One of the accusations made by defenders of 100% reserve banking is that the public really doesn't know how fractional reserve banks work and that current banks don't make it clear enough that one's deposit is really a loan to the bank which it, in turn, will loan out to others (most of it anyway). If people think their money is sitting in the bank in the equivalent of a drawer with their name on it, and the banks aren't crystal clear that this is not how it works, then, claim the 100% reserves defenders, the bank is being duplicitous. (This is despite the fact that, as Larry White and others have pointed out, the very existence of interest being paid on demand deposits logically entails fractional reserves.)
Our friend Anthony Evans in the UK has been doing some empirical research on the question of what the public does and does not believe about banks and if he's reading, I'll let him report on what he's found, if anything.
But today I want to report on one data point of my own. I was driving my 14 year-old daughter home from school today after she had just been paid, in cash, for some cat-sitting she'd done (thank you Jeremy). To my knowledge she and I have never had a conversation about banking before. We started talking about putting it in her bank account. She pipes up with "what happens when a bank gets robbed? Do they pay you any extra interest or something?" (Good compensating differential type argument there, I should note.) I said "No. Do you think they should because the bank robber might have stolen your particular money?" Her reply: "No, because my money's not there - they've loaned it out already." And, before I could say anything, she added, "That's why they can pay you interest on your account." I swear, she has never read anything on banking before!
So I asked her, jokingly: "You don't think there's a drawer there with your name on it with your money in it?" Her reply was: "Duh - everyone knows that's not how it works. You don't get back the same bills you put in, right?" That's right, hon, that is right. (It so happened we were stopped at a traffic light in sight of a grain silo just then, which made for another teachable moment as well.)
I did ask her where she learned all of this and she said she couldn't remember for sure. I know it wasn't from me.
For whatever this is worth, there's at least one 14 year-old who understands exactly how fractional reserve banks work.