In Defence of ‘Demand’ Deposits: Contractual Solutions to the Barnett and Block, and Bagus and Howden Debate

This article contributes to a recent debate between Barnett and Block (J Bus Ethics 88(4): 711–716, <CitationRef CitationID="CR6">2009</CitationRef>), Bagus and Howden (J Bus Ethics 90(3): 399–406, <CitationRef CitationID="CR1">2009</CitationRef>), Barnett and Block (J Bus Ethics 100: 299–238, <CitationRef CitationID="CR7">2011</CitationRef>), Cachanosky (J Bus Ethics 104: 219–221, <CitationRef CitationID="CR9">2011</CitationRef>) and Bagus and Howden (J Bus Ethics 106: 295–300, <CitationRef CitationID="CR3">2012a</CitationRef>) regarding the conceptual distinction between demand deposits and time deposits. It is argued that from an economic perspective there is nothing inherently fraudulent or illegitimate about deposit accounts that are available ‘on demand’, but that this relies on certain contractual provisions. Particular attention is drawn to option clauses and withdrawal clauses, which “solve” the problems raised by Barnett and Block, and Bagus and Howden. Previous authors have also neglected the asset side of banks balance sheets, and this is shown to further justify the legitimacy of fractional reserve banking. Copyright Springer Science+Business Media Dordrecht 2014