"A third category may be called credit money, this being that sort of money which constitutes a claim against any physical or legal person. But these claims must not be both payable on demand and absolutely secure; if they were, there could be no difference between their value and that of the sum of money to which they referred, and they could not be subjected to an independent process of valuation on the part of those who dealt with them. In some way or other the maturity of these claims must be postponed to some future time." - Mises from Theory of Money and Credit Does this critique apply to fractional reserve banking itself or the backing of deposits such as FDIC insurance? Does Mises oppose fractional reserve banking under free market conditions? And would mises be happy with very short maturity times on the order of minutes or seconds? I ask because I think libertarians should let the free market determine reserve ratios economically, not by banning them as inherantly fraudulent. I usually find that Mises's position is the best position, and I want to understand his position on this.
Mises wasn't against fractional reserve banking.
Yes the critique applies to Fractional Reserves as these are not absolutely secure as there are multiple title holders to the same reserves and are therefore NOT secure. And yes this applies to Fractioned Deposits that are insured as well as the FDIC does not have the ability to insure all deposits for immediate redemption.
I do not know if Mises opposes it but he points out that fractioned deposits create credit and therefore create the Business Cycle.
The maturity time frame is not relevant as to the type of money the deposit is but when that deposit becomes credit money. If the deposit becomes credit money then the bank does not by definition have the reserves to pay off the deposit.
It's not a critique. It's an explanation why credit money exchanges at less than par, unlike money substitutes, which exchange at p