What you are proposing is an entirely different contract and it would not be a DEMAND deposit. Banks may not be required or may not opt to have demand deposits. They are free to do that, but if they have demand deposits then there is no waiting period. But if someone has a contract with the bank for a demand deposit then they cannot loan out the money. The bank would be violating the contract. Austrians are not proposing outlawing TIME deposits or Demand deposits. You are arguing against demand deposits by trying to claim that all demand deposits can be time deposits if they agree to there being a waiting period. If I wanted a waiting period for my money then I would make it a time deposit contract and not a demand deposit contract.
If I store my furniture in a warehouse I am free to pick it up whenever I want on demand. I am simply storing my goods in a warehouse the same way I am storing my money at the bank with a demand deposit. The warehouse CANNOT loan out my furniture while it is in storage with them. The bank cannot loan out my money while it is in storage with them. If I loaned my furniture for 12 months or whatever period of time to the warehouse company then they could do whatever they wanted with it for the duration of time it was loaned to them. Then it would not be a demand deposit.
No need to resort to name calling. perhaps you could point me in the direction of some books that support your position. I feel I’m reasonably well read on the subject but I must admit most of it has had an Austrian bent.
It doesn’t matter whether you know or not in order to be a bank you need a charter in order to get a charter you have to agree to frb. When this wasn’t the case and the general public got wind there money wasn’t there thats when a little something called a bank run happens.
The Austrian School of Economics is not a “Cult”. You are labeling an entire group of people as a Cult. Austrian economics is an Idea, a school of thought. There are many individuals who believe in this school and have differing opinions and theories on a range of topics. Not all Austrians only read Austrian literature and books. We also read opposing theories and test them against logic as we do with the theories that are internal to the Austrian School. I think it is you that does not understand what a free society is and understand the individual in society.
It is your arguments that do not stand up to logic. I suggest you look into the School of Sophistry. You’re setting up straw man arguments by incorrectly defining what a CD is, What a demand deposit is, what a time deposit is and then making a case for your fairy tale banking system based on these false conclusions.
Your point is irrelevant to that. It is false anyway, there are only minimum reserve requirements. Just in last few months reserve ratios reached 100%. They are not obliged to lend out money from demand deposits, it just pays to do that. For all involved.
That is what a demand deposit is. Before electronic banking people had to go to the bank and withdraw the money from their safety deposit box which was the Bank’s vault when they needed it. The only reason banks can treat money deposits on demand differently than deposits of other goods is because of money’s fungibility. If I deposited a unique item at the bank such as my wedding ring then the bank could not loan it out and pay me with someone else’s wedding ring. With money or gold or silver or wheat people generally do not distinguish between them.
of course. present goods are preferable to future goods and carry a higher price → interest.
less inflation. less bankruptcy. no business cycles (provided by gold economy you mean free market). higher savings rate. better capital and production growth.
I agree in a free market system, with a commodity money, frb would be much better regulated. As long as as there is inflation there will be winners and losers. I still fail to see how it is not a fraud.
I don’t think he’s referring to the Austrian School’s economists but rather the people who misrepresent their views.
First, FRB is not firmly outlawed ethically or dismissed as bad economics by all the school’s economists. For instance, I believe Selgin, White, and Salin support it (not sure if Salin is firmly Austrian or just shares some beliefs).
Second, time deposits, whether by CD’s or option clauses on “demand deposits”, are not technically FRB, although they will often be included in some money supply measurements. In a free market, they would most often not be counted as money, nor would they cause business cycles. I don’t believe any Austrian economists would disagree with these statements.
Third, fractional reserve banks can operate and possibly never go bankrupt while 100% reserve banks or banks that only issue time deposits may go bankrupt. The Austrian position is not some absolutist stance. It is simply that FRB faces the additional threats of business cycles and bank runs, which should correlate to higher bankruptcies on the margin.
Fourth, business cycle theory is not limited to fiat currency, central banking, or even FRB. If there is an influx of money into society that occurs through the introduction of the loan market, this will cause a business cycle. This can potentially happen in a free market with free banking using 100% reserves and commodity money, although it is far less likely than under our current conditions.
I should clarify - by inflation, I meant less expansion of money supply. This would include additional findings or monetizations (melting gold jewelry into coins - or just establishing their use as money) of commodities. I think some amount of debt would also become monetized.
Rothbard I believe defined inflation as the expansion of fiduciary media above the expansion of commodity reserves backing them. This is not what I meant, because I don’t think strict FRB would exist in a free market; however, I would agree with Scineram and MaxLiberty that time deposits would become more common and often exchanged, although far less regularly than actual commodities or 100% titles to them on demand.
The banks don’t have demand deposits now. So it is you discussing fantasy contracts. My point is very simple, banks that turn all deposits into some for of time deposit will crush the other banks because they will be dramatically more profitable. Also, if the defintion of time deposit is any delay on redemption then the distinction between instaneous redemption and one minute delayed redemption is idiotic. Banks could still offer exclusive actual demand deposits where they store your gold but this will be the overwhelming minority of accounts.
Evidence of this is the current system, you could open a bank tomorrow that offered 100% backed gold redemption, but we don’t see any.
Finally, the phrase fractional reserve is quite misleading and actually refers to when banks loaned at a multiple of the funds they had. What I am argueing for is for the ability of the bank to have mixed assets as part of their 100% reserve.
Let’s say a mining operation makes a deal with a bank, that they will give the bank their freshly mined and refined gold in exchange for a portion of the interest it earns in being loaned out.
Of course, the effects of such are so miniscule that it could never cause a business cycle as large as the ones we currently have, which are often fueled by not only purposeful manipulations of money supply and interest rates, but a number of successive attempts to make the boom bigger and bigger.
Have you read The Mystery of Banking by Rothbard? He says quite plainly that the supply of money is completely irrelevant and there is no optimal supply of money in any economy. The only optimal property for the supply of money is for it to remain constant.
A gold mine would only aid the economy in offering greater consumers’ goods in jewelry and other non-monetary functions.
If the gold were instead put toward money use and lent out as its introduction into society, this would lower interest rates, causing unsustainable capital investments unmatched by general savings. There will be producer price inflation, and businesses will require more credit than anticipated. At the same time, the additional money effects consumer goods prices, driving up interest rates. Many investments can no longer be completed profitably and are liquidated.