ABSTRACT
Irving Fisher (1935) led a movement to impose 100% reserves on checkable deposits in order to prevent economic depressions. The argument was founded upon the notion that banks create checkable deposits out of thin air (Keynes 1930) and destroy them too. Deposit creation causes economic booms and their destruction causes depressions, Fisher argued. That view of banks’ capability and the need to control them still prevails among many economists who follow Keynes’s definition of money to include bank deposits. This chapter explains the harm to economic growth that the 100% reserve requirement would cause, drawing upon classical macro-monetary and banking analyses.
