Confidence in a banker allows lending beyond gold reserves without long-run growth

Evidence

If customers have confidence in a banker’s promissory notes (his paper money), he will then be able to lend out more in paper than he keeps in reserve in gold to cover his withdrawals. Today, we call this “fractional reserve banking.” Yet Smith, like Hume, sees money as being unable to affect real variables in the long run, so simply adding paper money to the economy will not lead to growth. — Mark Blyth, Austerity, 294

Categorization

• DEFINE: Defines fractional reserve banking in its original 18th-century context, anchored to Smith’s confidence-based account.
• XREF: Connects to Mattei’s work on the intellectual genealogy of austerity and monetary policy debates; also the modern bank-run mechanics of Diamond-Dybvig. — connects to: Securitization made bankers believe dispersion minimized risk — Yanis Varoufakis, Technofeudalism: What Killed Capitalism, 181; Banks create money out of thin air when granting loans rather than lending savings; Gold standard currencies had fixed parities and central banks limited issuance to gold reserves — Fanny Pigeaud_ Ndongo Samba Sylla, Africa’s Last Colonial Currency, 64

Broader Connections

• Gold standard currencies had fixed parities and central banks limited issuance to gold reserves #complicates (0.80) — Fanny Pigeaud_ Ndongo Samba Sylla, Africa’s Last Colonial Currency, 64
• Banks create money out of thin air when granting loans rather than lending savings #expands (0.78)
• Securitization made bankers believe dispersion minimized risk #expands (0.72) — Yanis Varoufakis, Technofeudalism, 181