An Essay on Economic Theory

3.6. Banks and their Credit

An Essay on Economic Theory by Richard Cantillon
Richard Cantillon

Fractional-reserve banking is a system where the banks lend some of their deposits and earn interest. This increases the amount of money in circulation compared to warehouse or 100% reserve banking. This utility of banking comes at the risk of being unable to withdraw your deposits. The amount that can be lent into circulation depends on the type of bank and the needs of the depositors. There are goldsmith-bankers, the typical banker who issues banknotes, and the national bank.

From Part 3: International Trade and Business Cycles. Narrated by Millian Quinteros.