DD5:So it is impossible for it to be fraud when 25 people show up and not fraud when only 24 people show up. Again, to claim otherwise, is to contradict yourself again: "The nature of the promise doesn't change."
Why is it 'impossible' to be fraud when 25 people show up and not when 24 show up? I don't see any contradiction there. You are correct: the nature of the promise doesn't change. And when 24 people show up: all promises are respected. When 25 show up, someone has a claim to something that says that he can get something, but the bank can't deliver. The bank said it would deliver something when that person wanted it, he wanted it but the bank couldn't deliver. That person was wronged.
I don't see any contradiction what so ever in this story.
The nature of the promise is: we will pay you on demand. This doesn't change. 24 people got what was promised. The 25th (and any number above) didn't get what was promised: they were wronged.
I'm sorry, I fail to see the contradiction-argument you are making.
The state is not the enemy. The idea of the state is.
AdrianHealey:Although this is not a praxeological answer: historically, this was pretty clear
Correct, it is not the praxeological answer.
There may be some mysterious but perfectly viable explanation for why fractional reserve banking is perfectly sound and I, as well as others, are wrong. However, all the arguments brought fourth thus far are theoretically unsound on praxeological grounds. It is no accident that fractional reserve advocates always find themselves on the "hot seat" trying to find their way out of one logical fallacy only to end up in another fallacy. It is true, White heavily relies on historical data to build his theory, but as I have pointed out before, historical data is useless absent praxeology. To illustrate the case, there are ample alternative explanations (for example see Hulsmann) for what White and Selgin interpret as free banking.
To be clear; I think my arguments against the claim that it's fraud per se are logically sound.
To be fair; I think you should say that this 'hot seat' depends on who's making what argument. If you can define the terms, it's easy to put the other guy in the hot seat. It's also true that you keep claiming I make logical fallacies, but - obviously - I fail to see which ones. It's no surprise that where you see a logical fallacy, I see failure to explain the concept in a way that you get my point. (If I were thinking I was giving logical fallacies, I wouldn't be making those arguments, obviously.)
I don't think praxeology has any say in the question wether or not it's fraud or not. It does have a say in discussions like: does it cause an ABCT or something.
The discussion wether or not 'free banking' has historically happened and wether or not it was with government intervention is exactly that: an historical discussion, absent the realm of praxeology.
AdrianHealey:I don't think praxeology has any say in the question wether or not it's fraud or not.
The only thing praxeology has no say in is value, that is, it does not make any value judgments regarding end goals. Fraud is a category of human action (man commits fraud), therefore, it has everything to say about it. Now, the particular actions that constitute fraud can be debated, but however we end up defining 'fraud', praxeology demands logical consistency and one same action cannot be both fraud and not fraud (both a and not a) at the same time, simply because different outcomes can result from the same action.
That one same action can be both a and not a is precisely what you're claiming.
DD5:"The nature of the promise doesn't change."
Thank you. It is amazing how people will suspend logic to maintain their premises.
AdrianHealey:To be clear; I think my arguments against the claim that it's fraud per se are logically sound.
I'll ask again, because I don't think I missed it, but what is your definition of fraud?
This is all very academic, but I think we're missing the point. Fractional reserve banking increases the money supply, thereby allowing the people who obtain the newly counterfeited paper to purchase goods without contributing anything in return. The people who get the money last are "defrauded" with a lower purchasing power, eroded savings etc.
Dustin Jussila: This is all very academic, but I think we're missing the point. Fractional reserve banking increases the money supply, thereby allowing the people who obtain the newly counterfeited paper to purchase goods without contributing anything in return. The people who get the money last are "defrauded" with a lower purchasing power, eroded savings etc.
Actually; if we assume for the sake of argument that the banks manages to make due on all of their claims - i.e. the situation that I don't consider to be fraud - than there is no lower purchasing power or eroded savings.
Think this through: the bank is lending out money that's on the checking account, right? That means the bank has more liabilities out than they have in their vault, strictly speaking. But lending out money also creates liability claims from the bank with the people who lend the money. If all these loans are paid back, the amount of liabilities will be the same again as the amount of gold in the vault.
The 'job' of the bank in this case is to estimate what part of the checking accounts - what people are holding onto in their demand for liquidity - is used in a form of savings. Let's assume perfect knowledge - don't worry, we'll drop this unrealistic assumption shortly - of the bank in knowing how people will spend their money. So they know that, for instance, I'm holding money on my checking account for a year and after that year I'm coming by to trade in the liability claims, right. During that year I'm using that checking account - even though I'm keeping it in my checking account to satisfy my demand for liquidity - as a form of savings, because I'm not using it to pay anything. That means the bank can lend it out for a year, get interest on it, pay me an interestrate for keeping money on the checking account and after a year the loan is paid back and I come by to trade in my liabilities. No lower purchasing power has happened, no eroded savings. Although I'm using my checking account to satisfy my desire for liquidity; the totality of all these checking accounts hold more money than is actually used for liquidity, so part of it is a form of savings, which can be used to lengthen the structure of production.
Obviously; in real life the bank doesn't have perfect knowledge. It's the bank job to make estimations on what part of the checking accounts are a part of savings and act accordingly. Because of competition, they'll have to be prudent, of course. But as long as the bank is sound in it's operations - i.e. manages to pay back all the liabilities when people show up - there is no problem what so ever.
For some reason people want to keep accusing the bank of fraud and even explicitly say 'I don't care that it manages to fulfill all their contractual obligations' - but I disagree with such a statement. If the promise is 'I'll pay the bearer on demand' than as long as they actually pay all the bearers on the specific time period - 'when they are demanding it' - than there is no fraud. So for the 7th time or so: fraud (imo) is when you don't manage to perform the contractual obligations you've gone into. As long as you do, no fraud is happening.
liberty student: AdrianHealey:To be clear; I think my arguments against the claim that it's fraud per se are logically sound. I'll ask again, because I don't think I missed it, but what is your definition of fraud?
I'll ask you again, because I don't think I missed it: where is the fraud when all obligations are being met?
DD5: AdrianHealey:I don't think praxeology has any say in the question wether or not it's fraud or not. The only thing praxeology has no say in is value, that is, it does not make any value judgments regarding end goals. Fraud is a category of human action (man commits fraud), therefore, it has everything to say about it. Now, the particular actions that constitute fraud can be debated, but however we end up defining 'fraud', praxeology demands logical consistency and one same action cannot be both fraud and not fraud (both a and not a) at the same time, simply because different outcomes can result from the same action. That one same action can be both a and not a is precisely what you're claiming.
I don't think I am. Because 'managing to pay up' is not the same as 'not managing to pay up'.
What you are doing is defining the essence of the action in one way, but you are ignoring that there is, in fact, an important difference. Something can not be A and Not-A at the same time, but something can be A and B at the same time. I'm claiming that 'being able to pay up on the point of demand' is not the same as 'not being able to pay up on the point of demand'. Seems hardly a logical inconsistency.
I know you want to focus on what might happen - 'it might be that the bank would be able to pay up' - and therefore calling it fraud. But I find that hardly worth relevant: why is it important what 'might' happen in the absence of human action - 'it might be that the bank won't be able to make due on their commitments' - and not what is actually happening ('the bank actually paying up on all their legal obligations')?
Again: they are not promising: we have all the money in the vault all the time. They are promising: when you show up, we will have the money ready. This has an element of uncertainty - they have to estimate when people will arrive and make sure they have enough for it - but they aren't doing anyone anything wrong until the point they don't manage to pay up what people want. Seems like a logical consistent case to me.
What you are saying is this: just because an action might result in wrong-doing - the ability of not being able to pay up - it must follow that the action is wrong in itself. And I don't think that makes much sense: a lot of people make loans where there is a possibility that they won't be able to pay up. But there isn't anything wrong _until_ the point arrives where they have to pay up and don't manage to do so. It's exact same thing with this bank account: _until_ the point arrives where the bank can't pay up - i.e. when a bearer on demand shows up and claims his gold - there is no one defrauding anyone.
But I don't really have the feeling we are making any kind of progress, so unless new elements show up, I'm fine with leaving it at that. People can read up and form their own opinions.
DD5 and AdrianHealey,
After reading these posts, I can't help but notice that you are not agreeing on what the bank is telling its clients.
1) DD5, you are speaking as if the bank says "You can redeem your money at any time, period."
2) AdrianHealey, you are speaking as if the bank says "You can redeem your money at any time, pending demand/supply, and FYI this bank only keeps xx% of reserves on hold."
I don't think you have agreed on what statement you will use as a starting point to determine if FRB constitutes fraud. If it is statement 1, then i believe it is fraud. If it is statement 2, then i do not believe it is fraud.
I am not implying which one I think has been the case historically, because I do not know. And also, I am not taking into account how likely a consumer would be to agree to #2 without a governmental backstop, or how likely it would be for someone to claim that a governmental backstop is necessary.
JH2011: DD5 and AdrianHealey, After reading these posts, I can't help but notice that you are not agreeing on what the bank is telling its clients. 1) DD5, you are speaking as if the bank says "You can redeem your money at any time, period." 2) AdrianHealey, you are speaking as if the bank says "You can redeem your money at any time, pending demand/supply, and FYI this bank only keeps xx% of reserves on hold." I don't think you have agreed on what statement you will use as a starting point to determine if FRB constitutes fraud. If it is statement 1, then i believe it is fraud. If it is statement 2, then i do not believe it is fraud. I am not implying which one I think has been the case historically, because I do not know. And also, I am not taking into account how likely a consumer would be to agree to #2 without a governmental backstop, or how likely it would be for someone to claim that a governmental backstop is necessary.
I'm not saying that the bank says 'pending demand/supply'. (Historically; they did, but that's not important here.) The question, as I see it, is: does 'will pay the bearer on demand' implies that the bank should have the exact amount in their vaults as there are liabilities. They argue yes, I argue no.
I'm saying that the bank is not saying 'we are keeping the same amount in our vaults as we are lending out'. If the bank was saying that, than they should have the same amount in their vaults as people have liabilities. I'm saying that as long as they can match all obligations at the point in time they ought to be matched - the time that the person shows up and returns the bank liability. They are arguing that the bank should be able to match these obligations and any point in time in _absence_ of people showing up and demanding their claims. I see no reason to demand such a thing. 'I promise to pay the bearer on demand x' is just that: promising the bearer on demand. When he demands it. Not on any time in absence of him demanding it. Only and when he demands it. A = A and not something else like 'and we will keep the same amount in our vaults as we are lending out'.
Yes, this might go wrong. People might show up, demand stuff, and be unable to get gold for their bank liability. The bank is than in the wrong: it promised to pay on demand and it didn't deliver. That person, that shows up, is wronged. But in the absence of this situation, I don't see anyone wronged. The people that show up get their gold on demand. And the people that didn't show up still have their promise due. But by the fact they are _not_ showing up, they are saying 'well, I don't want to trade this bank liability for gold just yet', so the bank has no obligation to be able to do so. It's not until that point in time they are showing, through their actions, that they want to bank to pay up, that the bank has to pay up, imo.
Assuming, of course, the bank doesn't advertise itself as a wharehouse, of course.
AdrianHealey:So you take the fact that a contract is respected to be irrelevant for the question wether or not it ought to be legal for such contracts to exist? Why?
Why?
With all due respect, haven't I already explained why?
AdrianHealey:Just because it's possible a contract is not respected, doesn't mean it should be illegal, now does it?
It's not about possibility. There's always the possibility that a given contract will not be respected. What's important here is that the contract cannot be enforced per the terms.
AdrianHealey:You say 'logically speaking, it contains a contradiction', but that's not the case. That would be the case of people [retaining] ownership - like within a wharehouse [sic]. But something that is logically impossible is just that: logically impossible. We know, however, that it's not logically impossible to respect any and all contracts at the same time. As long as anyone that shows up gets his money.
(FYI - "warehouse" contains only one "h". :P)
Okay, now I see better where you're coming from. You're saying that all of the contracts with a fractional-reserve bank are respected at the same time if not everyone shows up to get his money at that time. In other words, you're saying that the contracts of those who didn't show up to get money at that time are still respected.
While this makes sense, DD5 and I are arguing from a "higher" level. We see "on demand" specified in the contracts, take that to mean "at any time, period", see that the amount of money kept in reserve is only a fraction of the amount specified in the contracts, and conclude that each person cannot redeem his money claims at literally any time he wishes. The reason for this is that "any time he wishes" necessarily includes a hypothetical future time at which everyone else also wants to redeem their money claims. So what DD5 and I are doing is essentially "integrating" over the time specified, to use a math metaphor.
AdrianHealey:I really don't get that you say 'I'd take the fact that they were all fulfilled to be irrelevant'. Why is that? Isn't the core of a contract?
If the contracts are inherently contradictory, as hopefully explained above, why does it matter whether some or all of them happened to be fulfilled?
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Autolykos: It's not about possibility. There's always the possibility that a given contract will not be respected. What's important here is that the contract cannot be enforced per the terms.[
It's not about possibility. There's always the possibility that a given contract will not be respected. What's important here is that the contract cannot be enforced per the terms.[
Isn't this in contradiction with:
Autolykos:If the contracts are inherently contradictory, as hopefully explained above, why does it matter whether some or all of them happened to be fulfilled?
If something is 'inherently contradictory' shouldn't it follow that it's _impossible_ to be fulfilled? (Like contracting for a square circle. That's impossible. Or contracting that I will be in New York and Washington at the same time. That is also impossible.)
But due to the fact that it is, in fact, possible to respect all of the contracts - depending on the time that people show up and return their liability - I fail to see why it is 'inherently contradictory'.
You are saying that it 'cannot be enforced per the terms', and I wonder why. The terms stipulate: the bearer on demand: when he shows up and demands gold. Well; those are clear terms. And it's the banks job to have gold in their vault when the person shows up and demands it. Terms are quite clear and it is possible to respect these claims - as you have admitted.
You are arguing along the lines that it's like saying 'I will be in washington the whole 4th of July' to person A and 'I will be in New York the whole 4th of July' to person B. Well; this is, indeed, inherently contradictory. And the person that can sue me, is the person in which city I don't show up.
It's the same with the FRB: when a person shows up and the bank cannot deliver, the bank is in the wrong on that moment in time.
Autolykos:Okay, now I see better where you're coming from. You're saying that all of the contracts with a fractional-reserve bank are respected at the same time if not everyone shows up to get his money at that time. In other words, you're saying that the contracts of those who didn't show up to get money at that time are still respected.
Yes, because the contract stipulates 'the bearer on demand'. They are not demanding it yet, so the contract is still respected.
Autolykos:While this makes sense,
Well, thank you for that. It's a nice change.
Autolykos:DD5 and I are arguing from a "higher" level. We see "on demand" specified in the contracts, take that to mean "at any time, period", see that the amount of money kept in reserve is only a fraction of the amount specified in the contracts, and conclude that each person cannotredeem his money claims at literally any time he wishes. The reason for this is that "any time he wishes" necessarily includes a hypothetical future time at which everyone else also wants to redeem their money claims. So what DD5 and I are doing is essentially "integrating" over the time specified, to use a math metaphor.
And I know you are doing that, but I fail to see why this is relevant. 'On demand' means 'when you show up, we'll pay you'. But it does not follow that it's necessary to keep all the money in store all the time. It only means that you have to be able to pay everyone that shows up. And if you have enough to pay everyone that shows up, you're good on what you contractually promised.
I know you guys take 'on demand' to imply that the bank should keep everyting in the vault all the time, but I'm saying that that's a different promise. There is a difference between 'we'll keep all the gold for liabilities in our vault all the time' and 'we will pay everyone on demand what we owe him'. The first one can be checked by an outsider. I can come to the bank and check how much they have in their vaults and check how many liabilities they have given to people. If these don't match, they are, in fact, lying. But 'pay on demand' is just that: on demand. It's not possible to check this as an outsider in the absence of people showing up and returning their bank liabilities.
I see no reason to say that 'pay on demand' implies 'gold in stock matches liabilities 1 for 1'. It only implies 'gold in stock should match liabilities that are returned at any specific point in time'. That's the real crux, imo.
Just because it would be impossible (if there is a fractional reserve) for the bank to pay everyone when everyone shows up at the same time, it doesn't follow that the bank is defrauding people when not everyone shows up at the same time - and is able to pay the few that do come at any given time. It's only fraud when the bank can't make due on their promise. No sooner, no later than that.
AdrianHealey: liberty student: AdrianHealey:To be clear; I think my arguments against the claim that it's fraud per se are logically sound. I'll ask again, because I don't think I missed it, but what is your definition of fraud? I'll ask you again, because I don't think I missed it: where is the fraud when all obligations are being met?
You refuse to define what fraud is, so this question and position continues to be ridiculous. You're not arguing in good faith if you won't define terms.
For the third time,
What is fraud?
I don't care if you copy paste a dictionary definition, I just want to know what definition you are using to construct logically sound arguments. Is that too much to ask?
AdrianHealey: Autolykos:It's not about possibility. There's always the possibility that a given contract will not be respected. What's important here is that the contract cannot be enforced per the terms.[ Isn't this in contradiction with: Autolykos:If the contracts are inherently contradictory, as hopefully explained above, why does it matter whether some or all of them happened to be fulfilled?
Autolykos:It's not about possibility. There's always the possibility that a given contract will not be respected. What's important here is that the contract cannot be enforced per the terms.[
I didn't mean for those two statements to seem contradictory with one another. In the context of contracts, I take "contradictory" to mean "cannot be enforced or satisfied per the terms stated". A trivial example of a contradictory contract is a promise to pay $50 to someone on your 20th birthday when you are already 25 years old.
AdrianHealey:If something is 'inherently contradictory' shouldn't it follow that it's _impossible_ to be fulfilled? (Like contracting for a square circle. That's impossible. Or contracting that I will be in New York and Washington at the same time. That is also impossible.) But due to the fact that it is, in fact, possible to respect all of the contracts - depending on the time that people show up and return their liability - I fail to see why it is 'inherently contradictory'. You are saying that it 'cannot be enforced per the terms', and I wonder why. The terms stipulate: the bearer on demand: when he shows up and demands gold. Well; those are clear terms. And it's the banks job to have gold in their vault when the person shows up and demands it. Terms are quite clear and it is possible to respect these claims - as you have admitted.
The phrase "on demand", in common English usage, implies that the point in time that the demand actually occurs cannot be predicted. Therefore all points in time from the start of the contract to infinity must logically be taken into account together.
AdrianHealey:You are arguing along the lines that it's like saying 'I will be in washington the whole 4th of July' to person A and 'I will be in New York the whole 4th of July' to person B. Well; this is, indeed, inherently contradictory. And the person that can sue me, is the person in which city I don't show up. It's the same with the FRB: when a person shows up and the bank cannot deliver, the bank is in the wrong on that moment in time.
While I understand and agree with your analysis of that situation, it's not along the lines of my argument. My argument is along the lines of a contract where you exchange money with me for a claim that you can redeem at any given time, except there's a 50/50 chance that I've burned the money before you come to get it back.
Logically speaking, "at any given time" is not bound to the time at which I actually arrive to redeem my claim. I'm considering "on demand" to be equivalent to "at any given time", since no one can know in advance exactly when the person will make demand.
AdrianHealey: Autolykos:Okay, now I see better where you're coming from. You're saying that all of the contracts with a fractional-reserve bank are respected at the same time if not everyone shows up to get his money at that time. In other words, you're saying that the contracts of those who didn't show up to get money at that time are still respected. Yes, because the contract stipulates 'the bearer on demand'. They are not demanding it yet, so the contract is still respected. Autolykos:While this makes sense, Well, thank you for that. It's a nice change.
No problem. Looking back, though, I should've said it makes a certain amount of sense. I think the semantics of "on demand" are at the heart of our issue. As I mentioned above, I'm taking it to be equivalent to "at any given time". You seem to take it to mean "at the time demand is made and no other". However, since no one is clairvoyant, the specific time at which the demand will be made cannot be known in advance. So I see no reason to consider the contract to be bound to a specific point in time. As long as it is not satisfied, it can only be considered bound to all future points in time.
AdrianHealey:And I know you are doing that, but I fail to see why this is relevant. 'On demand' means 'when you show up, we'll pay you'. But it does not follow that it's necessary to keep all the money in store all the time. It only means that you have to be able to pay everyone that shows up. And if you have enough to pay everyone that shows up, you're good on what you contractually promised. I know you guys take 'on demand' to imply that the bank should keep everyting in the vault all the time, but I'm saying that that's a different promise. There is a difference between 'we'll keep all the gold for liabilities in our vault all the time' and 'we will pay everyone on demand what we owe him'. The first one can be checked by an outsider. I can come to the bank and check how much they have in their vaults and check how many liabilities they have given to people. If these don't match, they are, in fact, lying. But 'pay on demand' is just that: on demand. It's not possible to check this as an outsider in the absence of people showing up and returning their bank liabilities. I see no reason to say that 'pay on demand' implies 'gold in stock matches liabilities 1 for 1'. It only implies 'gold in stock should match liabilities that are returned at any specific point in time'. That's the real crux, imo. Just because it would be impossible (if there is a fractional reserve) for the bank to pay everyone when everyone shows up at the same time, it doesn't follow that the bank is defrauding people when not everyone shows up at the same time - and is able to pay the few that do come at any given time. It's only fraud when the bank can't make due on their promise. No sooner, no later than that.
There is a way for an outsider to check whether a bank can pay on demand in the absence of people showing up and returning their bank liabilities. And that way is to consider whether the bank can redeem all of the bank liabilities at any given time. Certainly the most straightforward way a bank can do that is if it keeps all of the gold deposited in its vaults. I'm not sure if there are any other ways, but there might be.
Your phrase "no sooner, no later than that" again points out that you're considering the contract to be bound to an undetermined specific point in time. But again, since no one can know that point in advance, an on-demand contract must logically be considered bound to all future points in time until it is satisfied. It would be different if the contract stipulated a certain temporal distance (e.g. "one year from now").
An analogy can be made with a contract that stipulates one party can take "as much as he likes" of something from the other party. Such a contract would also be inherently contradictory, as there is no logically necessary limit to the amount that one could like.
Kaz: I seem to have come up with the final point that shows fractional reserve banking isn't fraud, therefore is a consensual activity that could not be banned in a free market: All any fractional reserve bank need do is print something like this on every note: Payable to the holder, at its price in gold, pending supply: We keep 10% of our notes' total values in reserve at all times. Of course it's already not fraud, because nobody is being deceived into thinking there is a Scrooge McDuck vault with all of the gold. But the above notice makes this crystal-clear.
I seem to have come up with the final point that shows fractional reserve banking isn't fraud, therefore is a consensual activity that could not be banned in a free market:
All any fractional reserve bank need do is print something like this on every note:
Payable to the holder, at its price in gold, pending supply: We keep 10% of our notes' total values in reserve at all times.
Payable to the holder, at its price in gold, pending supply:
We keep 10% of our notes' total values in reserve at all times.
Of course it's already not fraud, because nobody is being deceived into thinking there is a Scrooge McDuck vault with all of the gold. But the above notice makes this crystal-clear.
I agree that would not be fraud. However, why would anyone deposit with that bank? The answer is no one would.
At most, I think only 5% of the adult population would need to stop cooperating to have real change.
AdrianHealey: I'm not saying that the bank says 'pending demand/supply'. (Historically; they did, but that's not important here.) The question, as I see it, is: does 'will pay the bearer on demand' implies that the bank should have the exact amount in their vaults as there are liabilities. They argue yes, I argue no.
But how can you say that if a bank makes the statement "will pay the bearer on demand, period" is fully accurate? Don't you think that there is an element of inaccuracy, or an element of omission in that statement?
Even the phrase "will try to pay bearer on demand" is more accurate than without the word "try." I know this may seem like a small point, but it makes all the difference.
I know some people on this thread have argued that all promises about the future involve uncertainty, so we can't say that anyone who makes a promise that could potentially go wrong should not be accused of fraud/deception/omission.
BUT, this is different than what banks do in FRB. In FRB, they make promises to people that, by definition, cannot all be fulfilled. Now, you may say "what if everyone asks for their money at a different time and nothing goes wrong. Everyone was able to redeem on demand and all promises were fulfilled."
I say, fine, but there is still an error of omission on the bank's behalf. How can the bank make the statement "will pay bearer on demand" and not disclosure that there is a chance that too many people will redeem at the same time and cause them to go bankrupt, BECAUSE they make this promise to EVERYONE, and also only hold 10% of reserves on hand.
I am not suggesting that every business disclose everything that could go wrong in regards to contracts/future promises. But in FRB, saying "will pay bearer on demand" and stopping there is clearly an error of omission, and in my mind is fraudulent (i dont know if it is 'fraudulent' in the legal sense).
Meant to write:
I know some people on this thread have argued that all promises about the future involve uncertainty, so we can't say that anyone who makes a promise that could potentially go wrong should be accused of fraud/deception/omission.
I hope you don't think I'm one of those people.
Autolykos: I hope you don't think I'm one of those people
I hope you don't think I'm one of those people
I don't remeber who made a claim similar to this.
But what i am trying to say is that making a particular promise that may not come true due to the many factors of uncertainty in the future is NOT the same as a bank engaging in FRB that omits to tell its clients the very important fact that they promise all clients the same redeeming terms and simultaneously only hold 10% of reserves.
Right, I think we're making the same point. :)
JH2011:I don't remeber who made a claim similar to this
Actually, it is Adrian who has made this rather odd claim.
good grief, what a long story.
basically, if banks disclose that "if all of you come together to take your money/gold, i can't fulfil all of your obligations, but i can do so most of the time- that's what we mean when i say on demand."
while stating very clearly so and assuming that the depositor has full understanding of the statement- that he may not at any given point in time get his money back- then i suppose it's not fraud since both parties knew exactly the risk they were getting into. just to be clear, if this is not made crystal clear to every single depositor and corroborated with signatures, then constitutes a fraud, pure and simple.
if this was done, it necessarily also means that the bank is liable for only 10% of the deposits and 10% of profits from the 100% loans, while the rest of the 90% they are not liable on depositor claims or subseaquent profits because they are not in ownership of it. if the depositors understand this, then it is still all very fair to me at this point. of course, im not exactly sure why any bank would make such a deal and surely one would wonder what the rest of the 90% is used for... but i'll leave that aside.
the dastardly thing about it is that the banks then take the 90% and borrow it out into the economy, thereafter claiming the profits from the loans as their own. so it creates a weird situation where banks are not liable for 90% of their deposits, but yet can claim the full profits from those loans.
what if this was also made known to all depositors? does that constitute a fraud?
for me, the answer is no; if i am willing to accept the fact that i may not get my money back at any point in time, while at the same time allowing the bank to make profits using my money that i am not entitled to claim at any point in time in exchange for interest, then where's the fraud?
the problem in the real world of course, is that none of this was made clear at all, if it was even possible.
consequently, it becomes incredulously difficult to assign blame and pass judgement on either the banks or the depositors; how long would it take to investigate each individual claim on whether either party did the necessary research? on what basis or standard? the task becomes impossible.
as another consequence, what about the borrowers? did they know that the money from the banks were made on such terms? the consequence of course is that if they did and if the depositors were not aware of the terms, the borrowers become accomplice to the fraud. once again, to investigate the intentions and action of every borrower, depositor and bank would be next to impossible.
eventually, regardless of whether one agrees there is a fraud or not, FRB will result in excessive credit and subsequently a bust. heck, maybe the bust is not caused by FRB... but in any case, there will be a situation where more than 10% of depositors come claiming their money at one period of time and the bank will fail, resulting in the above legal nightmare (payday if you're a lawyer).
in the real world, since its a legal nightmare, what gets done is that nothing gets done and the judgement is delayed. in a crisis, where there is no time to worry about legal terms, the inclination is to further delay judgement and deal with the consequences. shoring up the banks, creating FDIC insurance, central banking and so on. all of which only serves to consolidate the financial industry's powers and influence.
read the later portion of this thread, there's a bit of stuff going on about "on demand"... i think what adrian is trying to say is that the banks never meant "on demand" to mean "everyone all the time" because the contract is made between 2 parties only (correct me if i'm wrong). yet, even if they never meant it, surely it must occur to them in the process of accepting deposits and making loans that they couldn't meet "on demand" for everyone? ok, so they had no idea and they just rolled on and on... is there fraud?
once again, it boils back down to the investigation and this time its even tougher; in the presence of denial of fraudulent intent and because it is up to the prosecution to provide proof beyond a reasonable doubt that the defendant is guilty, the investigators must track each and every case made with each depositor- BEFORE and AFTER the loans were made.... more pay for the lawyers.
i believe that up till today, the jury is still hung.... investigation becomes even more difficult, if not impossible, due to the passage of time.
for most people, it just doesn't matter as long as they get their money back, for the banks they won't bother so long as they're making money, for the govt it doesnt matter so long as both parties are happy and they get their taxes.... so the FDIC is set up just to make sure that happens for the people, the govt goes for fiscal stimulus to keep everyone happy. how lovely... overtime, instead of a legal problem, it becomes a political problem.
jury's still hung though.
the biggest test then, is whether or not in the modern day, someone can go out there, set up a bank and make such an offer to the people today... to my knowledge, this hasn't been done. heck, even hedge funds offer a portion of their profit to accredited investors.
that's my long 2 cents.
Whilst I did enjoin this discussion, I think that we have come to that point in time where I would just repeat the same thing - and the answer would also be the same thing. I think both sides of the argument are quite clear, so if that's ok, I'm going to leave it at that.
yeah... we've processed a great bit of history in just 2 days and end up with a hung jury too.. lol
AdrianHealey:Whilst I did enjoin [sic] this discussion, I think that we have come to that point in time where I would just repeat the same thing - and the answer would also be the same thing. I think both sides of the argument are quite clear, so if that's ok, I'm going to leave it at that.
I'd appreciate a response to my last post addressed to you. Do my arguments make sense to you now?
AdrianHealey: Whilst I did enjoin this discussion, I think that we have come to that point in time where I would just repeat the same thing - and the answer would also be the same thing. I think both sides of the argument are quite clear, so if that's ok, I'm going to leave it at that.
Adrian, I would also appreciate confirmation that you feel there is no error of omission if a bank says to his client "you can redeem at any time, period" and then proceeds to promise ALL of its clients the same thing and hold <100% of reserves.
I'll come back to both JH2011 and Autolykos their questions, but just as a final note. :)
AdrianHealey:Whilst I did enjoin this discussion, I think that we have come to that point in time where I would just repeat the same thing - and the answer would also be the same thing. I think both sides of the argument are quite clear, so if that's ok, I'm going to leave it at that.
I think you got exposed on praxeology and refused to define your terms. By refusing to define your terms, you guaranteed the argument couldn't resolve itself.
liberty student: AdrianHealey:Whilst I did enjoin this discussion, I think that we have come to that point in time where I would just repeat the same thing - and the answer would also be the same thing. I think both sides of the argument are quite clear, so if that's ok, I'm going to leave it at that. I think you got exposed on praxeology and refused to define your terms. By refusing to define your terms, you guaranteed the argument couldn't resolve itself.
It seems that you're the only one that has troubles with it. Everybody else manages to understand the way I define my terms quite competently, or so it seems. I'm also not surprised you've managed to come up with the most arrogant and knee-jerk reaction in the entire thread. You're really good at that.
I must also ask you politely to stop doing that. It's really annoying and it doesn't really help having a pleasant discussion on this forum. 2 things that in a general sense could be considered important. That is; if you care about this place.
I agree that would not be fraud.
So you agree: Fractional reserve banking is NOT inherently fraudulent. Like EVERY form of business, it could be either fraudulent or not.
However, why would anyone deposit with that bank? The answer is no one would.
Poof...we have a free market.
Now some people are setting up full reserve banks, some fractional reserve banks:
Full Reserve:
You pay interest on all money you deposit. That is, they DEDUCT money, in order to cover the expense of holding your money. They see no benefit, whatsoever, to holding MORE money for you, so it's literally a percentage. The more you deposit, the more you are charged. You pay fees on top of this for each deposit, each electronic transaction, each withdrawal, including special fees for things like withdrawing from a different bank than where you deposited. The benefit is that your money is safe, and if you pay a hefty additional fee you can easily transact business via check card and paper checks.
Partial Reserve:
You are paid interest for depositing your money. You can get your money whenever you want, free of charge. The more money you deposit, the more enthusiastic the bank's attentions and services. Checking, ATM, online payment, all is included free. If more gold gets withdrawn than a given branch's reserve has stored, they cover it by borrowing from a Lender of Last Resort, in effect they have a private FDIC/Fed company to whom they subscribe. Therefore nobody ever actually runs out of gold. What's more, almost nobody actually uses, sees, or touches the gold anyhow, because this is the 21st century, and even if you're moving the gold to new bank you can do it electronically.
I'm sure a few people would shoot themselves in the foot, by using the former kind of bank. But not many. It would never be more than a niche market, which is good, considering how it wastes the investment power of any gold deposited in it.
Actually, the mentality that there are implied agreements that must be actively disclaimed is socialist nonsense, that advocates of liberty and free markets need to remember to avoid. Any good or service you buy ONLY promises what it explicitly promises. You can't say "well, I'd generically expect coffee to not be hot enough to burn my lap"...if the restaurant did not offer that guarantee, then it was up to you to determine it for yourself.
There is no fraud, unless there is a false idea consciously communicated.
BUT:
I started this thread with the idea that the notes would contain the above warning, because then it DOES make the ridiculous "fraud" fallacy quite impossible to cling to.
And I'm willing to settle for that, like I'm willing to settle for bungee diving companies having to make you sign a waiver, instead of the free market condition where if they didn't guarantee your safety, then it was your choice to dive without that guarantee.
Stuff and nonsense. That's the same fallacy used to claim that workers own 100% of the products/profits coming from their factory, because they do 100% of the labor.
If the contract is that you deposit the gold/money, and they do what they please with it, but leave 10% in reserve, then that's the deal.
There's no objective "then you get 90% of the profits" nonsense.
That's too socialist to even humor.
You mean in Rothbard's twisted, dark ages scenario, fraudulently presented as if it were seamlessly integrated with how things work in the real, modern world.
Back here in the actual universe, people knew full well how banks used money, which was actually why runs did occasionally happen, before the Lender of Last Resort concept was perfected. In the entire history of the United States, no real bank ever pretended to keep all of your money/gold in a Scrooge McDuck vault, while secretly lending it out.
The whole "on demand means ALWAYS, no matter what" is beyond idiotic, and this is illustrated by the fact that no Rothbardian is going around saying that all Full Reserve banks must be open and handing out gold 24/7, otherwise they are committing fraud because you can't get 100% of your gold at 3AM.
There is ZERO imperative that a service, including giving you gold for a note, must be absolutely, perfectly available at all times in order to be non-fraudulent.
Otherwise, all banks need to be 24 hour.
kaz: So you agree: Fractional reserve banking is NOT inherently fraudulent. Like EVERY form of business, it could be either fraudulent or not.
This does not tell the whole story. You can't just call it "Fractional Reserve Banking" and not explain more about how it is being executed.
The issue that has come up on this thread more than any other is this:
FRB and a bank that says "you can redeem at any point, period"
vs.
FRB and a bank that says "you can redeem at any point, pending demand/supply, and FYI we promise all our clients this same promise, and we keep <100% of reserves on hand"
I know you, Kaz, explained in an earlier post that banks would have to disclosure the latter statement in order for it to avoid being fraudulent. So I know you agree with this.
But my point is that saying "FRB is not inherently fraudulent" is not telling the whole story. The issue is: FRB with which statement/promise from the bank???
Kaz:Partial Reserve: You are paid interest for depositing your money.
You are paid interest for depositing your money.
How is "depositing" money in exchange for interest an example of FRB? In reality, your example is an example lending. This is why I asked you to define FRB.
To paraphrase Marc Faber: We're all doomed, but that doesn't mean that we can't make money in the process. Rabbi Lapin: "Let's make bricks!" Stephan Kinsella: "Say you and I both want to make a German chocolate cake."
AdrianHealey:It seems that you're the only one that has troubles with it. Everybody else manages to understand the way I define my terms quite competently, or so it seems.
And yet you refuse to define fraud, and you clearly don't understand what praxeology is.
AdrianHealey:I'm also not surprised you've managed to come up with the most arrogant and knee-jerk reaction in the entire thread. You're really good at that.
This personal stuff is a red herring. You still haven't defined your terms. You continue to assert a position as logical, without making a logical proof.
AdrianHealey:I must also ask you politely to stop doing that. It's really annoying and it doesn't really help having a pleasant discussion on this forum. 2 things that in a general sense could be considered important. That is; if you care about this place.
What's really annoying is when people argue dishonestly, and then get yellow bellied when called on their bad arguments, resorting to pointing fingers and arguing aesthetics of rhetoric or other trivial claims. Doing stuff like this undermines an intellectual community. If you want to assert positions, defend them. If not, don't assert them in the first place. It's really quite simple, and there is no need to play the victim, when you've clearly lost an argument cleanly.
liberty student: And yet you refuse to define fraud, and you clearly don't understand what praxeology is.
Incidentally, I have. Multipull times, even. I'm sorry you've missed it, but I can hardly be held accountable for that.
"You still haven't defined your terms. You continue to assert a position as logical, without making a logical proof."
So you are claiming that I didn't define 'fraud' and that I didn't make any logical proof?
Is there anyone else that feels the same?
Kaz:So you agree: Fractional reserve banking is NOT inherently fraudulent. Like EVERY form of business, it could be either fraudulent or not.
Based on your definition of "fractional-reserve banking", as posted here, it's fraudulent unless the bank makes the stipulations you outlined in the OP and it never made any advertisements about keeping its customers' money safe. There may be other conditions that it must meet to not be fraudulent, but those are the only ones I can think of right now.
Given your implicit meaning of "inherently fraudulent" (i.e. "must be fraudulent under any/all circumstances"), then no, fractional-reserve banking is not inherently fraudulent. However, it is inherently a racket.
Kaz:Full Reserve: You pay interest on all money you deposit. That is, they DEDUCT money, in order to cover the expense of holding your money. They see no benefit, whatsoever, to holding MORE money for you, so it's literally a percentage. The more you deposit, the more you are charged. You pay fees on top of this for each deposit, each electronic transaction, each withdrawal, including special fees for things like withdrawing from a different bank than where you deposited. The benefit is that your money is safe, and if you pay a hefty additional fee you can easily transact business via check card and paper checks.
Please explain why full-reserve banking must be exactly this way. That means explaining why it must charge percentage-based fees for money storage (as opposed to flat fees or no fees at all); why it must charge fees for each bank transaction; and why fees for using check cards and/or paper checks (if not also the other fees mentioned) must be hefty, let alone be present at all.
Kaz:Partial Reserve: You are paid interest for depositing your money. You can get your money whenever you want, free of charge. The more money you deposit, the more enthusiastic the bank's attentions and services. Checking, ATM, online payment, all is included free. If more gold gets withdrawn than a given branch's reserve has stored, they cover it by borrowing from a Lender of Last Resort, in effect they have a private FDIC/Fed company to whom they subscribe. Therefore nobody ever actually runs out of gold. What's more, almost nobody actually uses, sees, or touches the gold anyhow, because this is the 21st century, and even if you're moving the gold to new bank you can do it electronically.
Please explain why no one would ever run out of gold in a fractional-reserve banking system.
Saying "this is the 21st century" is no reasoning whatsoever. It's something in place of reasoning.