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Legal Tender Laws and Fractional-Reserve Banking

The Journal of Libertarian Studies

Tags Money and BanksCapital and Interest TheoryMonetary TheoryMoney and Banking

07/30/2014Jörg Guido Hülsmann

This article will explore the economics of legal tender laws, arguing that they are not only a necessary prerequisite of paper money, but also benefit fractional-reserve banking. Such laws make paper money and fractional-reserve banking more widespread than they would otherwise be. Thus, legal tender laws must be understood as a major factor in the development of Western economies which today operate on paper-money standards and feature very large fractional-reserve banking sectors that grow at over-proportional rates.

Volume 18, Number 3 (2004)


Contact Jörg Guido Hülsmann

Jörg Guido Hülsmann is senior fellow of the Mises Institute where he holds the 2018 Peterson-Luddy Chair and was director of research for Mises Fellows in residence 1999-2004.  He is author of Mises: The Last Knight of Liberalism and The Ethics of Money Production. He teaches in France, at Université d'Angers. His full CV is here.

Cite This Article

Hülsmann, Jörg Guido. "Legal Tender Laws and Fractional-Reserve Banking." Journal of Libertarian Studies 18, No. 3 (2004): 35–55.