Epistemological Foundations in the Ethical Debate Concerning Fractional Reserve Banking and Borrowing Short and Lending Long

Abstract

Various commentators have taken different approaches to the question of whether or not fractional
reserve banking (FRB) and borrowing short and lending long (BSLL) are ethical banking
practices. In this paper, we examine the epistemological foundations in this debate, with particular
focus on FRB. We discuss this question with regard to FRB in particular, because while
many authors agree that FRB is illicit, the methodology by which this conclusion is reached differs.
This matters, because it is only when FRB’s ethicality has been established by employing the
correct epistemology is it possible to address the issue of BSLL. BSLL’s legitimacy then rests on
whether or not there exists a continuum, which we leave for a separate discussion.