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The Hubris of Hybrids

Author

Listed:
  • Philipp Bagus

    (Universidad Rey Juan Carlos)

  • David Howden

    (St. Louis University – Madrid Campus)

  • Amadeus Gabriel

    (Groupe Sup de Co La Rochelle)

Abstract

In the pages of this journal, a fruitful debate has evolved on the ethical legitimacy of fractional-reserve banking. In this article, we respond to the new arguments raised by Evans (J Bus Ethics, 2014) as we clarify our (Bagus et al. in J Bus Ethics 128:197–206, 2015a) position on the unethical and illegitimate nature of fractional-reserve banking. Fractional-reserve banking is not a recent financial innovation (unlike, e.g., money market mutual funds) but represents a long-standing legal aberration. The co-mingling of two mutually exclusive financial contracts, deposit and loan, confounds the contracting parties’ purposes, intents, rights, and obligations. As a result, it creates unsolvable legal difficulties and ethical dilemmas. While these problems are most evident in the case of a bank run, they also arise when trying to answer the simple question of “who owns a deposit?”

Suggested Citation

  • Philipp Bagus & David Howden & Amadeus Gabriel, 2017. "The Hubris of Hybrids," Journal of Business Ethics, Springer, vol. 145(2), pages 373-382, October.
    • Handle: RePEc:kap:jbuset:v:145:y:2017:i:2:d:10.1007_s10551-015-2884-x
    DOI: 10.1007/s10551-015-2884-x
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    References listed on IDEAS

    as
    1. Philipp Bagus, 2011. "The Eurosystem: Costs and Tragedies," Chapters, in: David Howden (ed.), Institutions in Crisis, chapter 7, Edward Elgar Publishing.
    2. Williams, Jeffrey C, 1984. "Fractional Reserve Banking in Grain," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 16(4), pages 488-496, November.
    3. Nicolás Cachanosky, 2011. "A Comment on Barnett and Block on Time Deposit and Bagus and Howden on Loan Maturity Mismatching," Journal of Business Ethics, Springer, vol. 104(2), pages 219-221, December.
    4. Philipp Bagus & David Howden & Walter Block, 2013. "Deposits, Loans, and Banking: Clarifying the Debate," American Journal of Economics and Sociology, Wiley Blackwell, vol. 72(3), pages 627-644, July.
    5. Philipp Bagus & David Howden, 2012. "The Continuing Continuum Problem of Deposits and Loans," Journal of Business Ethics, Springer, vol. 106(3), pages 295-300, March.
    6. Philipp Bagus & Amadeus Gabriel & David Howden, 2016. "Reassessing the Ethicality of Some Common Financial Practices," Journal of Business Ethics, Springer, vol. 136(3), pages 471-480, July.
    7. David Howden (ed.), 2011. "Institutions in Crisis," Books, Edward Elgar Publishing, number 14370.
    8. Philipp Bagus & David Howden & Amadeus Gabriel, 2015. "Oil and Water Do Not Mix, or: Aliud Est Credere, Aliud Deponere," Journal of Business Ethics, Springer, vol. 128(1), pages 197-206, April.
    9. Philipp Bagus & David Howden, 2016. "The economic and legal significance of “full” deposit availability," European Journal of Law and Economics, Springer, vol. 41(1), pages 243-254, February.
    10. Philipp Bagus & David Howden, 2009. "The Legitimacy of Loan Maturity Mismatching: A Risky, but not Fraudulent, Undertaking," Journal of Business Ethics, Springer, vol. 90(3), pages 399-406, December.
    11. Bagus, Philipp & Howden, David, 2013. "Some Ethical Dilemmas with Modern Banking," MPRA Paper 79599, University Library of Munich, Germany.
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    Cited by:

    1. Jesús Huerta de Soto & Antonio Sánchez-Bayón & Philipp Bagus, 2021. "Principles of Monetary & Financial Sustainability and Wellbeing in a Post-COVID-19 World: The Crisis and Its Management," Sustainability, MDPI, vol. 13(9), pages 1-11, April.
    2. Van Den Hauwe, Ludwig, 2017. "Monetary Constitutionalism: Some Recent Developments," MPRA Paper 83052, University Library of Munich, Germany.
    3. Philipp Bagus & Amadeus Gabriel & David Howden, 2018. "On the Necessary and Sufficient Conditions for Legitimate Banking Contracts," Journal of Business Ethics, Springer, vol. 147(3), pages 669-678, February.

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    More about this item

    Keywords

    100 % reserve requirement; Banking; Demand deposits; Fractional-reserve banking; Fraud;
    All these keywords.

    JEL classification:

    • E5 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit

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