Reply To: Bank Reserves


Professor Herbener,

1. What is the consensus among Austrians as to the appropriate alternative to the Federal Reserve system, aside from an agreement about the desirability of a commodity standard? Is it a free banking system with fractional reserves, a free banking system with full reserves, or neither?

2. If the value of a commodity standard is that it prevents inflation due to the scarcity of the commodity, how do we know there would be enough money to go around? How would the value adjust from an ounce of gold being over $1k to being something that could be used in every day transactions? Is the current price of gold mostly due to its value as a hedge or due to the law of supply? How would there be enough gold to accommodate all the transactions in the economy?

3. In a free banking system, how would ordinary people with limited knowledge of financial instruments etc be able to accurately guage the soundness of a given bank? We saw the last time around how incompetent the rating agencies are, so what could the ordinary person look to as a vanguard against fraud and abuse by the banks?

4. How would banks make money if they couldn’t loan out their reserves and were required to keep 100% of their reserves?

5. What do you make of Joseph Salerno’s proposal to give Congress control of monetary policy in the short run? Would that result in the same thing we’ve seen thus far in terms of rampant inflation? And how would we transition from that to a more sound monetary system?

Thank you