I seem to have come up with the final point that shows fractional reserve banking isn't fraud, therefore is a consensual activity that could not be banned in a free market:
All any fractional reserve bank need do is print something like this on every note:
Payable to the holder, at its price in gold, pending supply: We keep 10% of our notes' total values in reserve at all times.
Payable to the holder, at its price in gold, pending supply:
We keep 10% of our notes' total values in reserve at all times.
Of course it's already not fraud, because nobody is being deceived into thinking there is a Scrooge McDuck vault with all of the gold. But the above notice makes this crystal-clear.
As I asked in the other thread, who owns the deposited gold -- the depositors, the borrowers, or the banks?
The keyboard is mightier than the gun.
Non parit potestas ipsius auctoritatem.
Voluntaryism Forum
Kaz: All any fractional reserve bank need do is print something like this on every note:
And since they don't and never did, then .....
The same person who owns money you deposit in a mutual fund.
The bank is acting as your proxy, investing your money for you. But instead of charging you a fee for the service (like a mutual fund), and making your deposit hard to obtain or use, the bank does it free of charge, and leaves your access to the investment almost purely liquid. In return for these benefits, the interest you earn is much lower, either manifesting only as free services, or as some minimal, but guaranteed, interest rate.
But Rothbard's socialist claim that all fractional reserve banking should be banned would therefore have instead been "fractional reserve banking is completely legitimate, but the bank needs to be clear on what it's doing with the deposits, and the conditions of the notes".
Unfortunately, his goal seems to have been to justify banning a consensual activity, rather than believing that the free market could solve his objection.
(I wish the Quote link worked, so it would include your username)
Kaz: (I wish the Quote link worked, so it would include your username)
Do what I did here.
If I wrote it more than a few weeks ago, I probably hate it by now.
Kaz:The same person who owns money you deposit in a mutual fund.
Who would you say does own the money I deposit in a mutual fund?
Either way, a mutual fund is an investment. How is a bank checking account necessarily an investment?
Kaz:The bank is acting as your proxy, investing your money for you. But instead of charging you a fee for the service (like a mutual fund), and making your deposit hard to obtain or use, the bank does it free of charge, and leaves your access to the investment almost purely liquid. In return for these benefits, the interest you earn is much lower, either manifesting only as free services, or as some minimal, but guaranteed, interest rate.
What if I don't want the bank to invest my checking-account money? What if I only want the bank to keep it safe?
Also, if the bank turns around and lends out my checking-account money, how is my access to it left "almost purely liquid"?
But you don't manually type user="Kaz" every time, do you?
I expected that clicking the Quote link would produce the tag pair, perhaps even including hilighted text, but it does not. I am manually typing (bracket)quote] pasting quote here (bracket)/quote] each time
Kaz:Unfortunately, his goal seems to have been to justify banning a consensual activity, rather than believing that the free market could solve his objection.
You are engaging in a popular strawman fallacy, unless you can substantiate your claim regarding Rothbard.
Your above scheme (with the clauses) is not fractional reserve banking. It's a lottery of some sort. Your argument is based on an equivocation, which is a logical fallacy.
Kaz: But you don't manually type user="Kaz" every time, do you?
Unfortunately I do.
Kaz: I expected that clicking the Quote link would produce the tag pair, perhaps even including hilighted text, but it does not. I am manually typing (bracket)quote] pasting quote here (bracket)/quote] each time
Yeah, the quotation button has been broken for a few months.
I would say that you legally own it, until it is lost by the fund. The fund acts as your proxy, investing it for you.
That is the whole point of a fractional reserve bank.
If you started a full reserve bank tomorrow, nobody would want to use it (except angry Rothbardians willing to lose money for their dogma), because you'd have to charge everyone interest on any money they deposited, in order to cover your significant costs in providing them the basic storage and handling services.
In return for being able to invest your money, the fractional reserve bank does it free of charge, and provides other services in addition. These are, in effect, a form of interest return for investment.
Then go out, tomorrow, and rent a safe deposit box. I'm not terribly clear on why that isn't the only way Rothbardians use banks.
Of course you should be able to at least get the electronic transfer benefits, so you could use a check/atm card, at a real full reserve bank...but you'd better expect to pay hefty interest for that service. And, in real life, there's no market for that.
When you try to use it, it's there.
That is pure liquidity. It doesn't matter that it's not the same paper dollar you handed them. If it does, get a safe deposit box.
Every dialup Internet company in the country has about 8% of the phone lines that it has customers, or less. This is because they know that you'll almost never have more than 8% of customers trying to call at once. Even though they offer you 24/7 dialup, this isn't fraud...it's just statistics.
I'm a professional web developer...and I don't mean one of a million self-declared ones, I mean I consult for Boeing, Charter, NASA, the Washington Post, Energizer, real big-name sites doing hardcore development...if you're struggling with some open source software, I may be able to help, especially if it's in a language I use professionally, like PHP, JavaScript, PERL or (looking at the URL) ASP.NET, XML, C#.NET, MVC.NET, et cetera.
Kaz: I'm a professional web developer...and I don't mean one of a million self-declared ones, I mean I consult for Boeing, Charter, NASA, the Washington Post, Energizer, real big-name sites doing hardcore development...if you're struggling with some open source software, I may be able to help, especially if it's in a language I use professionally, like PHP, JavaScript, PERL or (looking at the URL) ASP.NET, XML, C#.NET, MVC.NET, et cetera.
Thanks, I'll forward that to the other moderators.
(Unfortunately I'm not one who would know how to respond to it.)
Kaz:I would say that you legally own it, until it is lost by the fund. The fund acts as your proxy, investing it for you.
Actually, given that a mutual fund is an investment, I no longer own the money. I own stocks, bonds, etc. instead.
Kaz:That is the whole point of a fractional reserve bank. If you started a full reserve bank tomorrow, nobody would want to use it (except angry Rothbardians willing to lose money for their dogma), because you'd have to charge everyone interest on any money they deposited, in order to cover your significant costs in providing them the basic storage and handling services. In return for being able to invest your money, the fractional reserve bank does it free of charge, and provides other services in addition.
In return for being able to invest your money, the fractional reserve bank does it free of charge, and provides other services in addition.
I wasn't aware that our discussion was limited to how things are today. The topic of this thread is "The Myth of Fractional Reserve Banking as Fraud", which suggests that fractional-reserve banking cannot ever be considered fraud. So why does it matter how people will behave if I opened up a full-reserve bank tomorrow?
With that said, what's wrong with charging a fee (not necessarily interest) for keeping one's money safe? And what makes the costs necessarily "significant" (whatever you mean by that term)?
Under fractional-reserve banking, I also lose money, because the bank takes it.
Kaz:Then go out, tomorrow, and rent a safe deposit box. I'm not terribly clear on why that isn't the only way Rothbardians use banks.
My question was hypothetical. It doesn't depend on the present-day situation. I think you know that, so why the apparent obtuseness?
Your answer also presumes the existence of fractional-reserve banking. That presumption seems to be under debate, and I for one refuse to accept it for the time being.
Kaz:Of course you should be able to at least get the electronic transfer benefits, so you could use a check/atm card, at a real full reserve bank...but you'd better expect to pay hefty interest for that service. And, in real life, there's no market for that.
"In real life" today, you mean. Why the jump from here-and-now to forever-and-inherently?
Can you prove that a market could never exist for such a thing?
Again, what makes the interest necessarily "hefty"?
Kaz:When you try to use it, it's there.
Is it? How do I know? Can I see my actual money (i.e. the gold) whenever I want to?
Kaz:That is pure liquidity. It doesn't matter that it's not the same paper dollar you handed them. If it does, get a safe deposit box.
"When you try to use it, it's there" doesn't satisfy my question about what you mean by "(almost) pure liquidity". And why are you assuming that I'm necessarily using paper dollars?
Kaz:Every dialup Internet company in the country has about 8% of the phone lines that it has customers, or less. This is because they know that you'll almost never have more than 8% of customers trying to call at once. Even though they offer you 24/7 dialup, this isn't fraud...it's just statistics.
I didn't deposit phone lines that I already owned with the dial-up internet company. Your attempted analogy doesn't follow.
Kaz:But Rothbard's socialist claim that all fractional reserve banking should be banned would therefore have instead been "fractional reserve banking is completely legitimate, but the bank needs to be clear on what it's doing with the deposits, and the conditions of the notes".
How is that claim socialist?
Kaz:[...] (except angry Rothbardians willing to lose money for their dogma) [...]
Don't make insults.
To paraphrase Marc Faber: We're all doomed, but that doesn't mean that we can't make money in the process. Rabbi Lapin: "Let's make bricks!" Stephan Kinsella: "Say you and I both want to make a German chocolate cake."
Autolykos: As I asked in the other thread, who owns the deposited gold -- the depositors, the borrowers, or the banks?
The bank owns the gold and you own the claim. It's easy as that.
I really don't see the utter confusion some people have.
There is a difference between 'I have to pay you on demand' (something I own) and 'I'm garding your property'.
You own the ticket. And the ticket gives you the right to go to a bank and say 'give me something in return for it'.
The state is not the enemy. The idea of the state is.
AdrianHealey:The bank owns the gold and you own the claim. It's easy as that.
By "claim" I presume you're talking about the bank note(s)?
Why should I transfer ownership of my actual money to the bank?
AdrianHealey:I really don't see the utter confusion some people have.
The utter confusion results when the amount of gold claims outstanding (tickets or bank notes) is greater than the amount of actual gold that can satisfy those claims.
AdrianHealey:There is a difference between 'I have to pay you on demand' (something I own) and 'I'm garding your property'.
I understand that. What I don't understand is why anyone would transfer ownership of their property essentially for free. If the depositors think they're giving it to the bank for safekeeping, but the bank thinks it's taking ownership, there's a problem.
Kaz:But Rothbard's socialist claim that all fractional reserve banking should be banned would therefore have instead been "fractional reserve banking is completely legitimate, but the bank needs to be clear on what it's doing with the deposits, and the conditions of the notes". How is that claim socialist?
The coercive control of economic choices is what defines socialism.
If I ban you from buying unhealthy fast food, for your own good, that's socialist.
If I ban you from putting your money in a fractional reserve bank, for your own good, that's identically socialist.
There is no problem under such terms. But under such terms, the "depositor" relinquishes ownership of his gold. It's hard to believe that this is what the depositor has in mind, but even if it is so, it becomes impossible for the holders of such claims to claim the exchange at any given time. Such a claim would have to be fraudulent indeed. The impossibility can be logically substantiated by testing the case of all the 'depositors' making such a claim at the same time.
Autolykos: By "claim" I presume you're talking about the bank note(s)? Why should I transfer ownership of my actual money to the bank?
That would be outside the realm of economics, to be honest. Well; your savingsaccount to make interest, your checking account to make a lower interest, while still be able to use it as literally money in your pocket (like your current account works). Furthermore; it's also then keeping it in your own pocket in certain occasions. If you want, you can also use another type of bank that uses a more strict dichotomy - something like a wharehouse.
Also keep in mind that in return, you get a banknote that you should interpret as the right to a property claim. It's like a contract and the contract says that whenever you show up, the bank has to give you something. But the bank is the legitimate owner, untill you hand in the money. This is very apparent, when, for example, a bank is robbed. It's not 'your money' that's gone, you still own the claim to something. It's different with a wharehouse where, if it's robbed, you actually loose your property.
Autolykos:The utter confusion results when the amount of gold claims outstanding (tickets or bank notes) is greater than the amount of actual gold that can satisfy those claims.
That's really not that big of a problem. A lot of people have more debts than they can afford on any given time. The difference is, of course, that usually, when we talk about debt, the time period is specified, which is often absent with 'money'. (But not completely; chances are high that when you check the contract with your current bank, it will say something like 'if you want big amounts, you'll have to wait some time'. Historically; similar systems have been developed.)
Obviously; this could go wrong. Just like any other business could go wrong. Especially because we are dealing with a business where, in theory, all the debtors could come at the same time and make a claim. That's the element of competition to keep the banks in check.
Autolykos:I understand that. What I don't understand is why anyone would transfer ownership of their property essentially for free. If the depositors think they're giving it to the bank for safekeeping, but the bank thinks it's taking ownership, there's a problem.
Well, if there is confusion on the relation people have with a business, then they should check your contract. But most people know that their bank isn't keeping the piece of paper they are donating in a safe. It's irrelevant to 'predict' what will happen in a free society, but the idea that people trade gold in for checking accounts, doesn't seem all that strange to me. Remember: they are not transfering ownership 'for free': they have something easier to transport (claims for gold) and with the possibility of interest, depending on what the bank can do with it.
DD5:There is no problem under such terms. But under such terms, the "depositor" relinquishes ownership of his gold. It's hard to believe that this is what the depositor has in mind, but even if it is so, it becomes impossible for the holders of such claims to claim the exchange at any given time. Such a claim would have to be fraudulent indeed. The impossibility can be logically substantiated by testing the case of all the 'depositors' making such a claim at the same time.
I'm not sure if I'm following you here. Why does such a claim have to be fraudulent?
It's true: if all depositors make the claim at the same time, there is a chance that the bank goes bankrupt. But why does this make the claim fraudulent?
If I write a note saying: DD5 can come by at any random moment in time and have a beer, is this fraudulent?
What if I write 70 of them, knowing I only have 24 beers?
I don't think there is fraud at writing them. There is only fraud when 25 or more people effectively show up at the same time to claim their beer. Because they are entitled to it and I didn't manage to deliver.
By "claim" I presume you're talking about the bank note(s)? Why should I transfer ownership of my actual money to the bank?
You shouldn't. You should go use pay a full reserve bank interest in order to have them "store" your money.
But everyone else should be free to transfer their actual money to a fractional reserve bank, something Rothbardians claim should be banned.
It's not confusing, if the note contains the warning that this is the case. You give them an ounce of gold, and they give you a note saying you can redeem it for an ounce of gold at any time you like, but pointing out that they keep 10% of their deposits in reserve, so it's all pending demand levels.
No confusion.
They're not. they're being paid for it. You can choose to pay monthly interest for a full reserve bank to hold your gold, and pay an additional fee for the power to make your gold teleport from one bank to the next via ATM, debit card, et cetera...and the people depositing in fractional reserve banks will get all of that stuff "free of charge", which means they're being paid through the provision of those services.
Meanwhile, in real life they have 100% perfect access to the deposited money, any time they wish.
It's hard to believe that this is what the depositor has in mind, but even if it is so, it becomes impossible for the holders of such claims to claim the exchange at any given time. Such a claim would have to be fraudulent indeed. The impossibility can be logically substantiated by testing the case of all the 'depositors' making such a claim at the same time.
What if the note says
What's the problem with that? The buyer of the note KNOWS the way the system works. How could that possibly be fraud? You can't have the note in your hand and reasonably claim ignorance of the system.
Meanwhile, as I already pointed out, dialup Internet providers sell "24/7 access", but almost always have phone lines tallying 8% or less of their total customers. They, like banks, are making the perfectly rational decision that their service will never be used by 100% at once.
Likewise, a YMCA does not worry about whether all of its members would be able to fit in the pool at the same time, even if access to the pool is the selling point of the membership.
Kaz: What if the note says Payable to the holder, at its price in gold, pending supply: We keep 10% of our notes' total values in reserve at all times. What's the problem with that? The buyer of the note KNOWS the way the system works.
What's the problem with that? The buyer of the note KNOWS the way the system works.
I specifically addressed this upthread but you ignored the response.
AdrianHealey: If I write a note saying: DD5 can come by at any random moment in time and have a beer, is this fraudulent?
There is really no argument over this. It is a misfortune that most free bankers can't seem to let go of the strawman fallacy when arguing against full reserve advocates.
There is a difference between a legal claim for something "at any given time" and for "any time there is a table available". Let's not have figurative speech get in the way of establishing what is logically possible and not possible.
DD5: AdrianHealey: If I write a note saying: DD5 can come by at any random moment in time and have a beer, is this fraudulent? There is really no argument over this. It is a misfortune that most free bankers can't seem to let go of the strawman fallacy when arguing against full reserve advocates. There is a difference between a legal claim for something "at any given time" and for "any time there is a table available". Let's not have figurative speech get in the way of establishing what is logically possible and not possible.
You do realize that historically and at this very moment there were time frames, right? (I've checked my contract with the bank and it does have a provision for if there is no money available. I would be surprised if your bank didn't had the same proviso.)
In any case; let's say the note _doesn't_ stipulate any time frame, but just 'at any given time'. You are saying this is fraud per se, if I'm not mistaken?
I do feel I've answered your remark before, in the part you didn't quote: "I don't think there is fraud at writing them. There is only fraud when 25 or more people effectively show up at the same time to claim their beer. Because they are entitled to it and I didn't manage to deliver."
AdrianHealey:I do feel I've answered your remark before, in the part you didn't quote: "I don't think there is fraud at writing them. There is only fraud when 25 or more people effectively show up at the same time to claim their beer. Because they are entitled to it and I didn't manage to deliver."
I don't follow the logic of this response. It is fraud only if you are eventually caught? Is this what you're basically saying?
AdrianHealey:You do realize that historically and at this very moment there were time frames, right?
You do realize that these "time frames" have nothing to do with fractional reserves per se, but with other alleged technical problems (most cash is not stored on site) and "now" is irrelevant due to how this government system works. And referring to historical data cannot possibly provide any sort of argument against what I'm saying and you are perfectly aware of this, so what gives?
DD5: I don't follow the logic of this response. It is fraud only if you are eventually caught? Is this what you're basically saying?
Not really. It's fraud when you can't deliver what you contracted for at the moment stipulated in the contract ('at any given time the person shows up at the bank demanding'). I don't see any reason to call it an a priori fraud just because there is the possibility that one might not deliver?
I know the argument goes along the line of 'well, but all the contracts can't be headed at the same time, and therefore it's fraud!' but I don't really see a reason to say so. As long as everyone shows up with his contract and all the contracts are headed... Why do we need an exception, just because there might be a possibility they are not all heated?
When you have a contract with someone, it's not fraud until he doesn't deliver at the time stipulated, right? The time stipulated is the moment when you show up. Not when it's 'theoretically' possible that it might go wrong.
I'm also wondering: if this is fraud: who and when does someone get to file a complaint against who?
It's usually very clear: when I can't deliver someone I agreed on, the other guy get's to sue me.
But in this case, It's not that clear (imo), as long as the bank can respect all contracts or claims?
Kaz: What if the note says Payable to the holder, at its price in gold, pending supply: We keep 10% of our notes' total values in reserve at all times. What's the problem with that? The buyer of the note KNOWS the way the system works. I specifically addressed this upthread but you ignored the response.
Where? I just looked and don't see it. You said, essentially, that they do not. But this would just mean that committing actual fraud is fraud, not that fractional reserve banking is.
I keep saying "what if they did say it", to which the answer appears to be "then fractional reserve banking would be entirely legit".
AdrianHealey: It's fraud when you can't deliver what you contracted for at the moment stipulated in the contract ('at any given time the person shows up at the bank demanding'). I don't see any reason to call it an a priori fraud just because there is the possibility that one might not deliver?
How is it fraud when 25 people show up, but not for 24 people? Is there a legal claim to the property when 25 (and above) people show up or not?
And if the answer is yes, which it must be for your own fraud accusation for the case of 25 people to stick, then do I really need to show you the blatant logical errors that you are now beginning to make?
Actually, you're being overly generous:
It's never fraud, at all.
If you contract to come over and sing "Born Free" whenever the buyer asks, then you have laryngitis when the time comes, that's not fraud. Not even if you have been choosing to engage in activities that bring a direct risk of laryngitis.
"Failure to fulfill a contract" is not the same as "fraud".
"Engaging in behavior that risks his ability to fulfill my contract" is also not fraud.
In fact, unless you actually DECEIVE the person, fraud never enters into it. If you promise NOT to french kiss random hospital patients, and promise NOT to keep less than 100% reserves on hand, and then do those things, that's actually fraud.
The claim that a debt to behave a certain way is created implicitly is another standard socialist argument, not a free market one. Whatever the contract proclaims is the only commitment.
Kaz:Where?
How is it fraud when 25 people show up, but not for 24 people? Is there a legal claim to the property when 25 (and above) people show up or not? And if the answer is yes, which it must be for your own fraud accusation for the case of 25 people to stick, then do I really need to show you the blatant logical errors that you are now beginning to make?
The answer is that it's never fraud, either way, because no deception occurred.
One is failure to fulfill a contract. The other is the fulfillment of that contract.
Your version would have it that if you contract a guy to work on your house, then if he never showed up to do so it's fraud, ergo even if he DID show up and do so, it's fraud.
This is absolutely silly logic.
I have more posts to respond to in this thread (which I'll do soon), but I'd like to respond to this right now:
Kaz:"Failure to fulfill a contract" is not the same as "fraud". "Engaging in behavior that risks his ability to fulfill my contract" is also not fraud.
Aren't those forms of negligence?
Wait a minute... failure to fulfill a contract is fraud if it's willful. Engaging in behavior that risks the ability to fulfill a contract could be negligence, depending on the circumstances.
DD5: How is it fraud when 25 people show up, but not for 24 people? Is there a legal claim to the property when 25 (and above) people show up or not? And if the answer is yes, which it must be for your own fraud accusation for the case of 25 people to stick, then do I really need to show you the blatant logical errors that you are now beginning to make?
Well, of course there is a legal claim to something that was my property, until they arrived with the claim, upon which I'm contractually obliged to transfer it to them. And it's fraud, because in the case 25 people arrive, I can't deliver what I contractually obliged to deliver. But when only 24 arrive, I am, in fact, able to make good on my contract. I'm able to deliver the goods that we contracted upon. And the other people, obviously, do not want me to deliver yet, because they didn't show up, so I'm not braking my contract with them. Because the moment stipulated in the contract - 'when they want' - didn't arrive yet. So I'm not defrauding anyone.
Look at the banknote as an open ended contract, of which one of the two parties gets to decide when the property transfer is due. It's not until this moment that it should be decided whether or not I should be able to pay up. And i can't, than it's, obviously, fraud. No sooner, no later.
Feel free to illustrate the 'blatant logical error' that I'm making.
And please answer my other question too. :)
Autolykos: Aren't those forms of negligence?
I would say it is, tbh.
Autolykos: Wait a minute... failure to fulfill a contract is fraud if it's willful. Engaging in behavior that risks the ability to fulfill a contract could be negligence, depending on the circumstances.
Seems reasonable.
Kaz: The answer is that it's never fraud, either way, because no deception occurred.
Right, but while you have identified the logical fallacy in this particular response of his, Adrian on the other hand, seems to understand the logical impossibility of "claim at any time" and maintaining only fractional reserves. It's just that he has in my opinion terribly blundered on his attempt to overcome this "minor" inconvenience. This happens sometimes when you go back an fourth and attempt to respond too quickly.
DD5: Right, but while you have identified the logical fallacy in this particular response of his, Adrian on the other hand, seems to understand the logical impossibility of "claim at any time" and maintaining only fractional reserves. It's just that he has in my opinion terribly blundered on his attempt to overcome this "minor" inconvenience. This happens sometimes when you go back an fourth and attempt to respond too quickly.
It's not logically impossible. It's only impossible to maintain if and only if more people show up than you have reserves. That's the risk you take upon yourself when doing such a thing. I don't see any fraud as long as every single contract is respected. (But I've explained this at length before.)
Feel free to explain why I blundered terribly. :)