Bank: Difference between revisions
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Banks issue banknotes. Historically, they were [[money]] substitutes, that the bank was prepared to exchange free of charge against money proper.<ref name="Mises_banknote">Ludwig von Mises. [http://mises.org/humanaction/chap17sec11.asp "11. The Money-Substitutes"], ''[[Human Action]]'', online version, Chapter XVII. Indirect Exchange, referenced 2009-06-29.</ref> With [[Fiat Money|paper money]], a banknote is a promise to the same amount of paper money.<ref name="Hulsmann_paper_banknote">Jörg Guido Hülsmann. [http://www.mises.org/books/moneyproduction.pdf "The Ethics of Money Production"], online version, Chapter 12. Paper Money p.162, referenced 2009-06-30.</ref> | Banks issue banknotes. Historically, they were [[money]] substitutes, that the bank was prepared to exchange free of charge against money proper.<ref name="Mises_banknote">Ludwig von Mises. [http://mises.org/humanaction/chap17sec11.asp "11. The Money-Substitutes"], ''[[Human Action]]'', online version, Chapter XVII. Indirect Exchange, referenced 2009-06-29.</ref> With [[Fiat Money|paper money]], a banknote is a promise to the same amount of paper money.<ref name="Hulsmann_paper_banknote">Jörg Guido Hülsmann. [http://www.mises.org/books/moneyproduction.pdf "The Ethics of Money Production"], online version, Chapter 12. Paper Money p.162, referenced 2009-06-30.</ref> | ||
==Fractional Reserve Banking== | |||
{{Main|Fractional reserve banking}} | |||
If a bank would not expand its reserves, it could lend only the money of its savers and its own capital. It would be simply a financial middleman. To stay profitable in a free market, it would have to stay within narrow boundaries, determined by its savers.<ref name="Hulsmann_banking_natural">Jörg Guido Hülsmann. [http://www.mises.org/books/moneyproduction.pdf "The Ethics of Money Production"], online version, Chapter 13. The Cultural and Spiritual Legacy of Fiat Inflation p.180, referenced 2009-07-15.</ref> | |||
For example, if the bank receives credit for 5%, it would be suicidal for it to lend it for less. Since its savers are willing to part with the money for a time, it cannot demand much higher rates to its debtors or its savers could lend it directly. | |||
But [[Fractional reserve banking|Fractional Reserve Banks]] can produce money substitutes essentially for free and give credit at better rates. | |||
==External links== | ==External links== | ||
Revision as of 16:15, 15 July 2009
A bank is a financial institution, that keeps current accounts for its customers. Banking includes, but is not limited to activities as:
History of Banking
The first banks were probably the religious temples of the ancient world.
Banknotes
- Main article: Banknote
Banks issue banknotes. Historically, they were money substitutes, that the bank was prepared to exchange free of charge against money proper.[1] With paper money, a banknote is a promise to the same amount of paper money.[2]
Fractional Reserve Banking
- Main article: Fractional reserve banking
If a bank would not expand its reserves, it could lend only the money of its savers and its own capital. It would be simply a financial middleman. To stay profitable in a free market, it would have to stay within narrow boundaries, determined by its savers.[3]
For example, if the bank receives credit for 5%, it would be suicidal for it to lend it for less. Since its savers are willing to part with the money for a time, it cannot demand much higher rates to its debtors or its savers could lend it directly.
But Fractional Reserve Banks can produce money substitutes essentially for free and give credit at better rates.
External links
- History of Money and Banking in the United States: The Colonial Era to World War II (pdf) by Murray N. Rothbard
- A Short History of Paper Money and Banking (pdf) by William M. Gouge
- Free Banking: Theory, History and a Laissez-Faire Model (pdf) by Larry J. Sechrest
- Wikipedia on banks and history of banking
References
- ↑ Ludwig von Mises. "11. The Money-Substitutes", Human Action, online version, Chapter XVII. Indirect Exchange, referenced 2009-06-29.
- ↑ Jörg Guido Hülsmann. "The Ethics of Money Production", online version, Chapter 12. Paper Money p.162, referenced 2009-06-30.
- ↑ Jörg Guido Hülsmann. "The Ethics of Money Production", online version, Chapter 13. The Cultural and Spiritual Legacy of Fiat Inflation p.180, referenced 2009-07-15.