If Fractional Reserve Banking is Voluntary, Where is the Fraud?

This can be expressed in this way: suppose some business partners set up a bank and a number of clients freely and voluntarily agree to all the stipulations of a mutuum contract in money (although it could easily be in a commodity like grain or timber):

(1) We set up our fractional reserve bank;

(2) our clients hand over money to us and explicitly agree that the ownership of their money passes to the bank;

(3) the bank gives the client a bank account, which is a credit/debt instrument or an IOU redeemable on demand to return to them money up to the amount in his or her account from (a) the bank’s reserves, (b) from sale of financial assets, or (3) loans.

(4) it is understood by all parties that most of the original money has been loaned out (except for that portion held as reserves), and only a tantundem from the bank’s reserves, money from sale of financial assets, or loans is provided;

(5) the bank’s private notes are negotiable, so that they can be used by anyone who accepts them as a means of payment/medium of exchange. It is in our contact that our clients must explain to anyone who accepts our private notes the terms as stipulated to them. The private notes are widely accepted in the community. People are happy to accept them as a means of payment, and redeem them when they wish to.

(6) if the bank becomes insolvent, the clients holding accounts or unredeemed bank notes can sue to regain their debt from the liquidation of the bank’s assets. Everyone understands this and accepts the risk.

Where is the fraud here?

In the freedom-hating anarcho-capitalist world, private protection agency thugs invade the property of the owners/partners of the fractional reserve bank, committing violence against them, breaking up their profitable business (which is a shining example of private enterprise), and tearing up the bank’s free contracts.

The fractional reserve bankers are dragged into a private court, and the vicious anarcho-capitalist judge breathes fire and brimstone as he holds up Rothbard’s Man, Economy, and State (as if it were the Bible), banging it on the bench, screaming at the bankers that their fractional reserve bank contracts were really just bailments and they have committed fraud.

The bankers reply that this is nonsense: all their clients freely agreed to a loan contract, and they produce the contracts to prove this. The prosecution can find no clients who are willing to say that they were defrauded or did not understand the contract.

Nevertheless, the cultist Rothbardians are adamant fraud has occurred (even though they cannot prove anything). The bankers are found guilty on trumped up charges – conspiracy to commit fraud, fraud, and theft of their clients’ bailments.

As they are led off to the horrors of an anarcho-capitalist prison, the bankers realise the nature of the Rothbardian anarcho-capitalist world: a world of suppression of private enterprise, violence against businessmen, and violation of the sanctity of free contract.