You Can’t Have Your Cake and Eat It Too

In todays Mises Daily article, David Howden talks how banks should be regulated “the Austrian way.” Its basically making quick jabs at fractional reserve banking, bringing up that all too common full reservist objection of how banks could lend out a fraction of your deposits, when it should just be kept in their vaults in full because its your money! This objection just shows that full reservists aren’t interested in continuing an intellectual debate because this objection has been answered so many times that most serious scholars on banks basically laugh at this objection now.

Though, the real point of the post isn’t meant to critique this full reservist position. The point of this post has to do with these two statements by Howden:

The first group correctly notes that there are two specific drawbacks of increasing regulation. On the one hand, “one size fits all” regulatory policies (such as is commonly the case on the Federal level) are rarely capable of handling the intricacies and dynamics of business.


By ending this legal privilege, we eliminate the ability for banks to grow to such inordinate sizes. By abiding by the same legal principles (or “regulations,” if you will) as any other deposit-taking firm, banks are not unduly advantaged.

These two statements are in a sense contradictory, I think anyway. Howden in the first statement makes the claim that regulatory policies (like those at the Federal level) create this “one size fits all” spectrum for which makes these policies “rarely capable of handling the intricacies ad dynamics of business.”

Then in the second statement, he calls for a direct “one size fits all” policy so that banks could be “abiding by the same legal principles” or regulations as other deposit-taking firms.

Doesn’t Howden even consider that this “one size fits all” policy on banks leaves aside the  intricacies and dynamics of how modern banking works? Well maybe he doesn’t, for he doesn’t even grasp why his earlier objection on fractional reserves is just plain faulty and misunderstands fractional reserve banking at its very elementary level. Gotta love those Rothbardians…

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