I understand their argument about how it could be legally and morally permissable to allow banks to offer FRB, but does anyone here understand their practical argument? Can someone explain why they think issuing fiduciary media can benefit society as a whole over a long-term time period?
It seems to me it is simply based upon preference, but as Hoppe, Block, and Hulsmann rebut, preference is not indicative of social benefit when the preference is a violation of property rights.
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Selgin:Your last point is simply playing on the ambiguity of the term "available." It's a lawyer's way of reasoning.
It seems to me that the equivocation in question is not permitted by defenders of full reserve banking but advocates of fractional reserves.
"You don't need a weatherman to know which way the wind blows"
Bob Dylan
if a bank was a parking lot then it would not be an analogy but a straight explanation. !shocker!
no, you miss the point, they can not promise to have the cars on hand when they are claimed if they are also making it clear that the cars are lent out when the bank expect them not to be demanded. the best the carpark could do is say if we have your car when you want it then you can have it, if we have it out on loan you cant.
the analogy i cited that others have referenced Block as having used is a perfectly good analogy since it explains how FRB banks operate now, by obfuscating the nature of the contracts between themselves and their customers. If banks that wanted to multiply credit were clear and concise in their contracts then their practice would be as legitimate as any gambling instiution.
Where there is no property there is no justice; a proposition as certain as any demonstration in Euclid
Fools! not to see that what they madly desire would be a calamity to them as no hands but their own could bring
Most of you are reducing FRB to a Ponzi Scheme, which is indeed fraud. You are acting like the bank has only its fractional gold reserves on its balance sheet, and it would be incapable of meeting any redemption demand above those reserves. This is not true. It has plenty of other assets, which it can sell for gold. It is up to the bank to predict redemption demand, asset values, etc to operate successfully.
The only times I feel FRB is actually fraud is wildcat banking (a true Ponzi scheme), when the bank advertises itself as holding 100% reserves, or when the bank advertises its money substitutes as property titles to gold.
But I think everyone is missing the bigger point, which is that fractional reserve banks that operate in a manner where their assets will not perform well enough to cover their liabilities will quickly go out of business. Successful banks do not operate on the necessity that redemption demand is always decreasing. Bank runs against poorly-managed banks are good. In a freely competitive environment, banks best capable of setting interest rates and making investments that avoid the business cycle and managing reserves so that they can cover redemption demand will be the survivors, not the wildcats.
To put this in a car lot metaphor, some car lots would offer guaranteed spots, others would offer access to the lot without a guaranteed spot. Neither are fraudulent unless they purposefully violate those terms - such as guaranteeing its customers more parking spots than it actually owns. Such is how it could be with FRB and full reserve banking. Why not let individuals decide which system they prefer? And even further, to choose the provider of the preferred system.
For example, even if I prefer a lot that doesn't guarantee a spot, I may prefer a lot that more frequently has open spots to one that doesn't, especially if they are the same price and equally close to my destination. The real problem is if there is only one car lot. It does not matter if it guarantees spots or not - it will generally be ineffectively priced, maintained, etc. This is like the central bank. Even if the FED were 100% reserve, it may charge banks too much or too little for its notes, creating general inefficiency with shortages and surpluses, distorting interest rates and credit allocation.
meambobbo:Most of you are reducing FRB to a Ponzi Scheme, which is indeed fraud. You are acting like the bank has only its fractional gold reserves on its balance sheet, and it would be incapable of meeting any redemption demand above those reserves. This is not true. It has plenty of other assets, which it can sell for gold. It is up to the bank to predict redemption demand, asset values, etc to operate successfully.
this is way of making good is still a gamble. gambleing is legitimate ( unless the casino or your coupons in the mail tell you you are already a winner just pay ....)
Selgin: A bank isn't a parking lot, so Block's analogy proves nothing. If, on the other hand, people who left their cars in parking lots also were made awar that the cars might be driven in their absence, and that the lot's only obligation was to have their cars on hand when when their owners returned, then the driving of the cars in the meantime wouldn't constitute fraud, would it? Your last point is simply playing on the ambiguity of the term "available." It's a lawyer's way of reasoning.
A bank isn't a parking lot, so Block's analogy proves nothing. If, on the other hand, people who left their cars in parking lots also were made awar that the cars might be driven in their absence, and that the lot's only obligation was to have their cars on hand when when their owners returned, then the driving of the cars in the meantime wouldn't constitute fraud, would it?
Your last point is simply playing on the ambiguity of the term "available." It's a lawyer's way of reasoning.
Here is a real example from real life:
I buy Gold bullion from a Gold vendor (like from Apmex.com or whatever) for speculation in the hope that Gold will rise in the future. Since the seller offers as a service to buy back the Gold in the future, say he now decides to offer a new service of storage. The seller now offers to store it for me in his safe deposit, and instead, he sends me a claim ticket. I can redeem this ticket for the real Gold anytime I want. I am assured that it is safely stored in their safe. Since most people buy Gold to sell it at some point in the future, this can be much more convenient and efficient. Instead of receiving the physical bullion, storing it myself in a safe deposit, and shipping it back to the seller in the future, I can now buy and sell real physical Gold instantaneously.
The Vendor realizes that most of the claim tickets are never exchanged for the real Gold since the main utility of the gold is "demand to hold" for speculative reasons. He then decides to issue more tickets then actual Gold. He has now become a Fractional Reserve Gold vendor, hasn't he? Are you going to make the case that this is not fraud? Do you realize that the Gold seller is now artificially inflating the Gold supply and lowering it's value? Is he not robbing the Gold owners of their value?
I also hope you will respond to Rothbard's "The Myth of Free Banking in Scotland", because you are heavily basing your argument on the notion that a free market would allow FRB to flourish based on Scotland.
nirgrahamUK:the analogy i cited that others have referenced Block as having used is a perfectly good analogy since it explains how FRB banks operate now
No, it isn't...
Cars aren't commodities. You go to the bank and demand ANY gold, because its a commodity. You go to the parking lot and demand YOUR car, because it is unique. If the parking lot could simply give you ANY car, it suddenly seems easy to understand how a parking lot can operate in such a manner.
And when an institution fails to meet its liabilities it goes bankrupt and owes its assets to the creditor. In this case, it could not provide you with ANY car as stated in its liabilities, so all their customers still without a car now own the parking lot.
You act like the bank says, "We ran out of gold. Tough." If depositors stood to lose so much, they would never put money in fractional reserve banks. If banks had to take loan defaults on the chin like that, the credit market would be insignificantly small. In reality, the bank's assets are its collateral against default, which makes bank runs rare events, especially when banks are healthy, as they should be when subjected to free competition.
ok, the analysis hold under a carpark owned by a crazy guy who only admits owners of porsche 911 who's cars were produced in 2000 and who leave no valuables or personal effects
p.s. your point about the 'fungability' of the property in question, whilst at first glance seems to add plausability to your argument, on deeper analysis merely shows itself as a further tool of obfuscation allowing the bankers to give the illusion that they are not creating contradictory contractual arrangements (at the expense oftheir customers)
meambobbo: Even if the FED were 100% reserve, it may charge banks too much or too little for its notes, creating general inefficiency with shortages and surpluses, distorting interest rates and credit allocation.
Even if the FED were 100% reserve, it may charge banks too much or too little for its notes, creating general inefficiency with shortages and surpluses, distorting interest rates and credit allocation.
Did anybody here say they wanted a FED with 100% reserve?
DD5:I buy Gold bullion from a Gold vendor
DD5:He then decides to issue more tickets then actual Gold.
This is clearly fraud. He is explicitly selling property titles to nonexistant gold. His storage service is also fraud, because he is not storing your non-existant gold that was fraudulently sold to you...because storing something that doesn't exist is impossible.
Fractional reserve banks' account credit and bank notes aren't property titles. If represented as such, then yes, the bank is operating on a basis of fraud.
The courts have determined they're a loan, and banks are not misrepresenting them as property titles. It's ugly that the courts are part of a monopolistic anti-free-market body, but that doesn't mean that their conclusions are by default incorrect. But more importantly, the courts explicitly made it to future bank customers that its deposits were not property titles, but loans. The business of FRB went on.
The only question is if the loan contracts are invalid, such as lending someone's free will, or lending property that one does not own.
It is clear that depositors own the gold they deposit, and are thus legally capable of loaning it.
Can loans be made with a termination period specified as the demand of one of the parties? I believe the free market answer is "Yes". Can loan contracts can be transferred from one party to another. As long as the original contract did not prohibit such, I believe the free market answer is "Yes".
nirgrahamUK:ok, the analysis hold under a carpark owned by a crazy guy who only admits owners of porsche 911 who's cars were produced in 2000 and who leave no valuables or personal effects
I will fully admit that a car lot operating as such could still find customers attempting to reacquire their cars, only to find no cars in the lot. But this seems like the explicit risk the car owners took when they agreed to loan their cars to the parking lot.
And given enough parking lots operating identically with free competition, it would indeed be a rare event for a parking lot to mismanage itself to the point where it just gave its parking lot away to its customers to whom it still owes cars.
meambobbo:The courts have determined they're a loan, and banks are not misrepresenting them as property titles. It's ugly that the courts are part of a monopolistic anti-free-market body, but that doesn't mean that their conclusions are by default incorrect. But more importantly, the courts explicitly made it to future bank customers that its deposits were not property titles, but loans. The business of FRB went on.
Is it just me or have you done a 180?
Now, ignoring the obfuscation involved with the language used by banks, the fact of the matter is if a depositor makes a contract with the bank intending to create a demand deposit and the bank treats the contract as if it were a time deposit the contract is void. So even granting the legitimacy of the state's verdict in regard to FRB, it's still not legitimate.
DD5:Did anybody here say they wanted a FED with 100% reserve?
I just want to make it clear that I do not favor such. We would clearly be better off with a commodity money standard. I was simply trying to illustrate that banking competition factors into the efficiency of banking, and that it is partially eliminated when ANY FORM of central bank is given a monopoly on note issue or what constitutes commercial bank reserves.
GilesStratton: meambobbo: The courts have determined they're a loan, and banks are not misrepresenting them as property titles. It's ugly that the courts are part of a monopolistic anti-free-market body, but that doesn't mean that their conclusions are by default incorrect. But more importantly, the courts explicitly made it to future bank customers that its deposits were not property titles, but loans. The business of FRB went on. Is it just me or have you done a 180?
meambobbo: The courts have determined they're a loan, and banks are not misrepresenting them as property titles. It's ugly that the courts are part of a monopolistic anti-free-market body, but that doesn't mean that their conclusions are by default incorrect. But more importantly, the courts explicitly made it to future bank customers that its deposits were not property titles, but loans. The business of FRB went on.
February 17 - 1600 - Giordano Bruno is burnt alive by the catholic church. Aquinas : "much more reason is there for heretics, as soon as they are convicted of heresy, to be not only excommunicated but even put to death."
Juan: GilesStratton: meambobbo: The courts have determined they're a loan, and banks are not misrepresenting them as property titles. It's ugly that the courts are part of a monopolistic anti-free-market body, but that doesn't mean that their conclusions are by default incorrect. But more importantly, the courts explicitly made it to future bank customers that its deposits were not property titles, but loans. The business of FRB went on. Is it just me or have you done a 180? Indeed. He seems to be channeling MaxLiberty. Disappointing.
Well, if so, that's a shame since ML's suggestions would only be possible in the evenly rotating economy, not in the real world.