And so, in our history, a state bank finally makes its appearance. As we said, the state is constantly expanding, its appetite growing. Its income comes from taxes and other exactions, as well as loans from banks and citizens. Sooner or later, someone was bound to have the bright idea of creating their own state bank and also profiting from its activities.
However, note this fundamentally important circumstance. A state bank would never have emerged with 100 percent reserve requirements. There is no point in such a bank. Point exists only when there is an opportunity to engage in coin clipping—inflation—producing money out of thin air through the banking multiplier. This is possible only with fractional reserve banking. Fractional reserve banking is, in principle, precisely the root of all the problems discussed in these notes.