The 15th of September, 2010 was truly a historic day.
In the cradle of modern democracy, in the parliament of the United Kingdom, a bill was officially presented in London yesterday with a dual objective: first, to fully and effectively defend citizens’ right of ownership over money they have deposited in checking accounts at banks; and second, to once and for all put an end to the recurrent cycles of artificial boom, financial and banking crisis, and economic recession which have been afflicting the world’s (poorly-named) market economies for at least two hundred years.
In perfect keeping with general legal principles regarding property, principles essential to the functioning of a market economy, the bill aims to abolish the privilege the private banking system currently enjoys of operating with a fractional-reserve ratio on the demand deposits (and equivalents) it receives. The idea is to re-establish a 100-percent reserve requirement for money on demand deposit and to bring about the culmination of Peel’s Bank Charter Act of 1844, which correctly diagnosed the problem of a fractional reserve but regrettably exempted demand deposits from the legal requirement of a 100-percent reserve which it did demand with respect to the issuance of paper money. As a result, Peel’s Act failed to achieve its purpose, and banks continued to artificially expand credit against newly-created deposits (mere accounting entries on their balance sheets) and to generate speculative bubbles which, sooner or later, when the market uncovers the errors committed, give rise inexorably to severe financial and banking crises and to profound economic recessions. (Anyone with an interest in an in-depth study of all the analytical and historical details may consult my book, Money, Bank Credit, and Economic Cycles, which has been published in four Spanish-language editions, two English editions by the Mises Institute in 2006 and 2009, and translated into thirteen languages.)
It is exciting that a handful of Tory MPs led by Douglas Carswell and Steven Baker have taken this step. If they are successful, they will go down in history like Wilberforce – with the abolition of the slave trade – and other outstanding British figures, to which the whole world owes so much.
There were a number of encouraging comments on this post, and on Stephan Kinsella’s update UK Parliament Speech Invokes Mises Institute re Honest Money and Sound Banking.
I was also delighted to see the story picked up by Lew Rockwell, who promoted Toby’s superb Telegraph article, The Radical Reform That Would End Boom and Bust in Banking:
What is needed is to let people own their own money, with the banks keeping it safe for those that want complete peace of mind. Let the depositor decide if the money should be lent and for what period, until it matures. Remove all political control from banking. And let’s have more language of the fiduciary rather than the gambler from bankers.