Economics Questions

Re: Questions regarding 100 percent reserve banking

cret — Thu, 20 May 2010 07:33:48 GMT

i thought that i read that the govt destroyed the free baks described here. i dont know.

but if other historical descriptions of bank runs and difficulties getting specie and laws allowing the suspension of redemptioon are true it seems there was a nmarket preference for the not to have what it says. very often it seems that that was precioous metal coin.

Re: Questions regarding 100 percent reserve banking

cret — Thu, 20 May 2010 07:30:30 GMT

" It is also why it would be far better to suffer a one-shot deflationary contraction of the fraudulent fractional-reserve banking system, and go back to a sound system of 100% reserves."

this appeared in mises sites. i am unaware if it is true. was there a system of 100 percent reserves to go back to??

is the above false???

if there was, how did it differ from today and was it problem free from a banking perspective??

Re: Questions regarding 100 percent reserve banking

cret — Thu, 20 May 2010 07:26:32 GMT

very low reserve rations...

do you mean ratios???

Re: Questions regarding 100 percent reserve banking

cret — Thu, 20 May 2010 07:24:31 GMT

"Your contention then is, that the operation of an FRB can be stable (and desirable) in some conditions in the free market, which is where we so far differ, adding that it may have undesired consequences as noted above..."

i dont know the selgin or if what he writes is true or correct.

does a 100 percent reserve bank gurantee against something that a fractional resreve bank by its nature cannot??

my feeling is that a 2 percent bank note note in an aberden bank would likely be less valuable in brighton than a known fully backed gold or silver note.

discount after discount after discount. contract to me ,the next guy then the next ...i suppose it has happend where the bank note that was a contract gets farther and frather away from the orignal signers.

it just seems like a self limitiung process that..i thoght thats what the rothbard wrote about.

Re: Questions regarding 100 percent reserve banking

scineram — Fri, 14 May 2010 23:56:57 GMT

Good Money

Re: Questions regarding 100 percent reserve banking

Caley McKibbin — Thu, 13 May 2010 07:29:53 GMT

What book is this from?

Re: Questions regarding 100 percent reserve banking

laminustacitus — Thu, 13 May 2010 04:16:17 GMT

hayekianxyz:
Maybe you should take a course in money & banking. It's cool though, Dr Selgin teaches on I believe.

I second this.

Re: Questions regarding 100 percent reserve banking

Peter Sidor — Thu, 13 May 2010 00:24:11 GMT

"Peter, my thoughts on the issues you mention are developed at length in my _Theory of Free Banking_. There is too much to the matter to try and summarize here."

Sadly, I can't find an online version of the book or a good summary of the arguments (although Sechrest's Free Banking could be a substitute). Laziness, I mean, time preference rules. Discounting this topic, where I don't have sufficient insight into your position, let's see if we can build some bridges here and map out the (possible) disagreement. Can we agree on the following?

- the current system of fractional reserve banking as it is set up is fraudulent and unstable (with all the difficulties of defining a fraud... perhaps a more suitable word can be found)

- the free market is a preferred solution of the problems of banking

- FRB and full-reserve banking are very distinct modes of banking which should not be confused; the same is true for 'deposits' in each type of a bank, misrepresenting them does constitute fraud

Your contention then is, that the operation of an FRB can be stable (and desirable) in some conditions in the free market, which is where we so far differ, adding that it may have undesired consequences as noted above. We can probably agree, though, that FRBs on the free market, without special privileges and given the competition with full-reserve banks, will have a smaller effect on the overall economy. Is this correct from your point of view?

Re: Questions regarding 100 percent reserve banking

DD5 — Wed, 12 May 2010 18:55:30 GMT

"If you have a particular article or an argument, point it out and I'll demonstrate my disagreement."

Right here for starters:

http://mises.org/Community/forums/p/16302/328296.aspx#328296

Re: Questions regarding 100 percent reserve banking

whakaheke — Wed, 12 May 2010 18:23:47 GMT

Most of what I've read from Rothbard, Block, et al. is based on the fraudulence of FRB, which I dismiss. Standards of fraud are emergent, and usually depend on some standard disclosure of terms and thus risk. Nothing is inherently fraudulent any more than anything has inherent value. Their particular version of "libertarian law" or "natural law" or "ethics" notwithstanding.

Stuff like this:

http://mises.org/daily/1829#CASE

I've read Hulsmann, Hoppe, and de Soto and replies from White and Selgin on the economic viability of FRB. I am aware of their claims and arguments and find the anti-FRB side significantly weaker. However I nowhere stated that anyone who is opposed to FRB necessarily is not up to speed on the FRB side, but rather if they were it would be strategically silly to make a big issue out of it at all. I'm not sure than anyone has claimed FRB is necessarily or certainly unsustainable on a free market, I'm well aware of the claims of the people mentioned. If you have a particular article or an argument, point it out and I'll demonstrate my disagreement. I was talking more about the people in this forum anyway. I'm not a praxeologist and this will likely boil down to a difference in economic method, which would get you back to assertion (1).

do you think it is a non sequitur to claim that minimum price controls on Starbucks coffee will be unsustainable on a free market? What's the difference.

No difference, unless you define free market as that without intervention from an ideologically subsidized territorial monopoly on legitimized proactive physical coercion (the state) and specify such controls as state controls, in which case the statement would be internally inconsistent. A non-state entity could indeed sustain effective minimum price controls on Starbucks sans state intervention, through coercion or market power or whatever, however it is very highly unlikely given the incentives of a free market, the cost of coercion, and standard assumptions regarding human behavior.

Re: Questions regarding 100 percent reserve banking

Selgin — Wed, 12 May 2010 17:59:06 GMT

Peter, my thoughts on the issues you mention are developed at length in my _Theory of Free Banking_. There is too much to the matter to try and summarize here.

Re: Questions regarding 100 percent reserve banking

DD5 — Wed, 12 May 2010 17:30:52 GMT

" I don't think there are any good a priori economic arguments against it."

Then you should reconsider

"Eve it there were, it is a non sequitur to claim FRB will necessarily be unsustainable on a free market, "

Why the use of the term "non sequitur" is appropriate here, I have no idea. But granting you the validity of its use, do you think it is a non sequitur to claim that minimum price controls on Starbucks coffee will be unsustainable on a free market? What's the difference.

"but since I'm not sure anyone did that it would be more useful to point out it is silly and strategically unproductive to be dogmatic about it,"

So let me get this straight, you're not sure (or aware it seems) that anyone has "claimed" (by applying a priori economic theory) that FRB is unsustainable, yet you go on to say:

"This is especially true when one is not up to speed on the theory or empirics of free market FRB"

So in other words, all those opposing FRB must be "not up to speed on the theory of FRB", yet it is perfectly fine for you to not be up to speed on its most damning criticisms. Unbelievable.

"And if one does not want to do that, and wants to continue believe that it is unsustainable anyway, it's still silly to make an issue out of it as it will be revealed should free banking ever become a reality anyway."

Just in terms of economics, the controversy amounts to enormous differences in economic theory on, among other things, money, credit, and capital theory. It is a huge issue in terms of Austrian economic theory. Those who say the differences are minor, have no idea what they are talking about.

Re: Questions regarding 100 percent reserve banking

whakaheke — Wed, 12 May 2010 17:04:17 GMT

But I still think you should retract assertion (1).

Assertion (1) stands as you've not been able to coherently (in the technical sense) dispute it. Praxeology is not magic and you can't entirely predict future human action with pure a priori deductive logic. It is supplemented by controlled experiment, empirical history, and statistical correlation, and may in fact be approximately falsified as incomplete and/or inapplicable in premises.

You can't say, I agree with the theory, but just in case you got some good arguments against it, they are "non-sequitur because...."

I agree with the theory, but am further convinced by the empirical history. I don't think there are any good a priori economic arguments against it. Eve it there were, it is a non sequitur to claim FRB will necessarily be unsustainable on a free market, but since I'm not sure anyone did that it would be more useful to point out it is silly and strategically unproductive to be dogmatic about it, especially when there is heavy approximation on both sides and either way free banking is vastly preferable to central banking. This is especially true when one is not up to speed on the theory or empirics of free market FRB. And if one does not want to do that, and wants to continue believe that it is unsustainable anyway, it's still silly to make an issue out of it as it will be revealed should free banking ever become a reality anyway.

Re: Questions regarding 100 percent reserve banking

Peter Sidor — Wed, 12 May 2010 16:26:22 GMT

(Selgin: )
For Peter: Government ng ago banned "option clause" banknotes in the U.S. and also in Great Britain. loThat's why you don't see them today. See this Cato article by Hugh Rockoff: http://www.cato.org/pubs/journal/cj6n2/cj6n2-12.pdf

As for the likelihood of mass runs, you are mistaken: they have been relatively rare in history, and have been confined to heavily regulated banking systems, including those of the U.S. and England. Canada and Scotland, where free banking was most closely approximated until the later 19th or early 20s centuries, suffered no general panics at all.

Those who suppose that FR free banking cannot work need to reconsider their beliefs in light of further reading on the subject of banking history. Kevion Dowd's colection, _The Experience of Free Banking_, is an excellent place to start.

If the regulation point is taken away, not much remains in the way of FRB, providing its properties are understood by its customers. Still, the "deposit" in such a bank is a very different animal from a deposit in a full-reserve bank. What are your thoughts on inflation and the possibility of business cycles, if such banking would exist?

Looks like I have some thinking to do. For others, Kevin Dowd's book can be found here, or most of it: Experience of Free Banking.

Re: Questions regarding 100 percent reserve banking

DD5 — Wed, 12 May 2010 16:00:18 GMT

" Anyway, as I said, I'm convinced by free FRB in theory and either way I vastly prefer free banking to central banking."

Yeah, I get it now. But I still think you should retract assertion (1). You can't say, I agree with the theory, but just in case you got some good arguments against it, they are "non-sequitur because...."