Free Banking: Theory, History and a Laissez-Faire Model (Larry J. Sechrest)

Free Banking: Theory, History and a Laissez-Faire Model (Larry J. Sechrest)
- Highlight Loc. 689-92  | Added on Tuesday, October 25, 2011, 11:41 AM

In order to redeem notes and clear debts with other banks, a free bank must hold some specie reserves. This fact, if taken alone, might seem to imply that such a bank’s short-run marginal costs are definitely positive but constant, since, for any given income velocity of money, the same fractional reserves are held as backing for each additional unit of currency in circulation. However, it is likely that the unit cost of acquiring specie rises with the demand for it.