I said that my position is beside the point.
it was probably a side point being made or inquired about
sometimes you have to ask about meaning clarity. but a debate isnt always the result.
nirgraham:Smith is henceforth forgiven for his statism. So it is written, so it shall be done.
So it is written, so it shall be done.
Good one.
Z.
free banks are just banks not under a central bank governance and govt insurance scheme it is likely that they would be 100 percent reserve banks/branches. where the cd is the main method of risk lending investment of money...and deposits sit in branches for withdrawl or transfer for goods....but i am not sure about the truthfulness of free banking or if it ever existed."
Free banking has been closely approximated (very minor government restrictions only--none of which were expansion-promoting) in Scotlands, Canada, and elsewhere. The banks in these systems managed with very low reserve rations--in Scotland in the early 19th c., they tended to be less than 2 percent.
This is about the 20th time I've raised these points on this forum, by the way.
Please allow me to get back on the topic.
"(Selgin: ) I don't think you can have read, for example, my article "In Defense of Bank Suspension," whioch addresses the question of how nt banks can contractually handle mass runs. But in any event, why suppose that a banking system isn't any good justeecause it cannot handle a very unlikely event? A freekishly big snowstorm would cause many roofs to collapse. Would you therefore condemn the buildings in question? In economics, we don't generally treat as optimal only those arrangements that reduce the risk of failure--even catastrophic failure--to zero."
Sadly I couldn't find an online version of the article, but there is a summary here and a short blurb here: "...solvent banks could protect themselves without harming their customers by exercizing a contractual right to suspend payments." So if I understand it correctly, the solution is to suspend or at least to "restrict" payment by the bank until it is capable to deliver on its promises. Allow me to ponder on this:
- Fractional Reserve Banks do not advertise the possibility of their "restricting" the access of customers to their deposits. They promise to deliver it at any time, to both lenders and depositors. This amounts to fraud, and is one arguably even if hidden among intricate clauses in the contract (especially considering most people are not fluent at monetary economics). But let's say there is a free market, where such a thing is allowed and known to all customers, and part of the contract.
- A depositor deposits some money in a bank, which keeps a certain reserve and lends the rest to a debtor. The bank promises to both of them access to this money. When both of them access it (or anybody else they passed their banknotes on), the bank gets into a problem - a "legal impossibility" - two actors cannot possibly make use of one thing at the same time. The bank has to either a) refuse some request or b) take the money from elsewhere. If this happens in a sufficiently large volume, the bank will not be able to make good on its promises and will have to refuse all demands. Since in our situation this is allowed, the customers may not be happy, but will have to wait until others join the bank and/or deposit more money; or the debtors repay their debts... which may take years, if at all. While it is a little bit suspicious business model ("You can use your money at any time, unless somebody else does it and then you may have to wait for an indeterminate period or not get anything."). Rothbard notes that this turns the banknotes into a curious form of a lottery ticket, which is something very different from what an immediately available 'deposit' is supposed to be.
- But personally, I don't mind the existence of FRBs, as long as it is openly said, what the risks of such institutions are, and that their customers may never get their money back. In a free market with full-reserve banks would be their banknotes most likely traded with a premium anyway and the bank treated with appropriate distrust.
- However, this begs the question why shouldn't the bank's debtors (or anybody else) be allowed to suspend their payments to the bank, while they continue to have income, until they can repay their debts? Of course, they can form their contractual arrangements in any way desired, but somehow it seems doubtful this would be popular. "Pay me when you are able to" can work between friends, it would be problematic economy-wide.
- Finally, what is the risk of an event requiring a suspension of payments? Perhaps it is the bias of this place, but it seems to me that historically FRBs collapsed fairly often. So it may not be a 'freekishly big snowstorm', but any larger snowstorm that can collapse the house of cards. (However, I would be interested in examples of successful fractional reserve banks.) A snowstorm, as a natural event, may not be the best example though, as a bank of this kind has an in-built weakness against its own customers. Arguing that it is highly unlikely for customers to act on the very promise the bank gave them doesn't make it look like a stable institution - and its fall like a very unlikely event.
Mises Wiki | Economic Resources and Books (search engine)
For Peter: Government ng ago banned "option clause" banknotes in the U.S. and also in Great Britain. loThat's why you don't see them today. See this Cato article by Hugh Rockoff: http://www.cato.org/pubs/journal/cj6n2/cj6n2-12.pdf
As for the likelihood of mass runs, you are mistaken: they have been relatively rare in history, and have been confined to heavily regulated banking systems, including those of the U.S. and England. Canada and Scotland, where free banking was most closely approximated until the later 19th or early 20s centuries, suffered no general panics at all.
Those who suppose that FR free banking cannot work need to reconsider their beliefs in light of further reading on the subject of banking history. Kevion Dowd's colection, _The Experience of Free Banking_, is an excellent place to start.
Cal: "1. If it is unsustainable it will not be sustained. No debate necessary, as it cannot be demonstrated apodictically either way a priori "
Why not? The entire validity of Capital Theory can be demonstrated by a priori deduction. ABCT is based on a priori deductive analysis. But now, all of a sudden, this method is no longer applicable to analyze the economic ramifications of fractional reserve free banking? Let's not cherry pick methodologies only when they suit us.
The entire validity of Capital Theory can be demonstrated by a priori deduction. ABCT is based on a priori deductive analysis. But now, all of a sudden, this method is no longer applicable to analyze the economic ramifications of fractional reserve free banking? Let's not cherry pick methodologies only when they suit us.
No real-world free market prediction can be demonstrated "entirely" by a priori deduction or anything else. Praxeology is not magic and you're still dealing with probabilities and approximations in the total application of your limited premises and following conclusions even if your deductive logical derivation is undisputable (hence I'm a methodological pluralist, not an apriorist). Austrian capital theory and ABCT are not apodictic absolutes. Anyway, I find Selgin and White's theoretical arguments convincing. But even if you believe you can predict the future with a priori deductive logic alone (wrong!), and you come to the conclusion that free FRB will not be sustainable on a free market (which I am not convinced is the case theoretically or empirically), then you the validity of your claim will be exposed in application without any argument on your part. FRB or no, I imagine you would consider free banking more desirable than government monopoly central banking.
a bank with a very low ratio probably wouldnt genreate much interest in its notes well beyond those who can keep an ey on teh bank and somewhet track it sassets andloan types.
to me oit seems that a free bank with its own pecuiear notes if such a thing existed would would seem to be self limiting in its expansion.
to me it seems that a broa ly accepted money would have to be more homgenous in its nature.
an ounce being an ounce for market trading. rather than discount bank note a go go with read the fine print clause on the note itself
which also seems to me that free banking would nearly always tend toward full backing and otyher risk investment methods would occur. using a fully backed money substitute in various direct lending products.
Cal,
You've basically just rejected the idea behind any systematic attempt to explain and gather knowledge about any natural phenomena. Either that or since absolute truth can never be established, you reject any alleged refutation of your system as invalid due to inherent scientific limitations. That's not an argument! You've made an assertion in (1). It is clearly false. Monetary Equilibrium itself attempts to devise a theory based on what then?
You've basically just rejected the idea behind any systematic attempt to explain and gather knowledge about any natural phenomena.
Uh no, I've rejected the claim that future human activity can be predicted "entirely" by a priori deductive logic. Gathering knowledge or making predictions about natural phenomena obviously doesn't work that way either, and is for the most part a posteriori and inductive.This has nothing to do with "absolute truth" (which is epistemologically impossible even with logic) but the limitations in application of even sound theory to the real world of future human action. I'm not an anti-apriorist or anything. I'm just pointing out the limitations of a priorist deduction due to the necessary incompleteness of premises, which can be in part supplemented by controlled experiment, empirical history, statistical correlation, etc. You never get to apodictic certainty with regards to real-world application, but you get closer in approximation. Anyway, as I said, I'm convinced by free FRB in theory and either way I vastly prefer free banking to central banking.
" Anyway, as I said, I'm convinced by free FRB in theory and either way I vastly prefer free banking to central banking."
Yeah, I get it now. But I still think you should retract assertion (1). You can't say, I agree with the theory, but just in case you got some good arguments against it, they are "non-sequitur because...."
(Selgin: ) For Peter: Government ng ago banned "option clause" banknotes in the U.S. and also in Great Britain. loThat's why you don't see them today. See this Cato article by Hugh Rockoff: http://www.cato.org/pubs/journal/cj6n2/cj6n2-12.pdf As for the likelihood of mass runs, you are mistaken: they have been relatively rare in history, and have been confined to heavily regulated banking systems, including those of the U.S. and England. Canada and Scotland, where free banking was most closely approximated until the later 19th or early 20s centuries, suffered no general panics at all. Those who suppose that FR free banking cannot work need to reconsider their beliefs in light of further reading on the subject of banking history. Kevion Dowd's colection, _The Experience of Free Banking_, is an excellent place to start.
If the regulation point is taken away, not much remains in the way of FRB, providing its properties are understood by its customers. Still, the "deposit" in such a bank is a very different animal from a deposit in a full-reserve bank. What are your thoughts on inflation and the possibility of business cycles, if such banking would exist?
Looks like I have some thinking to do. For others, Kevin Dowd's book can be found here, or most of it: Experience of Free Banking.
But I still think you should retract assertion (1).
Assertion (1) stands as you've not been able to coherently (in the technical sense) dispute it. Praxeology is not magic and you can't entirely predict future human action with pure a priori deductive logic. It is supplemented by controlled experiment, empirical history, and statistical correlation, and may in fact be approximately falsified as incomplete and/or inapplicable in premises.
You can't say, I agree with the theory, but just in case you got some good arguments against it, they are "non-sequitur because...."
I agree with the theory, but am further convinced by the empirical history. I don't think there are any good a priori economic arguments against it. Eve it there were, it is a non sequitur to claim FRB will necessarily be unsustainable on a free market, but since I'm not sure anyone did that it would be more useful to point out it is silly and strategically unproductive to be dogmatic about it, especially when there is heavy approximation on both sides and either way free banking is vastly preferable to central banking. This is especially true when one is not up to speed on the theory or empirics of free market FRB. And if one does not want to do that, and wants to continue believe that it is unsustainable anyway, it's still silly to make an issue out of it as it will be revealed should free banking ever become a reality anyway.
" I don't think there are any good a priori economic arguments against it."
Then you should reconsider
"Eve it there were, it is a non sequitur to claim FRB will necessarily be unsustainable on a free market, "
Why the use of the term "non sequitur" is appropriate here, I have no idea. But granting you the validity of its use, do you think it is a non sequitur to claim that minimum price controls on Starbucks coffee will be unsustainable on a free market? What's the difference.
"but since I'm not sure anyone did that it would be more useful to point out it is silly and strategically unproductive to be dogmatic about it,"
So let me get this straight, you're not sure (or aware it seems) that anyone has "claimed" (by applying a priori economic theory) that FRB is unsustainable, yet you go on to say:
"This is especially true when one is not up to speed on the theory or empirics of free market FRB"
So in other words, all those opposing FRB must be "not up to speed on the theory of FRB", yet it is perfectly fine for you to not be up to speed on its most damning criticisms. Unbelievable.
"And if one does not want to do that, and wants to continue believe that it is unsustainable anyway, it's still silly to make an issue out of it as it will be revealed should free banking ever become a reality anyway."
Just in terms of economics, the controversy amounts to enormous differences in economic theory on, among other things, money, credit, and capital theory. It is a huge issue in terms of Austrian economic theory. Those who say the differences are minor, have no idea what they are talking about.