“And here we get into an important debate on whether fractional reserve banking is necessary for an economy to grow. The short answer is no, and you have to be a Keynesian to believe so. And there's a lot of references in the chapter of the book, where you can see a detailed discussion of why this is the case.
There's a long debate on this within economics, within Austrian economics and people who are close to Austrian economics, perhaps not entirely Austrian. But I think the Rothbardian view and my view on this is that money and credit by themselves are not productive assets. In the Mizazian view, they merely represent receipts that allow their holders to purchase productive assets.
An increase in the supply of money or credit will no more increase the stock of productive assets in an economy than an increase in printed football stadium tickets will increase the capacity of the stadium itself. So the idea that we need fractional reserve banking because it allows banks to create more credit is completely misguided Keynesian thinking because again, it thinks of the credit itself as being the productive asset. But all that the credit does is that it reallocates the already existing assets.
You don't make more seats in the stadium by issuing more tickets. You just create more people fighting over the same number of seats that already exists. So fractional reserve banking does not magically create more capital labor or resources.
It merely entrusts their allocation to central banks rather than the productive, conscientious people who produce and save them. Fiat central banking is what makes fractional reserve banking viable. This is really the key idea.
And we'd have a very different world.”
From The Bitcoin Standard Podcast: 287. The Fiat Standard Lecture 6: What Is Fiat Good For?, Aug 19, 2025
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