Sunday, March 10, 2013


In light of the fundamental distinction between property (money) and property titles (money substitutes) explained in earlier sections of this article and the foregoing elucidation of money as a uniquely present good, several analogies popularly employed in the attempted justification of fractional reserve banking can be finally disposed of as mistaken. Even if they correctly distinguish between property titles (tickets) and property, all proposed analogies—between fractional reserve banking on the one hand and airline overbooking, fractional reserve parking lots, lotteries, and insurance on the other hand—fail to recognize properly the fundamental distinction between present and future goods.

The owner of a title to money owns a present good (money property)—an indirectly yet immediately serviceable good. The fractional reserve banker is found guilty of fraud; he issued and sold additional titles to an unchanged quantity of money property. In distinct contrast; the owner of an airline ticket owns a future good. Hence, in overbooking now (today) a flight at a future date (tomorrow), an airline cannot possibly have committed fraud already now (today). Fraud cannot occur until tomorrow, when the tickets must be actually redeemed, and only if the airline is then unable to satisfy each and every ticket holder’s claim. In fact, airlines typically fulfill their contractual obligation: each ticket holder is assured a seat on the scheduled flight, because the airline is prepared to pay every excess ticket holder off, that is, to repurchase his ticket at a price (by exchange of another good) that the holder considers more valuable than his present airline seat. And certainly, no airline typically oversells spot-tickets (titles to seats right now, that is, present goods) and assigns two people to occupy the same seat, which is essentially what fractional reserve banking amounts to.

Similarly, the owner of a fractionally covered parking permit (with more permit holders than parking spaces) does not own a present good. He owns the right to participate for a specified period of time in repeated search for parking space. The owner of the parking facility cannot possibly commit any fraud in selling his permits, unless he then refused entry to a valid permit holder when there was empty space available, or if he changed the contractually agreed upon rules of the game; that is, if he had agreed to print up to a maximum of 200 permits, for instance, but actually printed 300. It is only the owner of a spot parking ticket, or the owner of a reserved parking space, who are owners of a present good; and there is, of course, characteristically no overselling of spot spaces or of reserved parking.

The same reasoning applies to the case of lotteries. The holder of a lottery ticket does not own any present good. He owns the right to participate in the drawing of specified prizes, whereby it is self-understood among buyer and seller—as inherent in the nature of a lottery—that there are—and must be—more tickets than prizes. The lottery operator cannot possibly have committed any crime, unless he failed to redeem the winning tickets into the promised prizes or surreptitiously changed the preannounced rules of the game. If this is rarely the case, it is practically unheard of that a lottery would print more than one winning ticket for one and the same prize (present good), which would be likewise fraudulent, of course, and which is essentially what fractional reserve bankers do.

Finally, the proposed analogy between fractional reserve banking and insurance has already been refuted implicitly in note 46 above, concerning the relationship between risk and insurance on the one hand and uncertainty and money on the other. Unlike the owner of money, the owner of an insurance policy does not own a present but a future good. An insurance company may be unable to meet its contractually assumed obligations at some future pointin time, and one may then come to the conclusion that it had engaged in an overselling of tickets. However, it is impossible to say that a crime has been already committed now, at the moment when the insurance policy is sold, because the good sold by the insurance agency is a future one. In distinct contrast, the owner of a money ticket is the owner of a present good, and every overissue of tickets to present goods is from the very outset—instantly and immediately—fraudulent, and accordingly is contrary to market ethics.

Economics and Ethics of Private Property: Studies in Political Economy and Philosophy, The

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