Fractional Reserve Banking and " Austrian " Business Cycles, Part II

At the end of my first post in this series, I observed that assessing the claim that fractional reserve banking causes business cycles meant asking two questions: first, “To what extent have historical money-fueled booms been associated, not with growth in the supply of either commodity money or central-bank supplied bank reserves, but with declining banking system reserve ratios?” and, second, “When a banking system does manage to operate on a lower reserve r atio, does its doing so necessarily contribute to an unsustainable boom?”  I answer the first question here, leaving the second to a third and final installment.The Myth of Bank Lending “Manias”: the 19th CenturyThat first question is empirical, so answering it means consulting the historical record. It happens that I did just that some years ago, in response to claims to the effect that bankers, far from being immune to bouts of what Alan Greenspan famously called “irrational exuberance,” often play a lead part in fueling unsustainable booms, leading the more common herd of speculators, not to mention many perfectly innocent parties, to their ultimate undoing.I eventually published my findings in an article on“Bank Lending ‘Manias’ In Theory and History. Although I didn ’t attempt anything approaching a comprehensive review of historical booms and busts in that brief survey, I did look at several of the most notorious cases of booms and busts commonly blamed on excessive commercial bank lending...
Source: Cato-at-liberty - Category: American Health Authors: Source Type: blogs