Reply To: Monetary Systems


In G.Edward Griffin’s book, “The Creature from Jekyll Island”, he defines 4 types of money: commodity money, receipt money, fractional reserve money, and fiat money., redeemable notes with 100% backing, redeemable notes with partial backing, and no gold/silver at all.

I mention this not as a challenge to Professor Herbener, whose definitions seem to include these definitions as subsets. But rather because Griffin’s definitions inspired the following (not sure if this will be a question or a comment inviting a response):

It seems like we appear to have fractional reserve monetary rules but fiat money. Fractional reserves make sense when there is a commodity. But, when the reserve is something that can be created at will with a few keystrokes on a computer, what is the point of having a fractional reserve? My understandingis that the fraction is not a legal requirement (although at one time it was), it is just FED policy. Well, if that fraction is arbitrarily low, say 1% or .01%,or .001%, or whatever the FED wants to set it at, there is (or can be) no fractional reserve at all, practially speaking.

I guess my point is that I am skeptical that we have much of a fractional reserve monetary system. If we do (and I suppose that we do, although I have heard of shockingly low fractions, but I cannot remember where/when), it is only because the FED finds it convenient/expedient for the time being.

If I am wrong that fractional reserve policy (the fraction) is arbitrary (i.e. not fixed by law), please correct me, and then I apologize for wasting resources.