In my fire in 2007, I lost almost all my files, including the ones under the letter “R.” For that reason, I thought I had lost my correspondence with Murray Rothbard. But I came across some files in my home office that were categorized differently.

Here’s my correspondence with Murray Rothbard on fractional reserve banking. It was just after we had both returned from the Mont Pelerin Society meetings in Hong Kong, the first such meetings I attended.

September 14, 1978

Dear Murray:

I’m glad we had that discussion of fractional reserve banking at the MPS meetings Tuesday night. I had difficulty with your position that it was fraudulent and had argued with a number of libertarians till I was blue in the face about that issue. I was glad to hear you say that there is nothing necessarily fraudulent about fractional reserves. You insisted that I allow you and other vigilantes to publicize the “fractionalness” of fractional reserves. There’s no issue there. I believe in freedom of speech. However. I suspect you’d be too busy enjoying yourself in a free society to bother.


David R. Henderson
Assistant Professor


4341 Miranda Avenue • Palo Alto, CA 94306
(415) 941-XXXX [I left out the last 4 digits on purpose: DRH]

September 21, 1978

Dear David:

It was good seeing you in Hong Kong, and at least most of your valuables were at last returned.

I still think fractional-reserve banking is fraudulent, since it involves the issue of fake warehouse-receipts, thereby leading more than one person to think that they own the same amount of cash. If you think that people really know that the money isn’t there, then you should favor converting demand deposits to certificates of deposit, which are truly time deposits, which no one can get confused about, and which are not, in my view, truly part of the money supply. All I conceded is that it is theoretically possible to issue notes or deposits which clearly warn the holder that the money probably isn’t there. But fractional reserve banking as we have come to know it, past and present, is definitely fraudulent. Agreed?

As ever,