Some protesters on Wall Street are drawing attention to evils of fractional-reserve banking. Krugman fights back. His entire argument is against banning the practice. This misses the point: it is enough to stop using the state and the Fed to sustain the unsustainable. Make banking a normal market activity with profits, losses, and the freedom to fail and then, as Rothbard says, fractional-reserve practices in demand-deposit banking will be selected out. Rothbard in fact went to great lengths to show that the main examples of sustained fractional reserve practices depended on some form of government intervention.
Source link: http://archive.mises.org/18684/krugman-attacks-the-one-good-idea-of-the-protestors/