Volume 15, No. 2 (Summer 2012)
The theory of monetary disequilibrium, as espoused by Selgin (1988), White (1989), Horwitz (2000), and others, has been used to justify the issuance of fiduciary media under a system of fractional reserve “free” banking. The present paper examines this monetary disequilibrium theory and concludes that it contains numerous errors and logical fallacies. The foundational economic argument in favor of fractional reserve banking is invalid.
