George Selgin to Paul Krugman: “I Am a Former Austrian and I Do Believe in Fractional Reserve Banking — Honest”

Well, not exactly his words, but this was the gist of George’s bizarre and irrelevant comment on Krugman’s column asking Austrians what their position is on money market mutual funds. In his haste to establish his mainstream bona fides to Krugman, however, George was blind to the fact that Krugman has been forced to recognize and address Austrian arguments precisely by those who George denigrates in his comment as “the anti-fractional reserve crowd among self-styled Austrians, taking its lead from Murray Rothbard.” But it was due to the prodigious efforts of the Rothbardians including and especially Ron Paul that we have begun to see a radical change of opinion among the public, the establishment media, finance professionals, and even some academic economists concerning the alleged beneficence of the Fed and the effectiveness of conventional macroeconomic policies. It was this challenge that worries Krugman and prompted his insipid column. He could care less about George’s support for fractional-reserve banking and would not bat an eye even if he knew that George supported QE1 and (maybe) QE2 and advocates an aggregative nominal income target for Fed monetary policy, albeit at a lower level than most contemporary macroeconomists are comfortable with.

One more point: Both Rothbard and Krugman would have had a good belly laugh together over George’s peculiar notion that, in the absence of a central bank and government deposit insurance, a fractional-reserve banking system would be stable and flourish on a free market.


  1. This is not hard to understand. FR banking, plain and simple, is inflationary and is tantamount to fraud. The public, in general, is hardly educated enough in banking to understand that their deposits are surrendered to the FR banks. Legal Tender Laws are a State monopolistic mechanism to force the public to use counterfeit paper as money. A repeal of Legal Tender Laws and full disclosure to the public to the fact that their deposits are not their own would end FR Banking almost overnight. With an end to FR banking, the real dollar ( the deposit receipt to a specified weight in gold or silver) would regain value, deflate prices and return wages and purchasing power to the middle and lower classes. As much of a positive as all this is, the greatest result to ending the central bank and FR banking in general, would be the restraint on government growth and the State’s propensity to go to war.

  2. I feel a little unqualified to comment because I’m not very well educated and haven’t kept up with economics or politics for the past two years, but I’ll go ahead and throw my two cents in because I’m a jackass.

    Am I the only one that’s starting to feel like the Ron Paul following is like the Tea-party group for the IQ 140 crowd?

  3. What would abolish the Fed as an objectionable institution? The fundamental problem is force. Abolish the force and the institution either ceases to be objectionable or ceases to exist.

    FR notes and deposits are legal tender. They are also the only money that may be held without creating an income tax liability if they were to appreciate in exchange value (I know, that’s funny). These two features are the legal force that makes FRB an institution whose paper is accepted. Abolish the force and watch what happens. 

    Would a fractional reserve system survive? Maybe. Would FR notes continue to be held and traded? Maybe. Would I accept them? Possibly, at a discount.

    End of (my) policy discussion on the morals of fractional reserve banking. It is consistent with the history that I’m aware of. I am content to leave the rest to the bankers.

  4. Professor Salerno,
    I have a small quibble about your point 2. You say:

    “Indeed, many Austrian economists who favor 100 percent banking including myself, following Mises and Rothbard, advocate a program of abolishing the Fed, legal tender laws, and government deposit insurance and freeing private banks to set their own (gold) reserve ratios as long as they promptly discharge their note and deposit obligations. For these economists, this program is, in Rothbard’s words, “an excellent solution” to ultimately suppressing the issue of fiduciary media.”

    If indeed, as Mises argued, any amount of fiduciary media emitted leads to the same effects in therms of distorting the structure of production, why then not abolish fiduciary media altogether? Why accept the middle-of-the-road FRB approach, especially if take into account that historically fractional reserve free banking has always been creating inflation, business cycles and inviting the central bank to be a cartel enforcer. It never functioned as a intermediate stage towards 100% reserve sytem, but always as a stage towards central banking. From that point of view, the FRB is not even a second best solution, but rather an already tried and failed solution. You yourself said in the post that Rothbard would have laughed at the Selgin’s idea of the fractional reserve banking flourishing on the free market. What makes you assume that this solution that failed always in the past could succeed in the future?

    • Presumably, without the state allowing banks to skip out on their obligations when they can’t redeem the notes, the FRB solution would not be able to sustain itself. What Professor Salerno is saying is, basically, that no one is needed to check up on the banks with their reserve ratios – only require that they redeem any notes, or have first made an explicit contractual agreement that the depositor agrees they don’t necessarily have to.

      • I understand that, but my question was more led by the public choice concerns: let’s assume the FRB free banking is instituted tomorrow; is it really realistic to expect that the banks will respect their contractual obligations, even in the face of a “liquidity crisis”, when that could lead them to bankruptcy. And that the government is going to “sit idle” during a potential banking crisis leting the bad banks go under? Historically, the FRB has always ended up with inflation, business cycles, suspensions of payments and eventually the central bank. Why would we expect it to be different this time?

        • My understanding is that Professor Salerno is assuming that the government or Rothbardian private court system will make them uphold their obligations or go through bankruptcy proceedings.

          Whether the government would “sit idle” and not bail out the banks is questionable, of course. This is one reason why I personally don’t think that free banking would work without anarcho-capitalism (and with it, the system would collapse to a 100% reserve standard, as the banks know that the backstop of government bailouts and specie suspension isn’t there).

          My personal opinion is that “free banking” is an unstable system – one that can only be supported by making it the opposite of free (i.e. imposing it through various government controls). Also, I would say that it is immoral, but that is absent the economic judgement. Professor Salerno’s statement, I think, was similar – that without government backing the fractional reserve system with special exemptions and aid, the result would be “ultimately suppressing the issue of fiduciary media” by eliminating its issuance in practice, if not by law. But I could be wrong on that.

          • So you would disagree with this Rothbardian statement:

            “While it lasted, though, the Suffolk banking system showed that it is possible in a free-market system to have private banks competing to establish themselves as efficient, safe, and inexpensive clearinghouses limiting overissue of paper money (Rothbard 2002: 122).”

            Rothbard, Murray. 2002. History of Money and Banking in the United States. Auburn, AL: Ludwig von Mises Institute.

            This is an empirical matter, whether FRBing is a possible efficient way for banking, and Rothbard studying the Suffolk bank clearly as led him to a position that it is (at least) possible that FRBing could be “efficient, safe, and inexpensive.”

          • thelachmannian,

            The Suffolk system clearly restricted inflationist paper by forcing member banks to hold a lot more specie than others did (those were the rules of entry into the system). In fact, the Suffolk system forced the banks to operate closer to 100% reserves. The fact is though, that banks were always being bailed out by either state or the U.S. gov’t, so it is very difficult to answer what would have happened if all government interference had been removed from money and banking. It seems clear to me, based on theory and empirical evidence such as the Suffolk system, that banks would have been operating much closer to 100% reserves than they did.

  5. George:

    1. I do not think of you as an ogre, nor did I attempt to portray you as one in my blog post. Why would I do so? I consider you an innovative and accomplished economist with whom I agree on 90-95 percent of substantive issues of economic theory and policy. When we have from time to time crossed swords on the economics of fractional-reserve banking–I have never written a word on its ethics–I found you to be a worthy and formidable opponent, who forced me to clarify and sharpen my own thinking on the topic.

    2. I have never contested, and I did not deny in my post, that many if not most economists who currently refer to themselves as Austrians favor unregulated fractional-reserve banking as the optimal monetary system for a free economy. Indeed, many Austrian economists who favor 100 percent banking including myself, following Mises and Rothbard, advocate a program of abolishing the Fed, legal tender laws, and government deposit insurance and freeing private banks to set their own (gold) reserve ratios as long as they promptly discharge their note and deposit obligations. For these economists, this program is, in Rothbard’s words, “an excellent solution” to ultimately suppressing the issue of fiduciary media.

    3. I did not “misrepresent” either the “truth” or your views in my post. You do not provide any argument and adduce any evidence to support such a serious accusation. You surely would not deny that you did respond to Krugman by completely ignoring the question he posed and going out of your way to criticize Rothbard and “the anti-fractional reserve crowd.” You have in fact written a quite thoughtful and provocative book arguing that the Fed should be constrained to follow an aggregative nominal income target, a policy that, as you yourself would acknowledge, is favored by some prominent New Keynesians. I have found evidence online of your support for QE1 and ambiguous evidence of your support for QE2, which I duly noted with a parenthetical “maybe” in my post. If you present evidence that I have incorrectly characterized your views, or if you are prepared to state that you have renounced at some point in the past, I will publicly apologize and retract the relevant portions of my post.

    4. You charge me with contriving and attributing to you a statement that you never uttered, which I presume refers to the title of my post. Come on, George, now you are being deliberately obtuse. Your comment on Krugman’s post was a highly polemical attack on Rothbardians. I responded in the same polemical spirit. Attributing to someone a fictitious quotation as a means of summarizing his position is a well-known journalistic device–and this is a blog not a scholarly journal. My very first sentence dispels any notion that you may have actually uttered the words in the title. By the way, I can understand you criticizing me, but why do you characterize my alleged sin as “a regular feature of Rothbardian rhetoric.” Don’t you have a moral responsibility to support such a serious charge by naming specific offenders and presenting evidence of their individual transgressions? Why do you choose to indiscriminately attribute this tactic to all Rothbardians? It would appear that you behold the mote in your brother’s eye but are blind to the beam in your own.

    5. This brings me to my final point. You attack my character and scholarly integrity with an–admittedly inventive–string of invective terms and phrases. I am, you grandly vituperate: in an “integrity free-fall” (my favorite); so “anxious to affirm my fidelity to a club” that I am unconcerned with truth; “a mountebank pretending to be [a] scholar” [plural suppressed]; making “idiotic statements”; and wallowing in “intellectual dishonesty.” Really, George? Are you really that driven to depart so radically from norms of civil discourse and scholarly decorum because I challenged views that you have an intellectual investment in? You are behaving like a churlish school boy rather than the prominent scholar that you are–and sullying your scholarly reputation in the bargain, possibly irreparably. You are deporting yourself shamefully in a public forum. I request, but do not expect, a heartfelt apology from you.

  6. Who issues currency under a full-reserve banking system? Gold coins have a problem of wear, therefore, loss of money. Most people, I imagine, would prefer a paper claim, the currency, instead of handling the actual gold. It seems a problem for the bank to track who owns what claims, and many people would prefer no one knows lest they want to redeem for gold or replace a worn note.

  7. Is an annuity money? Can I not freely contract to sell the income stream from an annuity for a lump sum today? Does the party with which I contract that lump sum not agree to take a risk as to the financial health and viability of the firm who wrote that annuity? Do they not figure in this risk when they determine the amount of the lump sum they are willing to offer me?

    I think Prof. Selgin in his support for free banking (and his apparent support for fractional reserves?) is thinking along these lines. I know he supports letting anything of any size fail and that he asserts this will motivate them towards good health lest they go under and be gobbled up by a competitor bank because they made bad loans. I am not sure but I think George’s logic says something like this: “If we rely on a bank to make good loans with fully reserved funds behind them being motivated by the fear of insolvency and conquest by a competitor, then why is that motivating fear not greater when leveraged to restrain them from making bad loans on fractional reserves?” And if we believe in free contracts, why cannot a banking institution bet on the future stream of income from a loan in the same manner the aforementioned institution is betting on the constancy of the annuity stream when they contract a lump sum settlement in exchange for an income stream that, at its root, has only the “good name” of the annuitizing company behind it? Why, the thinking goes, cannot banks seek to run a tight ship and bet on their “good name” also?

    I believe that Mr. Selgin does not advocate calling the “bank notes” currency or “money” per se. I believe he sees them as just that, notes, similar to futures contracts or any other private note.

    As we all know you cannot simultaneously have 100% reserves and 100% demand deposits and making investments by loaning deposits at the same time. One thing or another has to give. So proponents of 100% reserve banking put the restriction on demand deposits and propose limits on access to deposited funds for a contracted period of time or other limiting terms including penalties for premature withdrawal if allowed. Others propose free form “insurance confederations” of several banking institutions to mitigate (but not theoretically or actuarially eliminate) the problem of simultaneous demand and 100% reserves. All this does is alter the scale and dilute/distribute the risk (of a bank run), it does not eliminate it. Moreover, this simply allows the insuring institution to make money off of their “good name” rather than letting individual banks do so.

    What I understand Mr. Selgin to be saying is that he favors individual banks to issue notes for amounts greater than their deposits with the only limit being the amount of leverage they choose to risk before their “health” deteriorates to the level that they cannot sustain a large demand for access to funds by depositors. Remember in a “free banking” scenario, banks can deposit funds in a competing bank, and then at an opportune time, demand deposited funds in a predatory effort to cause temporary cash flow insolvency, creating a vulnerability and then gobble them up in an acquisition. But banks are not too keen to deposit with their competitors because those funds will yield poorly compared to other investments on the open market. It is a fight for survival and without the “gun of government” in the room, a very level playing field.

    I think Mr. Selgin’s theories place the safe-guarding mechanism in the institutional fight for survival rather than in a mathematical elimination of risk by a voluntary and contractual restriction of access to deposits. I do not believe that Mr. Selgin would ever place bank notes in a category as high as “traveler’s checks”. Bank notes would only be exchangeable (under terms and restrictions) for “currency” on an ad hoc negotiated basis though admittedly exchange rates would stabilize and ratings agencies would arise with public audits determining the exchange rates between bank notes and currency (gold).

    Suppose “Bank A” returned 3% under a 100% reserve restricted deposit access scenario while “Bank B” yields 5% under the same terms. Soon “Bank A” will suffer a complete run regardless of its solvency unless it raises its return rate or “Bank B” is viewed as too risky. So, even under a 100% reserve scenario, the only thing ultimately keeping banks from promising unsustainably high returns, and thus its solvency, is its fear of going under or being weakened and vulnerable to a take-over. Thus we see that even under a 100% reserve (restricted deposit access) scenario a bank can “over promise” its way into insolvency and default on obligations. Thus the only thing that ultimately governs the risk taking actions of a bank is its instinct for survival and self preservation. What Mr. Selgin proposes in his “free banking” theories, I gather, is to allow them the same freedom to earn profit from a “good name” as insurance companies which only “actuarially mitigate” rather than eliminate, systemic risk. Under a “free banking” scenario, bank notes from the “Bank A” (3% ROI for depositors) might be regarded as safer than the notes from “Bank B” (5% ROI for depositors) and thus the “Bank A” notes might carry more weight if they were traded in a manner similar to the way an annuity stream is bought out today.

    Under this form of “free banking”, banks are encouraged to earn a “good name” by higher returns as well as solvency. Safety is an illusion. Even the FDIC is ultimately funded by its members and, failing that, the taxpayer. It all comes down to undertaking risk and the spreading of that risk. Mr. Selgin wants total freedom to be governed by competency and solvency with all the cards on the table. Those who choose to accept the bank notes understand that there are risks in the same manner as those who buy insurance understand that compensation for a claim ultimately rests upon the good name and solvency of the insurance company. I do not see in any of Mr. Selgin’s theories that he equates bank notes with currency (gold backed or not).

    I think your article calling Prof. Selgin “clueless” (whether you were parroting Mr. Salerno or not) is unnecessarily hostile. Perhaps George Selgin, as explained above, believes in more freedom that the so-called “hardcore libertarians” you mention. Remember, Ron Paul says that freedom and responsibility go hand in hand. Prof. Selgin seems to be advocating the same thing. Dr. Paul also says: “Just because I believe in freedom doesn’t mean that I endorse everything you do with your freedom.” If we believe in risk taking, that doesn’t mean we agree with every risk taken. Prof. Selgin is comfortable and confident to let free market can decide on its own which risks are worth taking. Shouldn’t we be?

  8. “In fact bank “deposits” have been recognized both in practice and in common law since early modern times to consist of debt claims to money (coin, back then), ownership of which was in fact transferred, along with possession of the coins, first to the banker and then to the banker’s borrower-customers.”

    And then there’s this (from his response on Krugman’s site). Just because demand deposits have been recognized as the bank’s property and not the depositor’s (and obviously this flowed to what occurred in practice) does not mean that the deposit actually is or should be the bank’s property. It’s circular logic.

  9. ” Both Rothbard and Krugman would have had a good belly laugh together over George’s peculiar notion that, in the absence of a central bank and government deposit insurance, a fractional-reserve banking system would be stable and flourish on a free market.”

    Sounds like somebody needs to read Rothbard. From: History of Money and Banking in the United States:

    Despite the flaws and problems, the decentralized nature of the pre–Civil War banking system meant banks were free to experiment on their own with improving the banking system. The most successful such device was the creation of the Suffolk system (p 114).

    It is a fact, almost never recalled, that there once existed an American private bank that brought order and convenience to a myriad of privately issued bank notes. Further, this Suffolk Bank restrained the overissuance of these notes. In short, it was a private central bank that kept the other banks honest. As such, it made New England an island of monetary stability in an America contending with currency chaos (p 115).

    The Suffolk ground rules from beginning (1825) to end (1858) were as follows: Each country bank had to maintain a permanent deposit of specie of at least $2,000 for the smallest bank, plus enough to redeem all its notes that Suffolk received. These gold and silver deposits did not have to be at Suffolk, as long as they were at some place convenient to Suffolk, so that the notes would not have to be sent home for redemption. But in practice, nearly all reserves were at Suffolk. (City banks had only to deposit a fixed amount, which decreased to $5,000 by 1835.) No interest was paid on any of these deposits. But, in exchange, the Suffolk began performing an invaluable service: It agreed to accept at par all the notes it received as deposits from other New England banks in the system, and credit the depositor banks’ accounts on the following day.

    With the Suffolk acting as a “clearing bank,” accepting, sorting, and crediting bank notes, it was now possible for any New England bank to accept the notes of any other bank, however far away, and at face value. This drastically cut down on the time and inconvenience of applying to each bank separately for specie redemption. Moreover, the certainty spread that the notes of the Suffolk member banks would be valued at par: It spread at first among other bankers and then to the general public (p 117).

    How did the inflationist country banks react to this? Not very well, for as one could see the Suffolk system put limits on the amount of notes they could issue. They resented par redemption and detested systematic specie redemption because that forced them to stay honest. But country banks knew that any bank that did not play by the rules would be shunned by the banks that did (or at least see its notes accepted only at discount, and not in a very wide area, at that). All legal means to stop Suffolk failed: The Massachusetts Supreme Court upheld in 1827 Suffolk’s right to demand gold or silver for country bank notes, and the state legislature refused to charter a clearing bank run by country banks, probably rightly assuming that these banks would run much less strict operations (p 117-8).

    The biggest, most powerful weapon Suffolk had to keep stability was the power to grant membership into the system. It accepted only banks whose notes were sound. While Suffolk could not prevent a bad bank from inflating, denying it membership ensured that the notes would not enjoy wide circulation. And the member banks that were mismanaged could be stricken from the list of Suffolk-approved New England banks in good standing. This caused an offending bank’s notes to trade at a discount at once, even though the bank itself might be still redeeming its notes in specie. In another way, Suffolk exercised a stabilizing influence on the New England economy. It controlled the use of overdrafts in the system. When a member bank needed money, it could apply for an overdraft, that is, a portion of the excess reserves in the banking system. If Suffolk decided that a member bank’s loan policy was not conservative enough, it could refuse to sanction that bank’s application to borrow reserves at Suffolk. The denial of overdrafts to profligate banks thus forced those banks to keep their assets more liquid. (Few government central banks today have succeeded in that.) This is all the more remarkable when one considers that Suffolk—or any central bank—could have earned extra interest income by issuing overdrafts irresponsibly (p 118).

    While it lasted, though, the Suffolk banking system showed that it is possible in a free-market system to have private banks competing to establish themselves as efficient, safe, and inexpensive clearinghouses limiting overissue of paper money (p 122).

  10. The problem here, as usual, is one of theory. Prof. Selgin believes that fractional reserve banking would be feasible with no gov’t interference because of his apparent belief that deposits are a future good (just like stocks, or bonds, or money market instruments). As an investment professional with a few degrees in finance, it took me quite a while to wrap my ahead around the concept of deposits being akin to savings (I’d never heard that view before as no one in the industry that I know of shares it … including bankers themselves).

    The other problem is what Prof. Selgin and 100%ers would define as ‘stability’. It seems clear that Prof. Selgin would define ‘stability’ as a lack of bank runs whereas I believe that most 100%ers would define ‘stability’ as less severe business cycles. This is, of course, arbitrary and depends on your opinion of what causes the business cycle therefore rendering any empirical argument over stability quite irrelevant. For example, I have yet to find an example of demand deposit contracts being respected when depositors want their money back. I believe respecting such contracts would lead to more bank runs and less of a business cycle and hence more ‘stability’; whereas I’m pretty sure Prof. Selgin would disagree..

  11. “One more point: Both Rothbard and Krugman would have had a good belly laugh together over George’s peculiar notion that, in the absence of a central bank and government deposit insurance, a fractional-reserve banking system would be stable and flourish on a free market.”

    Either that’s a killer punchline, or something is wrong with me.

  12. Really, Joe, in the lengths you are going to to try to make an ogre out of me, you have gone into an integrity free-fall: far from flaunting views unique to myself, my comment doesn’t refer to my own opinion at all, but merely to the fact that many who do consider themselves Austrians do not agree with the 100-percent position.

    Shameful, but illustrative of what happens when anxiety to affirm one’s fidelity to a club takes precedent over concern for truth.

    • The lengths Joe’s going to? Really? Do you even listen to yourself? Or more accurately, read what you write?

      Did you or did you not call 100% reservists like Salerno, “clownish” and part of a “moronic cult?” Do you not also openly admit to taking a position of “ridicule?”

      Boo hoo hoo. Sounds like someone can dish it out but can’t take it.

      Some advice, really consider whether those who you are trying to cultivate as “friends” are worth those you’re alienating…

      • I don’t need advice from you, and I’m not talking about name calling. I’m talking about how Joe misrepresents the truth. I’m talking about mountebanks pretending to be scholars.

        Here is the difference you don’t get: when I say that Joe and other Rothbardians are part of a moronic cult, I mean precisely that they are so wed to their “tests of faith” that they will stoop to nothing in misrepresenting their opponents’ views. That is, I am saying something for which there is evidence, of which Joe’s very foolish post is a good example. I don’t have to make up quotations and then attribute them to persons who never uttered the words in question (a regular feature of Rothbardian rhetoric); I don’t have to make idiotic statements about there being no evidence that fractional reserve systems have ever been stable when in fact there are books full of such.

        You foolishly imagine that I give a rodent’s posterior about being called names. I could care less, or am even mildly proud of it, in light of the source. It is intellectual dishonesty that I’m pointing out. You don’t “get” it perhaps because you understand this to be all about “friends” and “alienating people” and such. It isn’t. I don’t write things in order to make friends. That’s not what economics is for, except when it is really religion masquerading as economics.

        • I must say it is shocking to see an economist who wants to be taken seriously writing like this. I can’t fathom of anyone on either side of the intellectual debate who upon reading this comment would not walk away with the most radically negative view of you.

          Ranting, name calling, extreme sensitivity to criticism of one’s views, ad hominem….

          Shame on you. Shame.

          I will endeavor to continue reading your purely intellectual work on its own virtues. As to your own personal virtues (or lack thereof), your comments here require no further response.

          Good day sir.

        • If FRB is not fraud to the extent that all relevant parties are aware of it, then by Selgin’s own standard, since over 70% of depositors in the UK (as a recent study has found) are unaware that they are not the legal owners of the deposits, then the lending of these deposits is not justified.

          There is a difference between the theoretical consideration that people can in principle be knowledgeable of and agree to X, and the empirical consideration of whether or not people are in fact knowledgeable about X.

          Thus, the correct approach is the approach that the immature, I can dish it out but I can’t take it anti-cult cultist Selgin is not taking, which is that FRB in practise is a series of contracts, some of which are not fraudulent, and some of which are fraudulent. The fraudulent contracts can be argued as contributing to instability, whereas the non-fraudulent contracts can be argued as contributing to stability. Historically however, fraud has dominated, and that is why FRB has led to such political agitation that we now have central banks.

          Neither the extreme pro-FRB nor the extreme anti-FRB sides are correct. They are like two sides over whether or not killing is justified. The pro-killing cult claims that because voluntary assisted suicide is in principle justified, so is all killing justified, and the anti-killing cult claims that because murder is in principle not justified, so is all killing not justified. Both sides, because they are starting from a shaky position, go out of their way to stretch the truth and distort history. They both accuse the other side of stretching the truth and distorting history. They will never come to a reconciliation as long as theory and history diverge.

          But at least the anti-FRB crowd is more mature. Selgin is acting like a child with a temper tantrum.

    • “the lengths you are going to to try to make an ogre out of me”

      specifically what part of Mr. Salerno’s post did this? He referred to your COMMENT as “bizarre and irrelevant”. He said you were “blind” to a fact, which may or may not be true but is a reference to your views on a matter. He said you “denigrate(s)” certain people in a comment, which is once again a reference to a comment, not you. And he then says how he thinks Rothbard and Krugman would react to your “peculiar notion”, which once again references your VIEW, not you yourself.

      So how precisely did he make an ogre out of you? He appears to be commenting on your views (which he has the temerity to disagree with) and how others would view them, as well as what impact they are having (and their degree of peculiarity). Definitely not “ogre” material.

      I would humbly suggest someone may be a tad sensitive.

      “you have gone into an integrity free-fall”

      Your very first sentence is an attack on Mr. Salerno’s integrity. You’re not attacking his views (however wrongheaded they may be to you) or his post, but rather going straight to calling his integrity into question. I might go so far as to say that would be like making someone out to be a …. hmm…. some kind of large, hideous imaginary creature from fables. The word escapes me. But whatever it is, Mr. Salerno didn’t have to do it because you’ve done it to yourself.

      “my comment doesn’t refer to my own opinion at all,”

      Here’s the definition of “opinion”:
      a belief or judgment that rests on grounds insufficient to produce complete certainty.
      a personal view, attitude, or appraisal.

      That’s funny. I could have sworn that you wrote “the anti-fractional reserve crowd among self-styled Austrians, taking its lead from Murray Rothbard, is but a small contingent with which the rest vehemently disagree.”

      It seems to me this is CLEARLY a “personal view, attitude or appraisal”. And unless I missed the poll of Austrians that you have conducted which definitely established this factoid with “complete certainty”, it certainly fits definition “1″.

      It was certainly news to me, and to pretty much all of my Austrian minded friends I’ve asked, including FRB supporters and several of your fans, that FRB is the majority among Austrians. I’m curious as to whether you counted yourself in said poll, seeing as you don’t (thankfully!) consider yourself an Austrian anymore.

      And of course, within your self-referenced comment on Krugman’s blog, you wrote “It is unfortunate that Congressman Paul has chosen to accept Rothbard’s characterization of fractional reserve banking”, which unless I’m mistaken DEFINITELY sounds like an “opinion”? Unless it is a fact with complete certainty, as opposed to your appraisal of the situation.

      That word “opinion”? You keep using it, but I don’t think it means what you think it means.


      I do indeed (as does anyone with a shred of common sense) see a great deal of shame in this “exchange”, but it certainly is not coming from Mr. Salerno’s side.

      “illustrative of what happens when anxiety to affirm one’s fidelity to a club takes precedent over concern for truth. ”

      I’m still clueless as to what you’re referencing here. Someone having the gall to disagree with you? It seems to me Mr. Salerno genuinely holds to his views on FRB because he believes them to be true, rather than “anxiety to affirm one’s fidelity to a club.” If you have any evidence to the contrary, by all means present it. I for one was not aware Mr. Salerno’s fidelity to Austrian Economics, the Mises Institute (which has some FRBs within it) or libertarianism as such was ever in question. And it has certainly never seemed to me or anyone else that he has demonstrated “anxiety” over the matter.

      Furthermore, to suggest he has somehow abandoned the pursuit of truth in this regard to satisfy said anxiety strikes me as an amazing comment to make, one that actually made me believe that someone else must have written your comment instead of you. That’s how insane it comes across. I had to read it twice to make sure it was what I’d actually read.

      Mr. Selgin, your entire comment is quite frankly, awful. It was actually sent to me by a FRB Austrian friend of mine who likes your work a great deal, and in sending it to me he basically commented how horrible you come across in it (your comment). If this is someone else writing as you, I hope the Circle Bastiat deletes the comment so as to not wrongfully besmirch your name.

      If however you actually wrote said nonsense, I would encourage to delete it. Perhaps it was written in passion and poorly worded or phrased, something we may all be forgiven for from time to time.

      If you still stand by it though, I don’t really know what to say. I’ve read much of your work, academic and otherwise, and while I disagree with parts of it I’ve considered you an intelligent proponent of your views, committed to the pursuit of truth. Your post however paints you in an INCREDIBLY negative light to anyone reading it. It is for lack of a better word, embarrassing. Words like pathetic and petty come to mind as well. That you would actually stand by it is passes insult and enters hilarity.

      • “taking its lead from Murray Rothbard, is but a small contingent with which the rest vehemently disagree”

        I’ve seen this being argued quite a bit as well, although I’ve never seen the proof. But, in any case, it’s irrelevant. Why is this even being brought up? Prof. Salerno could be the only one on the planet screaming that FRB causes the business cycle and this would still be irrelevant to whether he is correct or not. I don’t think that those who believe that FRB creates the business cycle should even be responding to this.

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