In a number of recent articles, the debate on the ethics of fractional reserve “free” banking has been extended to loan maturity mismatching, specifically the banking practice of borrowing short and lending long. Barnett and Block :711–716, 2009; 2010) claim the practice is illicit, because like fractional reserve banking it creates duplicate property titles. They argue there is a continuum in the time dimension between the two kinds of activities. Bagus and Howden :399–406, 2009; 106:295–300, 2012a; Eur J Law Econ, (...) 2012b; Bus Ethics 22:235–245, 2013) maintain that loan maturity mismatching does not create duplicate titles and is not illicit, and that from an economic and legal perspective there is no continuum with fractional reserve banking. Cachanosky and Evans enter the debate from the free-banking standpoint and view both practices as legitimate. In this paper, I agree with the conclusions of Bagus and Howden, but adopt a different approach to support this position. Using the title-transfer theory of contract, I demonstrate from first principles why loan maturity mismatching does not create duplicate property titles and is a legitimate practice. Employing this same theory, I then present a novel argument to show why the contractual arrangements found in fractional reserve banking are logically contradictory and illegitimate. (shrink)

In his book, Defending the Undefendable, Walter Block makes the case that an individual counterfeiter of fiat notes does not commit a natural law crime, because money issued by the government is itself counterfeit. Several authors, including Murphy, Machaj, and Davidson, have taken issue with Block’s argument. In Davidson, I maintain that while the issuance and use of fiat currency by the state violates the natural law, fiat notes are not counterfeit, and their use by ordinary people is legitimate. The (...) private counterfeiter is a thief when he exchanges his notes with these innocents, because they are rightful owners of both the fiat currency and the goods for which it is exchanged. Block, in a rejoinder, disputes this on both ethical and utilitarian grounds. The present paper is a response to Block, and an elaboration of my original article. From a natural law perspective, I explore the ethical violations surrounding counterfeiting, and the legitimacy of producing and using fiat money by both the state and the individual. (shrink)

Salerno asserts that in the debate between those who favor and oppose fractional reserve banking, the important issue is not whether or not this institution is inherently fraudulent, but, rather, does it or does it not cause the business cycle. We join this author in thinking both important; however, we reverse this order.