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Actually, I think I have heard enough debates on the topic to reach my satiation point...

Actually, I think the positive discussion of the issue is extremely important if we are to advance any hope for banking and monetary reform. All proposals for reform should (must) begin with what worked in the past, and how did it work. The rational discussion of option clauses falls into that category.

Milton Friedman advocated 100% reserve banking to deal with the inherent instability of fractional reserve banking in the US. I think his position is the only viable alternative to free banking with options clauses. Friedman didn't seriously consider that alternative when he advocated 100% reserves.

This is where the debate should take place. Please note that Friedman did not believe that depositors were decieved about the contract with their banks. Nor do I. the problem is not the individual relationship between a depositor and his bank, but the stability of the system.

Most consumers do not have a demand deposit account (legally defined), but a NOW account (Negotiable Order of Withdrawal). A NOW account is legally a time deposit, and banks have an option to delay withdrawal for 7 days. It has never been invoked, but the operative law is an options account.

Another aspect to this, is that under a free banking regime, surely private banks would offer a variety of such accounts.

This would represent the degree of uncertainty and risk-aversion, and other trade-offs that depositors would find convenient.

One of the advantages of this openness of alternative types and conditions of accounts is that it represents the fact that there would be no presumption of one (or a few) "sizes fits all," but rather a spectrum of account possibilities reflecting the diversity of preferences among those wishing to use bank facilities. And, of course, just as now, the same depositor may hold different types of accounts at the same time.

Once you start thinking through these things, it becomes so common-sensical and so superior to anything under monopoly central banking and the rules and options it imposes on the banking system.

So, I concur completely with Jerry on the usefulness of teasing these things out as much as possible.

Richard Ebeling

Option clauses and the like are not necessary to prevent fractional reserve banking from being fraudulent. They are merely a wise precaution, for the bank and its customer, by mitigating the peculiar risks that fractional reserve banks run. Heh, get it? The risks they RUN. :-|

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