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Re: Mises University 2011 made me interested in reading Free Banking theory.

Isaac "Izzy" Marmolejo — Wed, 03 Aug 2011 19:51:56 GMT

calling it mumbo jumbo is absurd... that is like saying something like, "yeah right, if you think the market is going to give decent wages to workers, this is just a whole bunch of mumbo jumbo." But Selgin and White do go into further detail on this topic on the 'We are not Devo(lutionists), We are Misesians' article...

Tanstaafl:
And just to be clear, I would not take a position that FRB should be made illegal nor that 100% reserve should be instituted by force. If people understand the risks involved in FRB'ing and want to deposit their money they should be free to do so.

understood, the debate is not really about if FRB should be abolished in a free society by force, it is about if FRB is efficient to last under a free society

Tanstaafl:
I would also argue that you are wrong in who is bearing the risk. Whose capital is at stake? The entrepreneur who owns the bank, or the deposits of his creditors? Capitalization requirements for banks are so low that not only can the entrepreneur easily be wiped, so can the depositors. Both parties bear risk and I believe that the depositors in most situations have no idea the risk they are really bearing. Thus my questioning of whether FRB'ing would exist if enough people truly understood how it works.

The entrepreneurs capital is at stake, just like in any other business... there is little to no risk to the depositor... I understand your concern about whether FRB would exist if people actually knew how it works because your interpretation of FRB is from Rothbard view or deSotos view but such views are wrong interpretations on FRB. Selgin and White have responded to most criticisms but most people still want to say the same old criticisms towards FRB, which is why Selgin gets very frustrated at times because he has spent much time and energy already answering them...

Re: Mises University 2011 made me interested in reading Free Banking theory.

TANSTAAFL — Wed, 03 Aug 2011 19:27:44 GMT

Izzy,

Let me make sure I am understandin your position. Because the bank does not explicitly guarantee to hold all of your deposit in reserve there is no fraud committed unless they fail to return your deposit on demand?

I am sorry but that sounds like a bunch of legaleze mumbo jumbo to me.

And just to be clear, I would not take a position that FRB should be made illegal nor that 100% reserve should be instituted by force. If people understand the risks involved in FRB'ing and want to deposit their money they should be free to do so.

I would also argue that you are wrong in who is bearing the risk. Whose capital is at stake? The entrepreneur who owns the bank, or the deposits of his creditors? Capitalization requirements for banks are so low that not only can the entrepreneur easily be wiped, so can the depositors. Both parties bear risk and I believe that the depositors in most situations have no idea the risk they are really bearing. Thus my questioning of whether FRB'ing would exist if enough people truly understod how it works.

Re: Mises University 2011 made me interested in reading Free Banking theory.

DD5 — Wed, 03 Aug 2011 15:57:39 GMT

Selgin:
if it is contrary to a wealth of evidence.

What constitutes historical evidence according to you? The conclusions are your own based on your own interpretations of the raw data collected. Such is the limitations of alleged "historical evidence". There are other interpretations of this evidence which contrary to your claim, White or you do not adequately address anywhere in my opinion. (See Hulsmann for example who has written extensively on this issue). But even White concedes the point that Banking in Scotland was not totally free, but then proceeds to make the argument that it was free enough to prove his case.

Every time without exception the free bankers bailout of the praxeological based argument and resort to this historical "evidence". There is always some point in the argument where it seems you run into a brick wall in logical argumentation and you resort to things like: 'well, history proves otherwise', or the "courts have consistently ruled in favor of......". To me, this demonstrates that the "free banking" argument rests on very shaky praxeolgocial grounds.

Re: Mises University 2011 made me interested in reading Free Banking theory.

Isaac "Izzy" Marmolejo — Wed, 03 Aug 2011 15:51:54 GMT

@Tanstaafl

no no no... what the free banking position is this : once you take a reserve and hand it to bank X, Bank X would give you a piece of paper that face value equal to the reserve. Now the piece of paper will say something like "Reserves are payable on demand." Now obviously, if you go into the bank one day and hand over the piece of paper for the reserve, and the bank refuses to give it to you, that is fraud. But the practice of FRB is not fraud.. there is no where on that sheet of paper that says anything like "we will hold the exact same reserve for you in the bank." Now there are market solutions that deal with when a bank doesn't have enough reserves to cover the exchange, which if you wanted to know the solutions, read the books/articles ( which some are online). Also, the main risk bearer is not the person who put their reserve in the bank, but the entrepreneur who owns the bank, for he is the one who experiences the loss if he speculates wrongly...

Would the FRB system exist if they understood how it really works?

Well that is hard to say, since most people here have absolutely no knowledge of how they work... most people here would just rather read what Rothbard had to say about it or read de Sotos book and wouldnt even bother to see what the other side of the debate had to say. I think most people here would accept FRB, if they actually took the time to read up on it and put some thought into it.

Re: Mises University 2011 made me interested in reading Free Banking theory.

TANSTAAFL — Wed, 03 Aug 2011 13:56:41 GMT

What is more important, legal precedent and definition of instruments or the actual 'mechanistic' function of the instruments?

I think you are splitting hairs with words and definitions. Under any fractional reserve system, by whatever legal definition of the instruments involved, how can you deny that a fraud is being committed when the facts are if everyone who held the notes issued in excess of the reserves cannot collect on demand what they have a claim to?

With that said, I would agree that there is no fraud if all parties involved understand the risk involved in fractional reserve banking, that they may not be paid on demand, but the problem is that the layman has no clue how fractinal reserve banking really works.

Would fractional reserve banking exist if enough people actually understood how it really works?

Re: Mises University 2011 made me interested in reading Free Banking theory.

Selgin — Wed, 03 Aug 2011 13:17:39 GMT

Much bluster and bravado, but no argument. I hope readers will take up your suggestion that they read White, for there they will see just how misplaced Rothbard's claims about Scotland were. For example, they will find that there is absolutely no truth to his claim that Scottish banks relied on the Bank of England as a lender of last resort.

Whether you regard yourself as one or not, it takes a devoted Rothbardian to conclude that Rothbard knew more about the Scotttish banking system, or was a more meticulous and responsible scholar, than Larry White.

Re: Mises University 2011 made me interested in reading Free Banking theory.

z1235 — Wed, 03 Aug 2011 12:51:13 GMT

Selgin, for someone claiming to be no X-ian you sure love throwing loads of Y-ian labels around. While I disagree with Rothbard on many things, I think he's spot on regarding FracR banking. As I've said before, I have no pony in this race other than my selfish enlightenment. Like you, I'm mostly z1235-ian.

White's "rebuttals" in Ch.3 of his 2nd edition are so poor that the reader is often left wondering about the side he's actually defending. I invite anyone interested to read it (pg.45-62) and judge for themselves.

I'll let your tedious referrals to your non-existent rebuttals speak for themselves, as well.

Re: Mises University 2011 made me interested in reading Free Banking theory.

Selgin — Wed, 03 Aug 2011 09:48:52 GMT

Indeed, my syntax leaves a lot to be desired. I ought to have written "and who therefore isn't incapable of beng swayed by logic" etc. Sorry!

Re: Mises University 2011 made me interested in reading Free Banking theory.

DanielMuff — Wed, 03 Aug 2011 07:15:30 GMT

It's certainly confusing. Also, I don't think Selgin proofreads many of his posts, which could lead to misunderstandings.

Re: Mises University 2011 made me interested in reading Free Banking theory.

Zachary Plaxco — Wed, 03 Aug 2011 07:08:12 GMT

Oh lord. My mistake. Forgive me hahaha I still can't believe I missed that.

Well, after reading it again, it could be the other way around, but I could see where the confusion comes from.

Re: Mises University 2011 made me interested in reading Free Banking theory.

DanielMuff — Wed, 03 Aug 2011 06:36:44 GMT

Re-read the passage I quoted.

EDIT: He said that those reading his thread who aren't die-hard Rothbardians are incapable of being swayed by logic and facts. But I don't think that's what he meant.

Re: Mises University 2011 made me interested in reading Free Banking theory.

Zachary Plaxco — Wed, 03 Aug 2011 06:01:00 GMT

Daniel can you name any people who you would call "die-hard Rothbardians" that also support the historical evidence of free banking's success?

Re: Mises University 2011 made me interested in reading Free Banking theory.

DanielMuff — Wed, 03 Aug 2011 04:24:52 GMT

Selgin:
[...] for the sake of anyone reading this who isn't a die-hard Rothbardian, and therefore incapable of being swayed by logic or facts[...]

I don't think you meant that.

Re: Mises University 2011 made me interested in reading Free Banking theory.

Selgin — Wed, 03 Aug 2011 03:36:44 GMT

Another tedious characteristic of Rothbardians is theirfondness for repeating false arguments even after they have been rebutted again and again. But for the sake of anyone reading this who isn't a die-hard Rothbardian, and therefore incapable of being swayed by logic or facts, centuries of experience show that banknotes are perfectly capable of circulating at par despite being backed with only fractional reserves, and without any propping-up by the state of any kind. Scottish banknotes fir the bill, for instance, despite tiny reserve ratios. And don't even think of bringing up Rothbard's supposed "proof" that Scotland dependent on the Bank of England: it's been tried many times on this same forum, and bringing it up again only serves to reveal either ignorance of or willful refusal to recognize White's thorough rebuttal of Rothbard's arguments in the 2nd ed. of Free Banking in Britain.

As for what Mises may have thought, it doesn't impress me, and ought not to impress anyone, if it is contrary to a wealth of evidence. (Oh yeah, another Rothbardian habit: never refer to evidence if you can cite a passage in Mises instead. Remind you of any other group?)

Re: Mises University 2011 made me interested in reading Free Banking theory.

z1235 — Wed, 03 Aug 2011 03:14:26 GMT

Selgin:
But if the paper merely says that the bank "will pay the bearer X ounces of gold on demand," it is a debt obligation only.

Whether such paper was issued/signed by a "bank" or by your broke neighbor Joe, its value (discount to actual X ounces of gold) will reflect the market's perception about the amount of such paper and the "bank's"/Joe's actual gold available for payout on demand. As I said, the free market would treat the broke "bank" just like it would treat broke Joe. The only way FracRB "banks" could receive full (par) valuation for their paper notes by the market, is if the prince and his thugs enter the picture -- hence, a central bank and legal tender laws.

Both theoretically (logically) and empirically, the inherently unstable FracRB inevitably converges to either (1) a central bank, or (2) FullRB. I believe this was Mises' conclusion, as well.