%D 2011
%I Ludwig von Mises Institute
%X In this paper we extend an argument originally developed in H¨šlsmann (2009) to analyze changes to the structure of production that occur when the demand for money changes. In particular, we show that H¨šlsmannĄ¯s argument, which contrasted such changes under commodity and fiat systems, applies as well to the case of 100% reserve systems contrasted with fractional reserve free banking systems (FR/FB). Specifically, we argue that under a 100% reserve system, the structure of production will change in response to a change in demand for money, and that it will not under FR/FB. In fact, such changes are beneficial. Since one of the central arguments in defense of FR/FB is precisely the fact that it avoids such changes to the structure of production (at least more readily than 100% reserve systems), we conclude that this argument amounts to comparing different mechanisms for attaining different equilibrium states, and hence is invalid as a defense of that mechanism (FR/FB) as such.
%K libertarianism
%K banking
%U http://libertarianpapers.org/2011/14-mahoney-free-banking/