Abstract

Authors in the Austrian tradition have made the credit expansion of a fractional reserve banking system as the prime cause of business cycles. Authors such as Selgin and White have argued that a solution to this problem would be a free banking system. They maintain that the competition between banks would limit the credit expansion effectively. Other authors such as Rothbard and Huerta de Soto have gone further and advocated a 100 percent reserve banking system ruling out credit expansion altogether. In this article it is argued that a 100 percent reserve system can still bring about business cycles through excessive maturity mismatching between deposits and loans