Abstract
In Time Deposits, Dimension, and Fraud (2009), William Barnett and Walter Block argue that by borrowing short and lending long there is an over issuance of property rights. Their article, however, does not fully extend the consequences of their contribution. Once this is done, it becomes clearer that their argument suits a great impediment to banking, becoming a possible reason to support rather than to oppose fractional reserve banking. Bagus and Howden (J Bus Ethics 90(3):399–406, 2009) comment on Barnett and Block (J Bus Ethics 88(4):711–716, 2009), the authors claim that while maintaining the illegitimacy of fractional reserve deposits, borrowing short and lending long it is actually not illegitimate. An extension on Bagus and Howden (2009) will show that their line of argumentation can be applied as a defense of fractional reserve banking as well.
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Notes
See footnote 2 in Barnett and Block (2009) for references on the 100% versus fractional reserve banking debate.
Because this point is already present in the debate, this article does not deal with this argument.
To be more precise, the bondholder will receive the market price of the capital plus interest not yet paid.
References
Bagus, P., & Howden, D. (2009). The legitimacy of loan maturity mismatching: A risky, but not fraudulent, undertaking. Journal of Business Ethics, 90(3), 399–406.
Barnett II, W., & Block, W. E. (2009). Time deposits, dimensions, and fraud. Journal of Business Ethics, 88(4), 711–716.
Barnett II, W., & Block, W. E. (2010). Rejoinder to Bagus and Howden on borrowing short and lending long. Journal of Business Ethics. doi:10.1007/s10551-010-0677-9.
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Yeager, L. B. (2010). Bank reserves: A dispute over words and classification. The Review of Austrian Economics, 23(2), 183–191.
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Cachanosky, N. A Comment on Barnett and Block on Time Deposit and Bagus and Howden on Loan Maturity Mismatching. J Bus Ethics 104, 219–221 (2011). https://doi.org/10.1007/s10551-011-0900-3
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DOI: https://doi.org/10.1007/s10551-011-0900-3