Adam Knott:In my example, the banknotes are inflated within the bank family prior to being offered to a prospective debtor. There are now 200 notes that claim to the money instead of 100 notes that claim to it. So now each note may be redeemed for 1/200th of the amount of the money instead of 1/100th of the amount of the money. This devaluation of the notes has not devalued the money in the bank's vault. The money in the bank is still the same. When the prospective debtor approaches the bank for a loan, it is not pieces of paper he is asking for, but rather a definite amount of money (as Giles refers to it, base money). When the debtor goes into the wider marketplace to purchase goods (let's assume he is building a home), the bank notes he spends to purchase supplies will be redeemed by the retail merchant for the money in the bank.
But how this money is denominated---whether for each ounce of money there are two notes, or ten notes---isn't important.
To the prospective debtor and the retail merchant, it doesn't matter how many pieces of bank paper correspond to each ounce of base money. All that matters is how much base money their notes entitle them to.
The inflation of the notes happened before the debtor received the notes
He doesn't care whether the bank hands him 100 pieces of paper per ounce of money or 200 pieces of paper per ounce of money.
Because all that matters is that the retail merchant who will be receiving and then redeeming these notes is confident
The number of pieces of paper that correspond to each piece of money is irrelevant.
February 17 - 1600 - Giordano Bruno is burnt alive by the catholic church. Aquinas : "much more reason is there for heretics, as soon as they are convicted of heresy, to be not only excommunicated but even put to death."
Adam, I don't really know how else to clarify. What I mean by an IOU is a loan. So, whereas you presumably intend a deposit to mean a bailment. Albeit, one whose value may decrease. I mean it to be a transfer of property titles to the bank. I think that could help clear up your conclusion. As for the printing of more notes being fraudulent, I'm not sure it is. Consider that nobody is forced to accept the bank notes, rather, people accept them voluntarily. But if this is the case then how can the bank be held liable for selling them (which is exactly what the bank does).
adam knott:Could you clarify? Do you mean an individual's demand for base money or the money substitute (the note)? And are you referring to an a priori law of economics about an individual person's demand for something and a necessary provision of that thing by another person? I'm not sure what you are saying, so I don't know whether to agree.
Ah, OK, sorry for the confusion. What I meant was that they increase their demand for banknotes. It's an a priori law in the same sense that it would be with any other law. This is my major disagreement with the Rothbardians in this regard. For some reason money is to be the only good for which supply should not increase with demand.
"You don't need a weatherman to know which way the wind blows"
Bob Dylan
GilesStratton:For some reason money is to be the only good for which supply should not increase with demand.
Where there is no property there is no justice; a proposition as certain as any demonstration in Euclid
Fools! not to see that what they madly desire would be a calamity to them as no hands but their own could bring
Hi Juan.
It's difficult for me to respond clearly and succinctly to your questions above, because I'm not sure whether we're talking about the case where the debtor accepts the notes, or does not accept the notes.
If you mean to refer to a natural rights question of whether the loan making enterprise my example envisions should be allowed to operate, or whether such an enterprise should be prevented by government intervention, I believe this exceeds the scope of my argument.
My argument assumes a free market atmosphere with no laws against private note issue.
If, granting that assumption, you mean a situation where the debtor accepts the notes, then maybe you can provide an example of how that must necessarily lead to a problem.
Adam
"It would be preposterous to assert apodictically that science will never succeed in developing a praxeological aprioristic doctrine of political organization..." (Mises, UF, p.98)
nirgrahamUK: GilesStratton:For some reason money is to be the only good for which supply should not increase with demand.false, if commodity money is demanded then commodities are free to be supplied. of course, counterfeits are not commodities.
Why must they be counterfeits, in any case, if the demand for bank notes increases, I don't see why there can't be a consequent increase in supply.
Adam:It's difficult for me to respond clearly and succinctly to your questions above, because I'm not sure whether we're talking about the case where the debtor accepts the notes, or does not accept the notes.
If you mean to refer to a natural rights question of whether the loan making enterprise my example envisions should be allowed to operate,
GilesStratton: Adam, I don't really know how else to clarify. What I mean by an IOU is a loan. So, whereas you presumably intend a deposit to mean a bailment. Albeit, one whose value may decrease. I mean it to be a transfer of property titles to the bank. I think that could help clear up your conclusion. As for the printing of more notes being fraudulent, I'm not sure it is. Consider that nobody is forced to accept the bank notes, rather, people accept them voluntarily. But if this is the case then how can the bank be held liable for selling them (which is exactly what the bank does). adam knott:Could you clarify? Do you mean an individual's demand for base money or the money substitute (the note)? And are you referring to an a priori law of economics about an individual person's demand for something and a necessary provision of that thing by another person? I'm not sure what you are saying, so I don't know whether to agree. Ah, OK, sorry for the confusion. What I meant was that they increase their demand for banknotes. It's an a priori law in the same sense that it would be with any other law. This is my major disagreement with the Rothbardians in this regard. For some reason money is to be the only good for which supply should not increase with demand.
Giles:
There may be an inherent problem that occurs when we accept a definition that has a fixed meaning according to a particular theory which then precludes our conceiving of things differently.
For example, in the loan making enterprise of my original example, why aren't the bank clients considered "investors" ? This is an association of individuals who pool their wealth for the purpose of making profits on loans. So maybe we could say that this enterprise is a bank in the sense that the debtor may obtain loans from it, but it is not a bank as this term is traditionally understood, from the point of view of the "depositors," since they are pooling their wealth for the express purpose of making profits on loans. Because this is a business formed for making profits, all understand that they may incur losses. Those losses will manifest in the members of the bank family recovering less than their original investment.
Regarding the fraudulent nature of note devaluation, I guess my point was that the devaluation of the notes can be transparent. My intention was to provide an example of a note issuing enterprise where the devaluations are transparent. If the devaluations are transparent, and the participants accept such devaluations as means to their ends, then this may help bridge the difference between Misesian free banking advocates and Rothbardian natural rights advocates.
"This is my major disagreement with the Rothbardians in this regard. For some reason money is to be the only good for which supply should not increase with demand."(underline added, AK) I believe the reason is Rothbard's natural rights theory as put forth in The Ethics of Liberty.
they are counterfeits if the say the are the deeds to gold in the vault, and there is no such gold.
GilesStratton: in any case, if the demand for the bodies of dead innocents increases, I don't see why there can't be a consequent increase in supply.
how curious.
nirgrahamUK: they are counterfeits if the say the are the deeds to gold in the vault, and there is no such gold. GilesStratton: in any case, if the demand for the bodies of dead innocents increases, I don't see why there can't be a consequent increase in supply. how curious.
On the one hand there is an argument that hinges on the concept of marginal utility, and on the other hand there is an argument that hinges on a value judgment.
Only ideas can overcome ideas...
wade: nirgrahamUK: they are counterfeits if the say the are the deeds to gold in the vault, and there is no such gold. GilesStratton: in any case, if the demand for the bodies of dead innocents increases, I don't see why there can't be a consequent increase in supply. how curious. Having read this whole thread so far, I would like to offer a more general perspective on the arguments presented. From a very generalized standpoint, and not getting into the details of the particular examples of various human actions, it appears that there may be 2 general approaches being presented. On the one hand there is an argument that hinges on the concept of marginal utility, and on the other hand there is an argument that hinges on a value judgment.
Wade:
Thank you for these comments.
After thinking through my example due to comments and questions provided by posters, I believe my example may be faulty for the following reason:
In my example, the bank clients provide their money as a business enterprise for the purpose of making loans for profit. But then, why are the clients holding bank notes? This may touch on what Giles was saying--that my example was unnecessarily complex. What the clients would have in my example would not be notes, but a defined claim to their investment + a return if the business was successful. In my example, the prospective debtor receives notes (I assume), which are then redeemed as he spends them in the marketplace. The ostensible reason for issuing notes as opposed to money to the debtor is so the debtor doesn’t have to take a large amount of money to his home.
If this is the case, then this removes the novelty of my suggestion that the clients could voluntarily devalue their notes, since they have no notes.
Then, my example seems to reduce to an examination of any inherent effects of such a bank issuing/creating notes that are redeemable for the base money it holds, and which base money is loaned out to the debtor (via the notes as mechanism or vehicle) with the expectation he will pay it back with interest.
What I was trying to arrive at was an example where full transparency is assumed in all transactions to the extent practically possible. And this transparency was applied to the devaluation of the notes held by the clients. But now, the clients seem to have no notes.
The devaluation in my example—when the example is rightly conceived—happens to the defined claim of the bank investor in his capacity as an investor, if the investment fails.
As I see it, for my example as currently construed to be resuscitated, I would have to begin by showing why or how the bank clients come to hold notes as opposed to a defined claim regarding their investment.
My intention was to impart an insight as to how a devaluation of a money substitute could be voluntary. But currently, I don’t see how my example accomplishes this, since as a beginning point, I haven’t shown how or why the clients come to have notes as claims on their investments. The novelty of my suggested approach may vanish if I only show that one’s investments can increase or decrease in value.
This brings to mind one of my favorite quotes regarding such attempts and their possible failure:
“There are many salmon swimming up the stream, but sometimes life is a bear.”
If the application of marginal utility analysis to private note issue is faulty in the sense in which I had intended it, this seems to leave private note issue as a vehicle or mechanism for loaning the money to the debtor. The context would be: the bank as a business enterprise where the investors provide the money to be loaned out for profit. The debtor “demands” notes as opposed to money for the ostensible reason that bringing a large quantity of money home is unsafe or inconvenient. Perhaps this is what Giles had in mind in claiming that my example was needlessly complex.
This circumscribed issue could perhaps be discussed on its own merits, separate from the original idea of a voluntary devaluation of notes, and may lead to a more clear understanding of the controversy surrounding private note issue and free banking.
(difference in font sizes is unintentional)
adam knott:For some reason money is to be the only good for which supply should not increase with demand.
Nope. Rothbard's objection is not dependent upon a desire to keep the supply of money static, only to keep the supply of currency representative of the supply of money.
The supply of currency should not increase with the demand for money proper. Money, like any other economic good is and involves real investments, costs, and risks. It cannot be simply demanded in to existence, unlike currency which can be created willy-nilly. Currency is, or represents itself to be a title to real property (money), and so the supplies thereof should rise in tandem. Never should the supply of currency augment without an increase in the supply of the monetary commodity/commodities.
============================
David Z
"The issue is always the same, the government or the market. There is no third solution."
Bravo!
Adam:
I like that quote. Just to be clear I was referring to the entire thread not your posts specifically in my previous comment. I think that your arguments were all interpretable in terms of marginal utility. It was insinuations like nirgraham's statement about "bodies of the dead innocents" that hinge on value judgments and not marginal utility.
Regarding the distinction between claims on investments and notes, I don't necessarily see the difference.
If notes are given to a debtor, then the debtor can use the notes as if they were claims to the actual assets they represent. I don't see the difference in the "note" versus "the claim on investment", since in both cases they are a claim on the same assets. The bank clients are merely loaning out their claims on investment for a set period of time to the debtor. The debtor gets to use the assets as if he owned the assets himself at least for a period of time at a certain amount interest.
If the bank or clients issue more claims than there are assets, then I guess this is where it becomes "fraudulent". This is assuming that the notes are claims on a set amount of assets, and that the bank or clients distribute claims on assets that don't actually exist. But this is just 1 particular contractual arrangement. This does not rule out the possibility of the scenario Adam is describing in a society with free banking.
There may be another way of looking at this. Instead of having assets that are stored and claims on those assets being issued as notes, say that someone starts a paper currency product that is a claim in and of itself. Meaning that the money is not a claim on something else, but a just a very unique piece of paper that people value.
For instance, the design of the paper could be so unique that it would be almost impossible to replicate, or where there was a system in place where it was impossible to duplicate. Lets assume that the designer of this product built a system so that only he would be able to duplicate this unique paper product. I won't get into the details of the technology that might enable such a system, but it is certainly within the realm of entrepreneurial possibilities.
So then lets say that the designer of this unique paper product starts to trade it for other things he desires in a voluntary transaction where others desire his unique paper product. Lets call this paper product "Alphas" just for simplicity.
Now say more and more people desire to attain Alphas, and so the designer begins to produce more in order to meet the demand (in exchange for things he desires of course). As time goes by, designing and selling Alphas becomes a very profitable business, and so as others in society see potential profits to be made you see another paper product emerge called Beta. Both companies that are designing and producing the unique paper products adjust there production levels according to the demand for their products. If there is more demand, then more Alphas and Betas are produced as they don't want the competition to start eroding their market share. As supply catches up and demand slows, less Alphas and Betas are produced as they don't want to overproduce and be left with large inventories and production costs.
As time goes by, another currency emerges claiming that they have discovered a new technology that allows them to predict supply and demand better than the Alpha and the Beta. This new currency called, the Stable, revolutionizes the currency industry and introduces a new online open trading system where all three products can be exchanged and bought over the internet. Exchange ratios emerge between all 3, and anyone in the world can participate in the exchange.
What is the primary difference in such a market described in this hypothetical world versus something very similar we have today like the Forex.
The primary difference in the currencies I described in this hypothetical market is that I never mentioned anything about only 1 of them being allowed to be used over a particular geographic region. If the currencies in this hypothetical world were free to be used and exchanged all over the world with no legal tender laws over specific geographic regions, then the only difference between this hypothetical market and the Forex market we have today is that only 1 currency can be used over a particular geographic region in the currency market we have today.
From an Austrian School perspective, does the hypothetical market not seem more ideal? Does it really matter what type of material the currency is if people choose to value that product?
What I am proposing here is that it does not matter what type of system or currency we have as long as the individuals in that system are free to choose the type of system or currency they desire.
david_z:Nope. Rothbard's objection is not dependent upon a desire to keep the supply of money static, only to keep the supply of currency representative of the supply of money. The supply of currency should not increase with the demand for money proper. Money, like any other economic good is and involves real investments, costs, and risks. It cannot be simply demanded in to existence, unlike currency which can be created willy-nilly. Currency is, or represents itself to be a title to real property (money), and so the supplies thereof should rise in tandem. Never should the supply of currency augment without an increase in the supply of the monetary commodity/commodities.
Why should not the supply for currency keep up with demand? The demand for base money is somthing else.
scineram: Why should not the supply for currency keep up with demand? The demand for base money is somthing else.
Why should not the supply of titles to real property (i.e., housing, land, etc.) keep up with demand?
scineram: david_z:Nope. Rothbard's objection is not dependent upon a desire to keep the supply of money static, only to keep the supply of currency representative of the supply of money. The supply of currency should not increase with the demand for money proper. Money, like any other economic good is and involves real investments, costs, and risks. It cannot be simply demanded in to existence, unlike currency which can be created willy-nilly. Currency is, or represents itself to be a title to real property (money), and so the supplies thereof should rise in tandem. Never should the supply of currency augment without an increase in the supply of the monetary commodity/commodities. Why should not the supply for currency keep up with demand? The demand for base money is somthing else.
I'm assuming that when you are saying "currency" here you are talking about a note that represents the base money. So the demand would be for the base money not the note. Because the note is just representative of the base money. So to increase the supply of claims on base money beyond the actual amount of base money would be fraudulent, or at least in a free banking environment wouldn't attract too many customers once knowledge of this practice got out.
sorry, I forgot to include my /sarcasm tag.
david_z: sorry, I forgot to include my /sarcasm tag.
ah. I missed that, i just thought you were really confused, but I think that was me now. : D
david_z:Why should not the supply of titles to real property (i.e., housing, land, etc.) keep up with demand?
If there was demand for that, why not indeed? The fact is that there is no demand for titles to houses etc. because it doesn't serve well as a medium of exchange and people need control over it in order for it to serve their purposes. OTOH, it isn't necessary to have control over the physical units of gold for it to serve the purposes of the individual.
GilesStratton:OTOH, it isn't necessary to have control over the physical units of gold for it to serve the purposes of the individual.
adam knott:There may be an inherent problem that occurs when we accept a definition that has a fixed meaning according to a particular theory which then precludes our conceiving of things differently.
Adam, this is sort of what I was talking about. I think a lot of the criticisms made by opponents of FRB are misguided for exactly this reason. Huerta de Soto (and economist I have huge respect for) goes through this in great detail. Now, whilst he may certainly have a point that where deposits are construed as bailments fractional reserve banking may be fraud, I don't think he can say the same when a deposit in considered nothing more than a loan. Rothbard writes that when a baker sells bread what he must do is provide a good that is in accordance with the standard definition of "bread" in that particular area. If "bread" were to mean dirt somewhere else and the baker sold dirt under the name of "bread", he'd be commiting fraud. I don't think I need to spell out the analogous case when it comes to fractional reserves.
As for the rest of your post, I don't really have much to add. I think we're pretty much in agreement.
nirgrahamUK: GilesStratton:OTOH, it isn't necessary to have control over the physical units of gold for it to serve the purposes of the individual.you seem to have slipped from paper notes referencing possible gold to gold. switch and bait?
No, my point was that it is a viable business model to expand the titles to gold upon demand. It is not viable to do the same for houses and land.
oh, i see, they arent titles to gold per se, they are possible titles to gold dependant on the expertise and good management of the title printers. i certainly dont oppose an honest lottery.
No, they're not even titles to gold. They're an IOU from the bank, and depending on the terms of the contract the banks can suspend the redemption of these IOUs. And yes, when the bank makes the contract with the individual it is agreed the bank may default on its obligations. But this is no different from other financial intermediaries.
GilesStratton: No, they're not even titles to gold. They're an IOU from the bank, and depending on the terms of the contract the banks can suspend the redemption of these IOUs. And yes, when the bank makes the contract with the individual it is agreed the bank may default on its obligations. But this is no different from other financial intermediaries.
Are the notes given to loan recipients the same IOUs, with the same contracts?
faber est suae quisque fortunae
JackCuyler:Are the notes given to loan recipients the same IOUs, with the same contracts?
Ermm, that's not really something anyone can answer a priori. But I'd say no, since they'd presumably have a fixed term.
GilesStratton: JackCuyler:Are the notes given to loan recipients the same IOUs, with the same contracts? Ermm, that's not really something anyone can answer a priori. But I'd say no, since they'd presumably have a fixed term.
I guess I misphrased the question. Sorry. Here's another try.
Say I walk into the First Radical Bank of Stratton (FRB Stratton, for short). I explain to the loan officer that I'm planning on purchasing a new Morgan Roadster, and would like a automobile loan. The manager checks my credit, finds it excellent, and agrees to the loan. I'm then given some sort of note to give to the dealer, or the agreed upon amount is added to my account, allowing me to write the dealer a check.
Would the note given to me, or the funds added to my account, be the same IOUs as you mentioned? Would the same contract apply?
JackCuyler:Would the note given to me, or the funds added to my account, be the same IOUs as you mentioned? Would the same contract apply?
In the case of the IOUs that I mentioned the loan is being extended to the bank, in the situation you mentioned the loan is being extended towards the customer. So, I suppose that's the major difference. But as I said before, presumably banks to customers would have a defined term and differ in other ways. Either way, we can't really tell a priori.
GilesStratton: JackCuyler:Would the note given to me, or the funds added to my account, be the same IOUs as you mentioned? Would the same contract apply? In the case of the IOUs that I mentioned the loan is being extended to the bank, in the situation you mentioned the loan is being extended towards the customer. So, I suppose that's the major difference. But as I said before, presumably banks to customers would have a defined term and differ in other ways. Either way, we can't really tell a priori.
But it does illustrate a serious flaw in fractional reserve banking, does it not? What if, on the day I purchase my new Morgan, FRB Stratton experiences a run. Not only will many of the account holders lose their money, but the Morgan dealership, or perhaps their bank, will, as well.
Jack, I'd say three things in response to this. One, your argument proves far too much, insolvency is a threat to any firm, regardless of the nature of their business. if the First Radical Housing Company of Cuyler goes bankrupt and proves incapable of paying back its loans then the same problems occur. The fact that we're talking about a bank doesn't have any specific implications as far as I'm aware. On a related note, it's certainly not the case the 100% reserve banks will never become insolvent either. It's entirely possible that a financial intermediary in the Rothbardian sense makes bad loans are proves unable to pay them back. In which case exactly the same consequences follow. Finally, I'm going to have to point out that competition would tend to keep banks from going bankrupt. As was the case in Scotland, which was the closest we've really seen to free banking. As free banking theorists point out, historically state regulation has acted in a such a way as to increase the likelihood of banks becoming insolvent (and then guess what? they have the solution! FDIC).
JackCuyler: But it does illustrate a serious flaw in fractional reserve banking, does it not? What if, on the day I purchase my new Morgan, FRB Stratton experiences a run. Not only will many of the account holders lose their money, but the Morgan dealership, or perhaps their bank, will, as well.
Markets are a risky place. That just goes with the territory.
existence is elsewhere
nirgrahamUK: oh, i see, they arent titles to gold per se, they are possible titles to gold dependant on the expertise and good management of the title printers. i certainly dont oppose an honest lottery.
Nirgraham, I think you're argument stems more from contract law - which is political - than from economics.
If your point is that fractional reserve banking is fraud, fine, I don't know about that but I won't confirm or deny. That said, it hasn't been shown why fractional reserve banks aren't economically superior.
Juan:1) Some people just assume that IOUs will be accepted as if they were money ? Why ? Financial magic.
And the contrary hasn't been shown either. Fact is that this is an empirical matter and I have history on my side.
Juan:2) FRB tends to be conflated with the creation of fiduciary media. Why ? Who knows. Fact is, FRB can work to a probably (very) limited extent without creating fiduciary media. However, so far, none of the inflationists have explained that (and I'm not doing their homework for them).
Ermm, fudiciary media is defined as those notes that aren't backed by base money. So, yeah, as a matter of definition FRB necessitates the creation of fudiciary media.
GilesStratton: Jack, I'd say three things in response to this. One, your argument proves far too much, insolvency is a threat to any firm, regardless of the nature of their business. if the First Radical Housing Company of Cuyler goes bankrupt and proves incapable of paying back its loans then the same problems occur. The fact that we're talking about a bank doesn't have any specific implications as far as I'm aware. On a related note, it's certainly not the case the 100% reserve banks will never become insolvent either. It's entirely possible that a financial intermediary in the Rothbardian sense makes bad loans are proves unable to pay them back. In which case exactly the same consequences follow. Finally, I'm going to have to point out that competition would tend to keep banks from going bankrupt. As was the case in Scotland, which was the closest we've really seen to free banking. As free banking theorists point out, historically state regulation has acted in a such a way as to increase the likelihood of banks becoming insolvent (and then guess what? they have the solution! FDIC).
I tend to define insolvent as having a negative balance. Am I wrong? If not, it is impossible for a 100% reserve bank to become insolvent. If all deposits are simply stored, and all loans are made from real savings, as 100% reserve implies, the absolute worst possible scenario, barring a bank robbery, is a 0.00 balance. Every account could be closed and every single loan defaulted without a single payment, and the bank would still not have a negative balance. It would lose its savings, but not its customers' money.
I'm also not sure how you would think competition would help keep FRB banks solvent. As loans are spent by the borrowers, the money will invariably be deposited in other banks, which will demand the funds from the loaning bank. The lower the reserve, the greater the chance of insolvency.
I'm not arguing against FRB from an ethical standpoint (though I do question whether or not it's fraud to enter into multiple contracts without the ability to fufill them all) but rather on practical grounds. If banking were truely free, I think 100% reserve banks would do better on the market, due to their ability to weather bank runs. I don't doubt there would still be some FRB, but I doubt those with consistenly lower reserves than their competitors would not be in business very long.
GilesStratton:And the contrary hasn't been shown either. Fact is that this is an empirical matter and I have history on my side.
Juan: Actually, what theory and history show is that people reject inflated paper unless they are forced to use it at the point of a gun.
Sorry, but theory has nothing to say here. This depends on how risk averse the population are and how much they value the interest they earn. Historically, you're wrong. Simply put people did value the interest they earn on reserves more than they value the extra security from 100% reserves.
Sorry, but theory has nothing to say here. This depends on how risk averse the population are and how much they value the interest they earn.
Historically, you're wrong.
JackCuyler: I tend to define insolvent as having a negative balance. Am I wrong? If not, it is impossible for a 100% reserve bank to become insolvent. If all deposits are simply stored, and all loans are made from real savings, as 100% reserve implies, the absolute worst possible scenario, barring a bank robbery, is a 0.00 balance. Every account could be closed and every single loan defaulted without a single payment, and the bank would still not have a negative balance. It would lose its savings, but not its customers' money. I'm also not sure how you would think competition would help keep FRB banks solvent. As loans are spent by the borrowers, the money will invariably be deposited in other banks, which will demand the funds from the loaning bank. The lower the reserve, the greater the chance of insolvency. I'm not arguing against FRB from an ethical standpoint (though I do question whether or not it's fraud to enter into multiple contracts without the ability to fufill them all) but rather on practical grounds. If banking were truely free, I think 100% reserve banks would do better on the market, due to their ability to weather bank runs. I don't doubt there would still be some FRB, but I doubt those with consistenly lower reserves than their competitors would not be in business very long.
I think you make some good points here about the banking industry and how it would operate in a free market, as you said, from a practical standpoint. However, from a traditional Austrian School perspective we wouldn't be focused on the specific operations of particular industries. From a traditional Austrian School perspective, we would be focused on the consequences of not allowing all industries to operate freely.
If we start to get into the specific business practices in a particular industry, then it is hard to stay away from making an ethical argument. Even worse, we might stray from the traditional Austrian School approach and start suggesting the there are specific business practices that can be followed that all people should follow. This is a lot different from the traditional Austrian School approach of sticking to a value-free analysis.