In 1923, noted economist Irving Fisher coined the phrase “100 Percent Money” and wrote a book by that name in order to recommend a substantive change to the pro-cyclical fractional-reserve banking system. Fisher saw the debt-money system as the basic monetary function that caused the boom and bust cycles of the economy.
His “100 Percent Money” system proposal was essentially a change by which bankers would, get this, lend real money. After the 1929 Crash, many noted economists worked together on the same idea and worked it into the Chicago Plan for Monetary Reform, which was debated in the United States Congress – very heatedly I might add. Under the “100 percent-reserve” lending system proposal, again banks would lend money after it was created and deposited into the banks by their depositors.
This system was also advocated by Milton Fiedman both in his economic paper titled: “A Fiscal and Monetary Framework for Economic Stability”, and in his book: “A Program for Monetary Stability”.
Full-Reserve banking would operate on the same scale of money system as fractional reserve. There would be no change in the quantity of money and their would be no change in the drivers for determining the rate of growth of the money supply.
Both Friedman, and in a different way many Austrians, support the establishing of a full-reserve banking system.
The other side of the coin from our perspective lies in the people taking control of the creation-powers of money from the private Federal Reserve Banking System. That would be quite the opposite from the Austrians.
The textbooks and wikipedia are full of minor arguments about full-reserve banking. We hope to discuss them right here.
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Joe discusses the following quote by former Fed Credit Manager Robert Hemphill in the introduction to Irving Fisher’s 1935 book 100% Money:
“If all the bank loans were paid, no one could have a bank deposit,
and there would not be a dollar of coin or currency in circulation.
This is a staggering thought. We are completely dependent on the
commercial Banks. Someone has to borrow every dollar we have in
circulation, cash or credit. If the Banks create ample synthetic money
we are prosperous; if not, we starve.
We are absolutely without a permanent money system. When one gets a complete grasp of the picture, the tragic absurdity of our hopeless position is almost incredible, but there it is.
It is the most important subject intelligent persons can
investigate and reflect upon. It is so important that our present
civilization may collapse unless it becomes widely understood and the
defects remedied very soon.”