Fractional Reserve Banking and Usury

I made some comments at the Acton Institute regarding FRB and usury. A video posted there helped me under Zippy’s position that FRB appears as magic in increasing the money supply as an act of magic as related to usury.

Under the presumption of usury, money appears to increase simply by the acts of depositing and lending. Since under a usurious mutuum there is no real asset that enters onto the balance sheet of the bank, it appears as if money simply appears out of no where. In fact this is quite the impression that comes from the video.

The whole picture changes when we talk about asset recourse rather than personal recourse loan contracts. In a licit mortgage, the lender has a property claim against the house itself and this goes on the balance sheet. Moreover demand deposit accounts are property claims themselves. Therefore, this sort of fractional reserve banking under licit loan contracts takes on a different form. Many different assets and property claims enter into the financial system. Whether this increase the money supply is more or less a dubious question, since the money supply in itself is not well defined.

In any case, things have become a bit more clear about the consequences to our ability to think coherently about economics under the presumption of usury.

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