The effects of fractional reserve banking is tremendous in expanding the power of L’État, corruption, bribery, and all of the lovely things centralized coercion brings you and I. The entire fiduciary system is flawless in its ability to undermine the integrity of warehousing currency, and is a systemic ingenious way to vacuum the purchasing power from every single person that falls victim to the inherent fraud.
The a prior law of praxeology explains that human beings will always act in a way to satisfy wants. This epicurean feat transforms our scientific understanding of human action, meaning people will advance their means to find satisfactions. This can only be possible in a world of scarcity, and disequilibrium. Holding a system of money proper, and not substitute, will always allow the functions of monetary units to reflect calculations for producers, and allow praxeology to accomplish its task in a less diluted manner. Returning our socially accepted currency to a unit of hard currency will cause an effect that will dissipate all confusion, just as a farmer may pasteurize a cow’s milk, we as praxeologists are forced to “pasteurize” the market economy, and doing so with a fiat currency is very problematic.
When a person decides to place their money into a banking institution, that person has now elected to trust the bank with their monetary power. This bank now, is forced to maintain the unit of exchange and hold the monetary unit as if it were placed in a warehouse. When the consumer elects the bank it is because the consumer trusts the bank with their money. How would said consumer reflect their interest if they found out that the bank in question was merely using that monetary purchasing power to expand their assets through things like making loans?
When person X decides to deposit $500 into Bank of Trust, that bank is now responsible for that $500. However, what the Bank of Trust effectively does is hold a percentage of the deposit as “reserves” and then commences to loan out the remaining. So, with deposit that X placed in the bank, they will hold $100 and then loan out the additional $400. This is fraud.
Considering that person X did not grant specific permission to the Bank of Trust, the bank is effectively stealing the monetary purchasing power from person X, and gambling with it by loaning out the currency. This is theft and deserves punishment. The most deserving punishment for this theft is by the forces of the market society, however, we will not get into those effects in this article. The worst of this is that the fiduciary institution, Bank of Trust, will actually charge their consumer for this theft! Not only will the fiduciary institution charge the consumer, but the institution will not distribute any marginal gains made by this comportement criminel to the rightful owner of the monetary purchasing power
This theft can not withstand a market society, so how would it effectively maintain its pyramid structure? The banks will collectively merge together to form a cartel and create a coerced “legal tender”on the people, with the promise to the state to finance all meaningless wars, and pay off all debts the state owes. The way it can do this is by expanding the monetary supply and financing the state while doing this.
So when person X deposits the money, the fiduciary institution is now responsible for $500 to person X. However, the Bank of Trust loans out the $400 to person Y, which in turn deposits money into a separate institution. The Bank of Trust now has expanded the money supply an additional $400, because person X still has their claim on the original $500 deposit. The additional $400 loan has been created only in the form of money substitute, and thus has expanded the money supply but not the original money proper.
There are many restrictive effects that results in this illusive expansion, too many to analyse in this article. The main concern we are dealing with, in this article, is in the terms of economic calculations through praxeaology. When the person Y receives the loan of $400 he then will go and spend the $400 depending strictly on the subjective time preference person Y holds. However, the mere fact that this money expansion never existed in the proper form we have now reduced the scarcity of medium of exchange. While reducing the scarcity of the medium of exchange the fiduciary institution has now distorted the a priori law of human action stated above. The fact that now person Y’s ends are met by an illusive expansion, it complicates the scientific data a praxeologist relies on. This is because the action of person Y is no longer organic, but rather stimulated.
When outside entities stimulate human action, it can lead to mere confusion towards whether society is wasting scarce resources or producing proper means of scarcity. This is due to the fact that we have disturbed the proper effect of human action. So, if person Y sees certain lucrative resources that adds psychic revenue, person Y will act to attain that end. If person Y’s means were less scarce, the marginal value calculation the person places in their ordinal utility-scale, would result clearer data as to which project is lucrative and which project is a “sinkhole”. Thus, the effect of this expansion distorts the functions of praxeology in respect to the study of human action. This distortion results in more inefficiency, that can only be rectified by a stable money proper. How can a human act on scarcity when their means have been met by an illusion of non-existent scarcity? If I convince myself that I no longer need food for nutritional value, but require an illusive pill to stimulate my hunger how will I know when i am on the verge of starvation or bodily satisfaction? For us, praxeologists, we need to search through the fog of data to understand the catallactics in present society.
The task of removing the fog is a difficult task, even for the premiere members of society. There is no economic justification to support the creation of adding additional variables towards the catallactic dissection. The clear analysis of this article proves the truth towards to the original a priori law that humans act. Considering the fact that humans act leads us to understand that,at present, humans are at a state of dissatisfaction. Since the cronies have used state force to cartelize this theft, shows this truth. For the swindlers have acted to attain an epicurean revenue. This mere fact leads to the question then, how can anybody defend these fiduciary institutions of fraud. This aggression committed by the state will only result in inefficient expansion and a lower standard of living for the class of society that does not receive any direct benefit surplus from the existence of state coercion, I.e the majority of consumers.