Reply To: Is fractional reserve banking more efficient?


If I understand your response correctly, you are saying that since the production of a given unit of a fiat currency does not correspond to its intrinsic value, any issuance of money units will be profitable to the issuer no matter what, rendering any attempt at economic calculation nothing but a fumble in the dark?

What about the example in which a bank holds $1,000,000 and lends out $750,000 to three different entrepreneurs, and the three entrepreneurs build one restaurant each. Upon repayment, society has more restaurants than would be permissible in a hard money economy. I assume that what you are saying is that we have no way of telling if three restaurants actually makes more economic sense than, say, one restaurant, which would be the case if the bank only issued real money. Or am I missing something?