Hello,
I am a layperson only recently exposed to the Austrian school of economics. I'm fascinated by it and I'm buying what you're selling. I do have a question:
I've read a few books by Murray Rothbard and he's critical of the fractional reserve banking system. What I do not understand: without fractional resreve banking, how can money be loaned and how could a bank possibly pay me interest? I certainly understand the risk of fractional reserve banking, especially when rerserve requirement is very low but I don't understand what the alternative is.
Thanks.
Don
Thanks for your answer.
But - how do you loan the first dollar? i.e., if, as a bank, all my deposits must be backed, isn't 100% of my money not loanable?
This is an easy answer:
There are a bunch of ways to get money without making fractional reserve loans on deposits that users can claim immediately:
1. Most Common: Issue equity. That is you sell ownership in a bank, normally done through stock holders but can be done through a mutual system. In either case the investors are not contractually obligated to be paid the money back. Understand that if the bank makes more than the interest rates then the investors get more money paid back. There are many more insurance companies that use the mutual system and it has advantages.
2. Contract deposits now for money later. A certificate of deposit is an example. The agreement for higher interest rates means the depositor has limit access to their deposit unlike a checking account or passbook savings. This method includes selling long term bonds.
In all likelyhood there would arise, in a stateless society, two different kinds of institutions.
The first would be a true financial intermediary, who would facilitate the loaning of money. There profits would be the result of arbitrage. For example, person A comes to the bank offering them money for 5% per annum, they would then lend this money at a rate higher than that and (e.g. 6% per annum) and then pocket the difference as a profit.
The second would be more like a warehousing business with whom individuals would conduct a monetary irregular deposit contract. The bank would charge a sum of money in order to guard the gold (or whatever other commodity) and this is how they would make money.
"You don't need a weatherman to know which way the wind blows"
Bob Dylan
dmuldoon:how do you loan the first dollar?
You have to get a depositor (or an investor) to allow you to do so. That's what a CD is for example. Remember you only need to maintain 100% backing for demand deposits.
The definitive work on this subject from an Austrin perspective is De Soto's book Money, Bank Credit, and Economic Cycles. It's available online in pdf format here.
Wilmot of Rochester: Why would the creation of dollars be any different than the increase of gold? Either way, money in the economy is increasing and, according to the theory, the interest rate is changing. Why is gold special?
Why would the creation of dollars be any different than the increase of gold? Either way, money in the economy is increasing and, according to the theory, the interest rate is changing. Why is gold special?
Gold is introduced when the demand for gold specie in circulation (" in pockets") increases. This is demand for money. Fiduciary media is not a response to a demand for money, but a response to demand for capital. While a demand for money will be used to fund lower order goods, capital is used to fund higher order goods.
Jonathan M. F. Catalán: I'm still not sure how an entrepreneur would factor these changes in the supply of money in. It's easy to present it as a solution, but the fallacy is uncovered when you find out there is no appreciable way for entrepreneurs to really know (besides the fact that entrepreneurs are not economists). If an entrepreneur wants to invest he will base his decision on what seems to him a juxtaposition between benefits and costs. Low interest rates make higher order production seem more beneficial. What is the entrepreneur to do in the case of artificial interest rates? Cease investment for the length of the boom? That can be many, many years. I think the lack of sensibility in this objection to the Austrian Business Cycle Theory is quite obvious. What does velocity of money have to do with the supply of money? Money, or tangible assets used as a common good for trade, can only increase if the volume of these "tangible assets" increases. If the velocity of a particular piece of money increases it does not multiply into more money, it remains the same. Besides, the concept of velocity of money has already been refuted:
I'm still not sure how an entrepreneur would factor these changes in the supply of money in. It's easy to present it as a solution, but the fallacy is uncovered when you find out there is no appreciable way for entrepreneurs to really know (besides the fact that entrepreneurs are not economists). If an entrepreneur wants to invest he will base his decision on what seems to him a juxtaposition between benefits and costs. Low interest rates make higher order production seem more beneficial. What is the entrepreneur to do in the case of artificial interest rates? Cease investment for the length of the boom? That can be many, many years. I think the lack of sensibility in this objection to the Austrian Business Cycle Theory is quite obvious.
What does velocity of money have to do with the supply of money? Money, or tangible assets used as a common good for trade, can only increase if the volume of these "tangible assets" increases. If the velocity of a particular piece of money increases it does not multiply into more money, it remains the same. Besides, the concept of velocity of money has already been refuted:
I am not sure how entrepreneurs can factor these changes in, but I know they are able to do so today to an extent. If this is a financial innovation that needs to occur, I think it could without a central bank that has an interest in being particularly opaque.
A change in the demand for money, or for how often money will be used, would have a lot to do with interest rates, wouldn't it? I thought that's what we were still talking about and that not only an increase in dollars would have an "unnatural" influence on interest rates. Again, if the increase in the supply for money is correlated to equal the demand for money, this is a natural price system. If people use money more or have more of a demand to use and exchange it, then I would expect an increase in money supply at the same pace to be good for economic stability and smooth adjustment of prices to the change in the monetary factor. Why should this increase in money supply be unnatural? Why should it cause a boom?
As far as velocity being refuted, I'm just going to trust Milton Friedman got it right. I'm not saying you're wrong for disagreeing, but I'm fairly confident that velocity of money exists.
existence is elsewhere
nirgrahamUK: the expansion of gold where the money first enters the economic system as new loans (rather than being spent to make purchase) would have the perverse effect on the market rate of interest as the extension of fiduciary media.
the expansion of gold where the money first enters the economic system as new loans (rather than being spent to make purchase) would have the perverse effect on the market rate of interest as the extension of fiduciary media.
So an increase in the supply of money is only perverse when it comes in dollar form? I'm sorry, maybe I misunderstood.
Or are you saying that an increase in the supply of money is only perverse when it starts off as a loan? So when a banker mines a bunch of gold and loans it out, does that have a perverse effect on the economy?
Wilmot of Rochester: I am not sure how entrepreneurs can factor these changes in, but I know they are able to do so today to an extent. If this is a financial innovation that needs to occur, I think it could without a central bank that has an interest in being particularly opaque.
The only thing that would occur in a free banking environment is that given that there is no monopoly on money, entrepreneurs and consumers alike would simply change to more stable currencies and banking systems.
A change in the demand for money, or for how often money will be used, would have a lot to do with interest rates, wouldn't it?
Yes, maybe in a system in which credit reserves were not inflated with fiduciary media. An increase in the demand for money would show a time preference leaning towards current goods, as opposed to future goods, so interest rates would probably be higher when demand for money increases. But, under fractional reserve banking the problem is that the increase in the money supply is not synonymous with an increase in the demand for money. What is increasing is the money substitute representing capital, which is why the interest rates for borrowing capital decrease.
This is why I stress the difference between money (a tangible asset, like gold) and capital (something that is used to produce more capital during the stages of production).
I thought that's what we were still talking about and that not only an increase in dollars would have an "unnatural" influence on interest rates.
An increase in the demand for money is not the same thing as an increase in the amount of dollars. I'm not sure where you are making this fallacious connection.
Again, if the increase in the supply for money is correlated to equal the demand for money, this is a natural price system.
This makes absolutely no sense. I feel as if you're not really reading the posts you are replying to. If you were, we would already be past this stage.
That's a fairly strange opinion to hold. If you unwilling to change your perception of concepts, then what is the point of debating with you? Had you read Shostak's article, you would have easily seen that was it being disputed is not the fact that " velocity of money exists", but the fact that velocity of money has anything to do with money supply and the ability to fund investment projects, because what really funds investment projects is the capital which the money represents.
Wilmot of Rochester: Or are you saying that an increase in the supply of money is only perverse when it starts off as a loan? So when a banker mines a bunch of gold and loans it out, does that have a perverse effect on the economy?
Yes, because that increase in the supply of gold did not come with a corresponding increase in the accumulation of capital. Money is not capital.
Wilmot of Rochester: As far as velocity being refuted, I'm just going to trust Milton Friedman got it right. I'm not saying you're wrong for disagreeing, but I'm fairly confident that velocity of money exists.
The exchange equation describes a macro effect, but the boom is the result of a micro effect. Milton Friedman ignored all aspects of micro analysis when he treated the money supply, as if the money was received by everybody all at once in exact proportion to his prior income and without any change in their spending and saving habbits. But this ignores the reality that the new money is injected into a particular point in the economy and only gradually cripples (in unexpected and unpredictible ways) throught the entire economy. This process takes time. So if the new money is spent on cars first, it may cause a temporary boom for the car dealers causing an increase in prices in the car industry. This boom is only temporary for as soon as the moeny cripples to the rest of the economy and all other prices adjust, the boom will be end.
Since when do bankers mine? New gold will enter in a more disperse manner, mostly by wage earners of the mint industry.
Jonathan M. F. Catalán: No, but he is at least extremely close to one. He admits that the circulation of fiduciary media would be kept to a bare minimum in a free market for banking.
No, but he is at least extremely close to one. He admits that the circulation of fiduciary media would be kept to a bare minimum in a free market for banking.
And that is a debate amongst free bankers.
Jonathan M. F. Catalán:If the contract is any different, then it is not a demand deposit. Demand deposit contracts are the way they are for a reason; they make warehousing and usage of money much easier than just holding on to your cash and doing the accounting yourself.
You are right, but those are just terms. There isn't any reason why "demand deposit" must mean bailment. As long as the terms and conditions are spelled out in the contract. Scineram basically said it already:
scineram: It could be confusing, but what matters are the actual terms of contract, not how someone calls them. You either agree to the terms or not. Renting a safety deposit box is different from opening a checking account.
It could be confusing, but what matters are the actual terms of contract, not how someone calls them. You either agree to the terms or not. Renting a safety deposit box is different from opening a checking account.
Jonathan M. F. Catalán:I have already made the argument that banks that require the use of option clauses would most likely fall into disfavor with their clients. Obviously, a client who deposited his money in a bank to warehouse it while he thinks on what to spend it on and then suddenly is cut off from his money, because the bank cannot meet his demand (too much fiduciary media being returned for redemption) will probably move to another bank. So, while the option clause may exist as a caveat in a contract, I think that it becomes pretty clear that banks who have to make use of it will not survive for long periods of time.
Fine, I disagree. I'll only make a few brief comments on this. Banks that practice FRB will have a huge advantage over full reserve banks in that they will pay interest instead of charging storage fees. That fact alone makes me doubt them falling into disfavour. Nor, do I think the banks will constantly be at the brink of having to invoke the clause, obviously they are going to only lend at "safe" rates and there are other means to protect their stability and image.
Jonathan M. F. Catalán:You should re-read what I wrote. I didn't say that he's building off The Theory of Money and Credit; I explicitly said that he is probably building off of prior arguments. I will quote myself just so that we're clear: I have not read Marxism Unmasked, and so I am guessing that he is building on opinions established prior to this publication (such as in Human Action or The Theory of Money and Credit). It seems as if your ability to misinterpret extends beyond Ludwig von Mises.
I have not read Marxism Unmasked, and so I am guessing that he is building on opinions established prior to this publication (such as in Human Action or The Theory of Money and Credit).
It seems as if your ability to misinterpret extends beyond Ludwig von Mises.
And I misread you how? I clearly said "I'm not sure how you could" not "I'm not sure how you are."
Jonathan M. F. Catalán:That is a bad metaphor. That is like saying that credit expansion can be good if it's done by the right people. That is not what Ludwig von Mises is claiming at all. It is clear that what he is saying is that credit expansion would be kept to a bare minimum.
Bad metaphor or not, that is whats being said. (See above)
Jonathan M. F. Catalán: You should continue the quote: But under free banking it would have been impossible for credit expansion with all its inevitable consequences to have developed into a regular—one is tempted to say normal—feature of the economic system. Only free banking would have rendered the market economy secure against crises and depressions. Just so that it's clear, credit expansion is still at the heart of "crises and depressions", and Mises still supports the notion that in a free banking environment credit expansion would not just be "slow", but would be extremely limited (admittedly, in this case I might be misinterpreting the use of the word "slow"—I'm not sure if you are meaning to use it in the sense of velocity or using it as a synonymous of "limited". The way it is used seems to imply that credit expansion would continue, just at a slower pace. I don't think that is accurate; Mises is stating that while there may be cases in which superfluous notes are distributed, they would be quickly returned and the supply of money substitutes returned to its previous volume).
You should continue the quote:
But under free banking it would have been impossible for credit expansion with all its inevitable consequences to have developed into a regular—one is tempted to say normal—feature of the economic system. Only free banking would have rendered the market economy secure against crises and depressions.
Just so that it's clear, credit expansion is still at the heart of "crises and depressions", and Mises still supports the notion that in a free banking environment credit expansion would not just be "slow", but would be extremely limited (admittedly, in this case I might be misinterpreting the use of the word "slow"—I'm not sure if you are meaning to use it in the sense of velocity or using it as a synonymous of "limited". The way it is used seems to imply that credit expansion would continue, just at a slower pace. I don't think that is accurate; Mises is stating that while there may be cases in which superfluous notes are distributed, they would be quickly returned and the supply of money substitutes returned to its previous volume).
That beautifully sums up my point. Yes, credit expansion is still at the heart of "crises and depressions" nobody is denying that. That's exactly why the banking system must be left free. Notice, he doesn't utter one sentence about how reserves have to be kept at 100%, and nothing about fractional reserves at all. If he meant to he easily could have said so. And my use of the word "slow" was meant to mean more cautiously, at a market rate. I disagree with you interpretation as he uses both the terms "slow" and "limited" within the same sentence, but I'm not going to divulge this tangent much further.
Jonathan M. F. Catalán: I agree with you that economists such as Murray Rothbard and (please forgive me) Jesús Huerta de Soto (one of my favorite economists, though) are incorrect in supporting forced 100% reserves. In my "article" I concluded with: Admittedly, there should be no legal bar against fractional-reserve banking. The legal question is easily avoidable. Larry Sechrest has a valid point when he states that fractional-reserve banking may arise as a result of offering a better deal to the customer. In other words, the fact that banks issue interest on checking deposits may lure depositors to trust these banks over simple warehouse banks, because the promise of interest in enticing. Is this type of banking tenable over the long-run? There is more, but it simply restates the case I've been making in this thread insofar, so I will skip some parts: Despite these theoretical disagreements between various economists who support free-banking, they can all agree on the fact that the current cartelized banking system must be dismantled and exchanged with one that is free. This includes the freedom to mint coins, or print money, and the freedom from a central bank’s sway. This also includes the freedom to fail. Only by eliminating this bank of last resort can a truly stable banking system evolve and only by these means can society finally enjoy stable economic growth and prosperity. In a free market, poor banking systems would quickly fall out of place and stable accounting measurements come to the forefront. Certainly, on this all free-banking economists can agree.
I agree with you that economists such as Murray Rothbard and (please forgive me) Jesús Huerta de Soto (one of my favorite economists, though) are incorrect in supporting forced 100% reserves. In my "article" I concluded with:
Admittedly, there should be no legal bar against fractional-reserve banking. The legal question is easily avoidable. Larry Sechrest has a valid point when he states that fractional-reserve banking may arise as a result of offering a better deal to the customer. In other words, the fact that banks issue interest on checking deposits may lure depositors to trust these banks over simple warehouse banks, because the promise of interest in enticing. Is this type of banking tenable over the long-run?
There is more, but it simply restates the case I've been making in this thread insofar, so I will skip some parts:
Despite these theoretical disagreements between various economists who support free-banking, they can all agree on the fact that the current cartelized banking system must be dismantled and exchanged with one that is free. This includes the freedom to mint coins, or print money, and the freedom from a central bank’s sway. This also includes the freedom to fail. Only by eliminating this bank of last resort can a truly stable banking system evolve and only by these means can society finally enjoy stable economic growth and prosperity. In a free market, poor banking systems would quickly fall out of place and stable accounting measurements come to the forefront. Certainly, on this all free-banking economists can agree.
Wonderful. You are for free banking (although differ on the expected outcome).
Jonathan M. F. Catalán:I would not, however, call Murray Rothbard a crank. His theoretical insights are valuable. This must be admitted, even if you disagree with him (I disagree with Larry Sechrest and Lawrence White, but that does not make them cranks). Speaking of Larry Sechrest and Lawrence White, their arguments are not that fractional-reserve banking would be kept at a bare minimum. Their argument is explicitely that it would be an acceptable and healthy form of banking, which I disagree with. It is true that they admit that perpetual credit expansion would be impossible, and that it could only occur as long as the issues can be redeemed without conflict of interest, but the major theoretical disagremeents are mainly on the extent of possible credit expansion (this is, at least, what I have read through out White's articles and Sechrest's book Free Banking). Furthermore, the free banking school does not believe that fractional reserve banking is necessarily inflationary, while Mises obviously does. The latter simply believes that the inflation is self-regulating, so that generally if it occurs there are natural checks which cause the money supply to return to its previous volume.
If you read, I never called Murray Rothbard a crank, I called him a "crank. " I even went on to make it clear that I didn't think he was a crank:
Angurse: smokedgoldeye: I sense your acrimony against Rothbard, but alas I don't understand it. Not well read enough I guess! I googled "Rothbard is wrong" and could only find shabby critique of his self-ownership axiom. Could you indulge me with 2 or 3 sentences to summarize the thesis about why Rothbard is a "money crank"? Thanks in advance. To be honest, I very much like Rothbard and appreciate the work he has put forth. Rothbards model of banking is actually quite similar to the free banking model put forth by White, Selgin, and Sechrest, but it is really a "solution to a nonexistent problem." ...
smokedgoldeye: I sense your acrimony against Rothbard, but alas I don't understand it. Not well read enough I guess! I googled "Rothbard is wrong" and could only find shabby critique of his self-ownership axiom. Could you indulge me with 2 or 3 sentences to summarize the thesis about why Rothbard is a "money crank"? Thanks in advance.
I sense your acrimony against Rothbard, but alas I don't understand it. Not well read enough I guess! I googled "Rothbard is wrong" and could only find shabby critique of his self-ownership axiom.
Could you indulge me with 2 or 3 sentences to summarize the thesis about why Rothbard is a "money crank"? Thanks in advance.
To be honest, I very much like Rothbard and appreciate the work he has put forth.
Rothbards model of banking is actually quite similar to the free banking model put forth by White, Selgin, and Sechrest, but it is really a "solution to a nonexistent problem." ...
And you are correct for White and Sechrest, other free bankers disagree with them as well, that doesn't change the point though.
Jonathan M. F. Catalán:Finally, if the first quote was initially included in the thread as a means of proving that Ludwig von Mises was not a supporter of forced 100% reserves then I can admit to not necessarily misinterpreting your posts, but at least driving it off through an off-topic tangent.
No problem.
Jonathan M. F. Catalán:I am surprised that DD5 has not made his case in regards to defrauding the "third party". This was the one criticism of my above stated position on free banking (in the paragraphs quoted), and I was interested in hearing more (this is not a challenge, just a genuine inquiry of interest).
I really don't know how any self-respecting libertarian could pull that argument. Search the site, its been done here before (I think with myself and DD5 actually)
Wilmot of Rochester:So whenever money demand or supply changes a business cycle occurs?That's a tough sell.
Yes, it's a tough sell for anyone who doesn't understand the role of price mechanisms. If you reduce the market rate of interest below the natural rate for an extended period of time, the structure of production will be pulled in all directions, eventually causing a crises. Also, if you push the market rate of interest above the natural rate, you will get artificially depressed prices. It's called economics.
"If we wish to preserve a free society, it is essential that we recognize that the desirability of a particular object is not sufficient justification for the use of coercion."
Wilmot of Rochester:I don't see why that is the case. Why would an increase in the supply of money necessitate first order goods to look more profitable? Is it because an increase in money supply brings a decrease in the interest rate?
It may not.
Wilmot of Rochester:Why is it that only an increase in money unnaturally changes the course of interest rates? If the supply of money increases, does it necessitatate that a "boom" is occurring?
I don't understand this question. Why is it that arbitrarily altering the supply of money in the loanable funds market unnaturally changes the course of interest rates? The answer is in the question.
Wilmot of Rochester:A change in the demand for money, or for how often money will be used, would have a lot to do with interest rates, wouldn't it?
Fluctuations in money demand naturally change the the interest rate... When you artificially suppress the market rate of interest by altering the money supply, you distort this price mechanism--you tell producer's that there's more available resources for their production methods when there isn't.
Wilmot of Rochester: If people use money more or have more of a demand to use and exchange it, then I would expect an increase in money supply at the same pace to be good for economic stability and smooth adjustment of prices to the change in the monetary factor.
How does an increase in paper make anyone wealthier? Do you believe increasing the supply of money creates any real wealth for the economy? Why do you just naturally assume this?
Wilmot of Rochester:As far as velocity being refuted, I'm just going to trust Milton Friedman got it right. I'm not saying you're wrong for disagreeing, but I'm fairly confident that velocity of money exists.
It doesn't, money is never exchanged for money, ever.
I'm not for a 100% reserve rate, but there are some very serious problems here.
Jonathan M. F. Catalán: Wilmot of Rochester: Why would the creation of dollars be any different than the increase of gold? Either way, money in the economy is increasing and, according to the theory, the interest rate is changing. Why is gold special? Gold is introduced when the demand for gold specie in circulation (" in pockets") increases. This is demand for money. Fiduciary media is not a response to a demand for money, but a response to demand for capital. While a demand for money will be used to fund lower order goods, capital is used to fund higher order goods.
Additional fiduciary media in the form of banknotes or deposit accounts is issued by a bank in response to a decrease in its clearings. Less clearings means there is an increased demand for its liabilities, banknotes or deposit accounts.
Angurse:And that is a debate amongst free bankers.
Which free-bankers?
You are right, but those are just terms. There isn't any reason why "demand deposit" must mean bailment. As long as the terms and conditions are spelled out in the contract.
I agree, but the terms of current contracts are actually very clear. I feel that you do not have accurate knowledge on the existing deman deposit contracts. What you are basically saying is that if the contract is spelled out, then the bank's actions are justified. But, you ignore that the contract is spelled out, and that based on the terms of said contract the bank's actions are not justified.
Fine, I disagree. I'll only make a few brief comments on this. Banks that practice FRB will have a huge advantage over full reserve banks in that they will pay interest instead of charging storage fees.
Up until they fail, of course. A recurring issue in this free banking argument is the attempt to make one point, without considering the effects of another.
No, it's not. I'm not sure why you make these assertions, and then fail at backing them up. I will simply restate what you quoted, since it was not even addressed. " That is not what Ludwig von Mises is claiming at all. It is clear that what he is saying is that credit expansion would be kept to a bare minimum."
I'm not sure you have an accurate interpretation of the free-banking school's argument.
Of course. You are mistaking theoretical disagreement for a debate on free banking versus 100-reserves.
Then perhaps you should clarify your " free banking" solution, since it does not seem to coincide with the free banking arguments put forth by the most prominent members of this school (e.g. White, Selgin, Dowd, Sechrest, etc.).
Jonathan M. F. Catalán:Which free-bankers?
Most obviously those who agree with Mises and those who do not.
Jonathan M. F. Catalán:I agree, but the terms of current contracts are actually very clear. I feel that you do not have accurate knowledge on the existing deman deposit contracts. What you are basically saying is that if the contract is spelled out, then the bank's actions are justified. But, you ignore that the contract is spelled out, and that based on the terms of said contract the bank's actions are not justified.
I haven't seen every single contract currently in existence so how could I? You are confusing my (brief) theoretical defense of fractional-reserve banking and the current monstrosity. I haven't defended the current system whatsoever.
Jonathan M. F. Catalán:Up until they fail, of course. A recurring issue in this free banking argument is the attempt to make one point, without considering the effects of another.
Assuming they will fail.
Jonathan M. F. Catalán:No, it's not. I'm not sure why you make these assertions, and then fail at backing them up. I will simply restate what you quoted, since it was not even addressed. " That is not what Ludwig von Mises is claiming at all. It is clear that what he is saying is that credit expansion would be kept to a bare minimum."
I've addressed that multiple times now. I think you are confusing my own brief defense of FRB (which only came forth do to your missing my original point) with my argument that Mises was for free banking (my original intention). I haven't argued that Mises was a proponent of FRB, just that he thought it would be safest within free banking. (Which directly contrasts the full-reservists).
Angurse:I'm not making an argument for FRB, I merely arguing that Mises wasn't a 100% reservist. You seem to be assuming that I'm arguing that he thought FRB would succeed in a free market, even if that wasn't true that still isn't the point.
Angurse:And that is the same basic argument that all free bankers use. Regardless, he makes my point about him not being a "crank" a la Rothbard, as he clearly isn't demanding 100% reserves, hes advocating Free Banking.
I really don't know what else you want. How many times need I say, "I'm not arguing that Mises was for FRB, just that he wasn't a full reservist" before you realise that I'm not arguing that Mises was for FRB, just that he wasn't a full reservist?
Jonathan M. F. Catalán:I'm not sure you have an accurate interpretation of the free-banking school's argument.
More or less, "a system free banking can render the market economy secure against crises and depressions." The school itself varies, but that seems to be the underlying theme.
Jonathan M. F. Catalán:Of course. You are mistaking theoretical disagreement for a debate on free banking versus 100-reserves.
You mistook my only point (directed toward DD5) on Mises being a free banker and not a 100% reservist as being something more, like a theoretical debate. I don't think making the error here.
Jonathan M. F. Catalán: Then perhaps you should clarify your " free banking" solution, since it does not seem to coincide with the free banking arguments put forth by the most prominent members of this school (e.g. White, Selgin, Dowd, Sechrest, etc.).
I haven't put forth a free banking solution at all. That isn't my intention. All I did was make a point about Mises that you seem to repeatedly overlook.
If it has come down to simply "free banking should be free banking, not regulated banking under the veneer of freedom (100-percent reserves)", then point conceded. That said, you didn't read the contract that you signed when you opened a demand deposit with your bank?
Jonathan M. F. Catalán:That said, you didn't read the contract that you signed when you opened a demand deposit with your bank?
Even if I had or hadn't, I don't see the relevance.