QUESTION:Â Marty, in your piece about banking are you suggesting that fractional banking is not the issue it is the shift from relationship banking to transactional that is causing the greatest damage?
Thanks
Bob
ANSWER: Absolutely. The difference between a Dark Age and Capitalism is the very fact that banks exist. The Dark Age after Rome was marked by the end of banking and private ownership. People sold themselves as serfs to gain protection. We can see without banking there was no real economy. What coins were produced during this people were not only just silver since gold vanished from the coinage by 500AD until the 13th century for about 600 years – the same 600 year gap we see in Japan. Nonetheless, the silver coins produced during this people are few and are rarely discovered more than 30 miles from where they were struck.
The hard-money people want fractional banking to end and harp about lending creates more money. They want to send society back into the Dark Ages and end everything from mortgages and credit cards and so we would return to walking around in sack cloth. I seriously doubt they even understand what they are preaching.
The panic does not take place because of fraction banking alone. Panics are the byproduct of everything combined from human nature to weather that causes crop failures and REAL inflation to develop driven by a shortage compared to demand. When there has been a crop failure, prices soar, yet money supply did not change. Wages returned from the Dark Ages because of the Black Death in the 14th century. With about 50% of the population reduced, suddenly there was a shortage of land and lords offered to now pay people to work their land. Of course, with wages came taxes.
There are panics caused by the concentration of capital into one sector which then accelerates the prices of that instrument, but this is wrongly attributed to banking. This error in attribution assumes a one-dimensional world as always that money is created by fractional banking. This is just not true. If a building is $10 million, and two local citizens are involved in the sale and purchase, it is actually neutral to the domestic economy with the exception of some monetization of the appreciated value assuming it is being sold at a profit. However, if a foreign investor purchases that same building, they bring money into the domestic economy directly increasing the supply by the total amount.
