Given that fractional reserve banks do not lend their own capital but inflate the money supply to expropriate capital and lend it in return for a rent on this loan, is there a moral obligation to pay this rent? To do so rewards the bank's expropriation and theft.
This has severe implications for any kind of revolutionary strategy. Simply put, it would mean that a freedom party would be obliged to forgive the debts incurred by people due to the banking system's inflation, particularly the state's debts.
The fallacies of intellectual communism, a compilation - On the nature of power
YES!!! A loan is a contract between the borrower to pay money now and the lender to receive money + interest in the future. This contract is valid even if the lender stole the money which is indirectly what happened. So it is a moral obligation of the borrower to pay back the loan + interest, but the mechanism of how the lender acquired the money is of importance as other claimants could show up demanding return of the stolen money and is also important when setting interest rates. Of course the claimants would have a moral (NOT CURRENTLY LEGAL) claim to borrowers property as they never agreed to enter into the contract and the money was stolen from them. But the government through force and with great cost to society hoses up the moral arrangements between the rightful owners of the money thus leaving the claimants (Original Depositors) out in the cold. Then the government turns around at even greater cost to society and insures their deposits.
caravelle: is it your belief that fractional reserve banks actually exist??
is it your belief that fractional reserve banks actually exist??
Of course they exist. The two alternatives are 100% reserve, which clearly doesn't exist, and no reserve.
faber est suae quisque fortunae
Yes.
Bogart:YES!!! A loan is a contract between the borrower to pay money now and the lender to receive money + interest in the future. This contract is valid even if the lender stole the money which is indirectly what happened.
I don't see how that follows. If the borrower must return the money to the original owners, and the original owners are just generally everyone in the economy, that includes the borrower, thus by defaulting on the loan the borrower is simply taking his money back.
Stranger:I don't see how that follows.
Because you forget that the borrowed funds are spent. They become liabilities to all those recipients of the borrowed funds. This is why the bank is inherently bankrupt. The bust reveals that the real assets are just a fraction of the total liabilities.
DD5: Stranger:I don't see how that follows. Because you forget that the borrowed funds are spent. They become liabilities to all those recipients of the borrowed funds. This is why the bank is inherently bankrupt. The bust reveals that the real assets are just a fraction of the total liabilities.
Of course the funds are spent. But the fact is that the borrower was expropriated himself by the bank when it makes the loan, so what he is spending is what ought to be his own funds.
Stranger:But the fact is that the borrower was expropriated himself by the bank when it makes the loan,
I don't know where you get this idea from. I think you are confusing several different things here.
DD5: Stranger:But the fact is that the borrower was expropriated himself by the bank when it makes the loan, I don't know where you get this idea from. I think you are confusing several different things here.
Fractional reserve banking is an expropriation of all capital savers in favor of the bank. This means that in order to remain competitive in the face of one's capital being expropriated by the banks, one is forced to take bank loans. This means that if the bank is guilty of stealing your savings, you can't be guilty of not paying the bank back on its loan, since it is only your own savings that you repossessed.
Stranger:Fractional reserve banking is an expropriation of all capital savers in favor of the bank.
This is very different from saying this:
You're using the counterfeiter analogy. Fine, but I think it's only fair to distinguish between the 1st recipients of the new money and the rest of the public.
DD5: You're using the counterfeiter analogy. Fine, but I think it's only fair to distinguish between the 1st recipients of the new money and the rest of the public.
Well it can't really be determined who the rest of the public is, except that we know that the recipient is part of that public in some way.
Anyway the point is the outcome. If fractional reserve loans are no longer honored, then banks can no longer make them. Fractional reserve banking must collapse.
The original owners are specific depositors with very specific claims on their money stored by the banking institution making the loan so we know the people who may have claims on the money loaned to the borrower. Without the force of government, there would be quite a few cases of depositors suing bankers for personal assets as the banks do not have the cash to pay the depositors.
Back to the contract being valid. The situation between the borrower and lender is exactly the same as the situation between the borrower/buyer and the seller. The borrower buys the liability. If the borrower buys the home and there is a 50 year old lein on the property then who is responsible for that lein? It is the borrower because the claim is not on the borrower but on the property. Similarly if the banker lends money and there is a claim on it then it is on the borrower first as the claim is on the property (The borrower may be able to sue the banker later). The lender has significantly more information about where they got the money than the borrower. Now there is insurance paid by the lender to the FDIC that is reflected in the interest rate. This is similar to the insurance paid by the borrower/buyer on the title to the property.
Under current law, the bankers are shielded from their over loaning of money bye the Federal Government. Without this shield, borrowers and depositors would have to be much more careful about who they bank with and interest rates would reflect this greater risk.
Fractional reserve demand deposits are fraud by definition. You don't have any moral obligation to follow thru on contracts you have made with criminal organisations so the answer is no.
Escaping Leviathan - regardless of public opinion
"Democracy is the road to socialism." - Karl Marx
Stranger:Well it can't really be determined who the rest of the public is, except that we know that the recipient is part of that public in some way.
Bank creates money. Borrower is 1st recipient. What cannot be determined about that?
You asked about the moral obligation of the borrower. Yes, it is very honorable for you to accept this new money, spend it, and then say you don't want to pay back because it was extracted out of the public. Very considerate and gracious of you. The public is in your debt.
Bogart:Under current law, the bankers are shielded from their over loaning of money bye the Federal Government. Without this shield, borrowers and depositors would have to be much more careful about who they bank with and interest rates would reflect this greater risk.
Sure, but currently there are no free banks making loans from their own mints. There are banks making loans in Federal Reserve notes, and people trying to save up in Federal Reserve notes but being expropriated by the banks, only to have to take a loan in order to compete with other borrowers. Are we to condemn these people to bondage?
Stranger: Bogart:YES!!! A loan is a contract between the borrower to pay money now and the lender to receive money + interest in the future. This contract is valid even if the lender stole the money which is indirectly what happened. I don't see how that follows. If the borrower must return the money to the original owners, and the original owners are just generally everyone in the economy, that includes the borrower, thus by defaulting on the loan the borrower is simply taking his money back.
Yeah. And the contract most certainly isn't valid.The fact that the money you lent belong to someone else in no way implies that the you should follow thru with the contract and return the money to the thief.
DD5: Bank creates money. Borrower is 1st recipient. What cannot be determined about that? You asked about the moral obligation of the borrower. Yes, it is very honorable for you to accept this new money, spend it, and then say you don't want to pay back because it was extracted out of the public. Very considerate and gracious of you. The public is in your debt.
There is no public.
No it isn't honourable. If anything it makes you an accomplice to the crime.
It is not just new money, there is a fraudulent transaction of value involved. Theft. If you know that I am in the business of mugging people and still let me buy stuff you with stolen money are you helping me to live of thievery. You aren't necessary an accomplice but is is highly immoral and taking stolen property in itself is a crime. What is it called? In this case if you spend money you know is counter-fit you are frauding everyone you try to pay with them.
This only applies if we have single fraudulent bank in a otherwise sound system. With the entire system corrupt it of course becomes impossible to place guilt on the clients in this way. Even if you know what is going on you don't really have a choice in the matter of using banks. Also it could be argued that there are no victims since everyone participate knowingly in the system. Or that everyone are victims of the people enforcing the system depending on how you look at it.
In the current system this could be a honourable act, but it doesn't really follow from your argument that what is intend as honourable is abusing and stealing from the corrupt system rather then just a specific fraudulent bank.
Your moral obligation is whatever you want it to be, if you want to have one at all. Dont bind yourself to dogmatism, mate!
hkarnoldson: DD5: Bank creates money. Borrower is 1st recipient. What cannot be determined about that? You asked about the moral obligation of the borrower. Yes, it is very honorable for you to accept this new money, spend it, and then say you don't want to pay back because it was extracted out of the public. Very considerate and gracious of you. The public is in your debt. No it isn't honourable. If anything it makes you an accomplice to the crime.
I was being sarcastic.
True there are no official banks but there are other options:
1. The old fashioned rent, save (In gold or silver), pay cash by converting gold and silver to FRNs.
2. FInd an outlaw (Unfortunately, a banker dealing in specie is outside the law although they have harmed no one.) banker dealing in gold or silver and take the loan from them.
3. The even older pre-banking system method of renting to own.
DD5: I was being sarcastic.
This was kinda lost. Since working against the current system in this way is most honourable.
Well if you can do it without getting caught, otherwise it is just stupid.
caravelle: if the original claimants are getting bank credit equivalent to the "money?" that the bank loans out are they left out in the cold? thier newly received credit spends just like the money., right?
if the original claimants are getting bank credit equivalent to the "money?" that the bank loans out are they left out in the cold?
thier newly received credit spends just like the money., right?
The fault the bank does is this: IOU = money. It is not, handing out IOUs and calling them money is fraudulent and wrong.If they said "We can probably redeem this IOU whenever you want, but there are these and this restrictions" that would be fine but that is not what a demand deposit is. Current accounts with banks today are contractually in the form of demand deposits. There a few restrictions like the right of the bank to refuse service when it isn't open or during war ... but essentially the promise they make is simply that they will store your money for you, then they go lend it to someone else.
So then you have two people believing that they booth own all the money and acting in the economy as if they booth had all the money. Which creates more demand then there actually is and everything goes to hell. If they had done this properly with IOUs instead the market would compensate and IOUs would be traded at a slight discount to money because they aren't actually quite as liquid.
and is it at great cost to society if the deposits are insured (i guess through an inflationary mechanism) if near costless paper or whatever takes place to insure smooth(er) functioning of money exchanges...to keep the system from collapsing, iow?
It would create business cycles whenever it needs to be used for either intended or unintended purposes.
The biggest problems however are that government would abuse such power and secondly that it completely removes all incentives for sound banking.Why should the banks care if they can cover there obligations to there customers when deposits are insured by government? The customers won't care if the bank can pay them or not because either way they can get there money from government.
caravelle: "my deposit agreement says nothing about demand deposit and doesnt eve use the term, for my checking account that is. i am pretty sure it doesnt say that the money i deposit is loaned out either." are there any more demand deposits?? enough to create the nationwide cycles that you mention?
"my deposit agreement says nothing about demand deposit and doesnt eve use the term, for my checking account that is. i am pretty sure it doesnt say that the money i deposit is loaned out either."
are there any more demand deposits?? enough to create the nationwide cycles that you mention?
All types of transaction accounts are demand deposits. What the banks choose to call them is irrelevant. It is how they work that is important and they are all a promise of money on demand with no other restrictions then you would expect from a warehouse holding your stuff.
hkarnoldson:The fault the bank does is this: IOU = money.
IOUs are money. The end.
scineram: IOUs are money. The end.
No, the closest an IOU can come to being money is to be fiat money. Which isn't real money. Real money is a commodity used as means of exchange. An IOU is near-money, bank money or if the debt and liquidity is enforced by government: fiat money .
caravelle: well from other mises readings i have looked over the speed of demand was rather important under contract terms.
well from other mises readings i have looked over the speed of demand was rather important under contract terms.
It is, which is why most savings accounts today are also demand deposits.
if the current deposit accounts dont say 'on demand' then it doesnt seem like a demand deposit and could still be a transaction account - which seems relevant. if i wrote a check to a merchant and the bank had to sell an asset to get the cash to meet the check claim it would seem that demand would be met once a bank asset is sold...part of a check writing contract but it would still be a transaction account, right?
if the current deposit accounts dont say 'on demand' then it doesnt seem like a demand deposit and could still be a transaction account - which seems relevant.
if i wrote a check to a merchant and the bank had to sell an asset to get the cash to meet the check claim it would seem that demand would be met once a bank asset is sold...part of a check writing contract but it would still be a transaction account, right?
If the bank makes restrictions in the deposit contract that gives it time to sell assets and make sure to keep enough of those assets to meet it's obligations to all it's clients, then it is no longer FRB and no longer fraudulent.
If it still will have similar effects on the economy as a whole that FRB has is a much more difficult riddle. It seems to me that even with proper contractual restrictions (not to be fraudulent) bank money from a very well maintained banking system could trade at so close value to real money that it basically becomes the same thing anyway, because the trust in the banking system is so high. On demand credits and insurance also seems to have FRB-like effects on the money supply. This is pretty difficult stuff and I need to educate myself more before going into it in much detail, but it seems these effects would be a lot less volatile then a FRB-system. Which is just completely unrestricted creation of bank money, also completely without trust in banks being an issue in the markets valuation of the bank money. Also without government in the picture there is little reason why the amount of extra credit created by things like people having insurance so they can keep less reserve cash would ever change. Except if the trust in the system changes, but since non-fraudulent bank money would be valued according to trust it should compensate by immediately re-evaluating the bank money across the entire economy in a non-inflationary way. I think am just guessing here now...
hkarnoldson: scineram: IOUs are money. The end. No, the closest an IOU can come to being money is to be fiat money. Which isn't real money. Real money is a commodity used as means of exchange. An IOU is near-money, bank money or if the debt and liquidity is enforced by government: fiat money .
Money=medium of exchange.
If enough people did as you were suggesting, Stranger, the gov't/Fed might chose to do away with FDIC rather than create the massive amount of new money necessary to prevent system wide bank failures. Without the FDIC, you wouldn't be defrauding the "public", but rather a portion of the customers of the bank you got your loan from. You might not be able to point out exactly who, but that still wouldn't take away from the fact that many people would lose their savings or a portion of their savings b/c of your actions.
And it's obvious that the people who benefit the most from FRB are the banks and those who take out much more in loans than they have in savings, as the bank earns interest off of something they bring into existence, and the companies or individuals borrowing the money get to spend it before the inevitable rise in prices as the new money enters the economy.
Unless you have a ton of savings and take a small loan, you obviously would benefit much more from taking out a loan and not paying it back than you are hurt by the current system through the loss of value in your savings.
scineram: Money=medium of exchange.
There are many dictionary definitions of money. In this context yours is pointless and devoids the word of meaning.
Money has to be a commodity. A transference or issue of debt is a whole different kind of transaction then a commodity payment.
I could say commodity money every time I speak of money, but deluding the word like this only serves central bankers. So I won't. Money is commodity money, when I mean something else I will say bank money, fiat money (except in obvious cases I might leave out fiat), IOU, near-money or whatever....
Murray N Rothbard: A most important truth about money now emerges from our discussion: money is a commodity. Learning this simple lesson is one of the world's most important tasks.
A most important truth about money now emerges from our discussion: money is a commodity. Learning this simple lesson is one of the world's most important tasks.