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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meambobbo: 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.
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GilesStratton:Is it just me or have you done a 180?
To be honest, I'm not sure. I'm in the middle on this one. I have always thought the Rothbardians had a good case, but right now I am persuaded by Selgin/White.
GilesStratton:So even granting the legitimacy of the state's verdict in regard to FRB, it's still not legitimate.
I was really just trying to show that it was explicitly made clear to the public that their deposits were loans, not titles. So arguing that you were fraudulently given a loan contract instead of a property title seems to be a poor defense, unless you can prove the bank stated it was offering otherwise. I don't believe any state courts' decisions are "legitimate"; however, they are not necessarily in disagreement with a conclusion of a free market court.
GilesStratton: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.
To me, the only difference between a demand deposit and a time deposit is that a demand deposit specifies its termination at the will of the depositor, whereas a time deposit uses a firm date. It doesn't matter how the bank treats them; only that it fulfills them. If the bank treated the time deposit as a demand deposit, and paid out its due on the termination date, would you consider that contract void? I wouldn't; however, I don't think it would make financial sense for the bank to borrow money to sit on it (assuming that's the proper way to treat dem deps), paying the interest due out of its own pocket.
nirgrahamUK:Federal Deposit Insurance Corporation (FDIC)
So the FDIC added stability to FRB, or was it banking regulations that made FRB's unstable? Were Canada's banks practicing FRB during the Great Depression? Because not a single one failed, which many economists attribute to the lack of regulation, specifically the restrictions on branch banking that were in place in America. Also, was it FRB's instability that caused the bank runs, or the government's sporadic attempts at bank holidays and intentions of devaluing the dollar in terms of gold?
Juan: krazy kaju:Schumpeter had a point when he said that new credit created by fractional reserves promote innovation. Whoa. Does the fed run a forum or a mailing list or something ? Because the Mises forum is getting kinda weird. Maybe I should break a few windows to spur innovation in the windows industry ? (not sure if I should laugh or cry...)
krazy kaju:Schumpeter had a point when he said that new credit created by fractional reserves promote innovation.
Where did I state the broken window fallacy? Where did I support the Federal Reserve? Are you against freedom? Are you a statist? Are you a fascist? Do you want to forcefully prevent voluntary contracts between free people?
GilesStratton:I'm going to have to ask the obvious question, how?
According to Austrian theory, the new credit goes into long term projects. Long term projects overwhelmingly tend to be based on new technologies. Take the railroad boom in the late 1800s and the dot com and telecom boom in the late 1990s and early 2000s as an example of this.
I also think that bubbles would be on a much smaller scale due to a lack of government intervention propping them up and blowing them bigger.
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Juan:Indeed. He seems to be channeling MaxLiberty. Disappointing.
I hope to dear God I haven't gone that far. I hope I am presenting my arguments in a logical manner. I hope I have avoided anything resembling personal attack.
If my hopes are in vain, I sincerely apologize. I can't stand ML.
meambobbo:To be honest, I'm not sure. I'm in the middle on this one. I have always thought the Rothbardians had a good case, but right now I am persuaded by Selgin/White.
I've read this pdf at least twice before. I remember searching for the method to their madness, only it is nowhere to be found.
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."
meambobbo: I understand their argument about how it could be legally and morally permissable to allow banks to offer FRB,
I understand their argument about how it could be legally and morally permissable to allow banks to offer FRB,
Legally yes! Anything can be made legal, including rape. morally? sorry but monetizing debt is an involuntary transfer of wealth (via inflation) to the lenders. Do White or Selgin deny that too?
meambobbo: 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?
If I understand White correctly, he keeps arguing that FRB flourishes under a free banking system, which proves (since he believes in the efficiency of the market) that it is productive. The problem is that he, as well as Selgin, is basing this on Scotland. But as Rothbard pointed out in the "Myth of Free Banking in Scotland", there was no free banking in scotland.
So I've asked Selgin to please respond to that refutation by Rothbard. If he can't successfully debunk it, then he should reconsider his stance. If he can, then we should consider our stance or at least admit that they have a point. But I seriously doubt that he or white are able to debunk it.
so the government sanctioned gamblebanking, and you say "look everyone is still banking, so they must be accepting the gamble". but really they understood they are insured from losses, the losses are socialised and pased on to 3rd parties. its not a demonstration that FDIC makes anything more or less stable.
it certainly makes depositing money into a gambling account where you cant lose (BUT TAXPAYERSLOSE) more attractive, than if it were a gambling account where you could lose, is it not so?
meambobbo:I hope I have avoided anything resembling personal attack.
White responded to it at some length long ago. Alas, his reply is only available in hard copy. The reference is: "Banking Without a Central Bank: Scotland Before 1844 as a 'Free Banking' System," in Forest Capie and Geoffrey Wood, eds., Unregulated Banking: Chaos or Order? (London: Macmillan, 1991): 37-62. White also responds to Sechrets's Cato Journal critique in the same issue (Winter 1991). Unfortunately, the response isn't included in Cato's pdf version!
The best criticism of their position is in the second last chapter of Huerta de Soto's treatise, the Hoppe, Huelsmann, Block critique is also quite good, but I think you've indicated that you've read it.
meambobbo:I was really just trying to show that it was explicitly made clear to the public that their deposits were loans, not titles. So arguing that you were fraudulently given a loan contract instead of a property title seems to be a poor defense, unless you can prove the bank stated it was offering otherwise. I don't believe any state courts' decisions are "legitimate"; however, they are not necessarily in disagreement with a conclusion of a free market court.
Well, correctly construed, the holder of an FRB note or demand deposit is in the same position as the holder of a lottery ticket, unless this is explicitly stated their is either a good case for fraud, if not an error in negotiation in either case the contract is void and FRB still cannot be justified, much less considered in accordance with the free market.
meambobbo:To me, the only difference between a demand deposit and a time deposit is that a demand deposit specifies its termination at the will of the depositor, whereas a time deposit uses a firm date.
Well for one thing there is no term specified in a demand deposit, whereas the must be, by its nature, in a loan (time deposit), so this makes it clear that most people who enter into contracts really do believe that they are making a demand deposit, not making a loan to the bank. The fact of the matter is that if there has been an error in negotiation the contract is not legitimate, as is almost certainly the case with the banking system as it today exists. Now, as for the economic difference, in a loan present goods are exchanged for future goods and therefore, ceteris paribus, there should be an interest payment. So to say that there is no difference between the two seems odd to me.
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Ok I'm going to have to come back in here. This is getting bunged down in technicalities.
(1) The "demand for money" point is no point at all. There is an infinite demand for money (savings) for investment projects. There is a scarce amount of savings to be doled out. This is regulated by the price system. It is directly analogous to any other market. There is an infinite demand for fruit, there is a scarce supply of fruit. Who gets the fruit is regulated by the price system? Even ignoring the vital next point, this is how the market should be allowed to run.
(2) Creating money does not create any more savings. Instead, it gives the appearance of there being more savings. This is inevitably revealed, and far from this expansion allowing extra investment and an increase in the capital stock, instead it leads to a distortion in the nation's capital stock (moving it out of line of producer-consumer preferences) and much of this is wasted - this is revealed in the inevitable bust - and it is found that entrepreneurs and businesses were fooled by the apparently high savings into investing in an overly roundabout structure of production.
(3) A deposit bank is supposed to look after one's money. The ownership of the money, despite its location, is still in the hands of the original owner. All the banker is licensed to do is protect it, and he will be paid to do so. So doing anything with it is a violation of the real owner's property right on the money.
The difference between libertarianism and socialism is that libertarians will tolerate the existence of a socialist community, but socialists can't tolerate a libertarian community.
krazy kaju:According to Austrian theory, the new credit goes into long term projects. Long term projects overwhelmingly tend to be based on new technologies. Take the railroad boom in the late 1800s and the dot com and telecom boom in the late 1990s and early 2000s as an example of this.
To borrow from Kinsella "So what?".
Whether or not new technology is used once you understand the rate of interest has been pushed below what it would have otherwise been it is clear that the capital structure is no longer in accordance with consumer preferences. So whilst you may be able to create more physical capital, the value of that capital is less than it would have been without the FRB induced "boom".
Thedesolateone:(1) The "demand for money" point is no point at all. There is an infinite demand for money (savings) for investment projects. There is a scarce amount of savings to be doled out. This is regulated by the price system.
First off, money and savings are not the same thing. Secondly, Rothbard has disposed of this nonsense, there is not an infinite demand for money any more than there is for any other good. To say so would be silly.
krazy kaju:Are you against freedom? Are you a statist? Are you a fascist? Do you want to forcefully prevent voluntary contracts between free people?