Over at the Mises blog, there has been a heated discussion on the merits of free banking, meaning a system without a central bank where banks can (if they wish) lend out some portion of their demand deposits.
At several points in the thread, someone has said, in effect, "Fractional reserve demand deposits are inherently fraudulent, because there are circumstances (e.g., all depositors show up at once) in which the bank cannot fulfill its promise to pay on demand."
Let's accept this argument for a moment and see where it leads us.
First of all, life insurance can easily be seen as equally fraudulent. There are clearly circumstances (e.g., a nuclear war) in which too many people would die at one time for an insurance company to pay all of the claims coming in. In fact, after a little more thought, it seems all insurance is fraudulent, since the same is true of any insurance policy.
But, wait, as I follow this a little further, it strikes me that all financial futures contracts are fraudulent: you know, there's always the possibility that, say, the government might nationalize the oil supply, and the person who sold oil forward won't be able to deliver.
Now a great light is dawning upon me, and I see even more revealed! In fact, all business contracts whatsoever are fraudulent: they all involve the future, don't they, and so they all contain clauses that might not be fulfilled. And work for hire is clearly fraudulent if the employer doesn't fill the worker's bank account continuously as work progresses, since otherwise there is some possibility the wage won't be paid!
This is surely the mark of a fertile principle: from what we at first thought was an argument only rejecting a very particular business practice, we have managed, using only our original logic, to shut down the world economy!
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