and monkeys might fly out my butt If government can bail itself out by printing more money they will. If you have power you tend to use it. More so than letting the market regulate the banking industry, I would like the market to choose it’s money.
So. Does this mean in an Austrian world any centralized storage of money (base money or gold or silver) in itself a bad idea? Should the public be forced to keep money (again paper money or gold or silver) under their mattresses? We should not use checks and central clearing since these can be abused by governments or even by private institutions? Governments can expand base money or change the ratio of metal to paper. Private banks and mis-match maturities and expand the money supply via fractional reserve lending.
yes, two legs good, monopoly bad.
forced? are you kidding?
lol. are you for real?
Well, we can’t say for sure how many banks there should be. Maybe it is optimal for there to be one, or many. It is up to the market to decide how things will play out.
Ok. So lets say we have two banks and a gold back currency and I want to “store” my money in Bank A. And lets say we don’t have a central bank. This means that if I give a personal check from bank A to my grocer who has an account at bank B there needs to be a physical transfer of something (paper money or gold or silver) from Bank A to Bank B. right?
Base money should be determined by the market, and stored as centrally (or not) as the market wants to store it.
Right. That has nothing to do with markets, freedom, libertarianism, Austrian Economics or Adam Smith’s invisible hand.
Or the two banks can just settle receipts, like they did for many years before central banking.
if he cashes it, and assuming there aren’t other parties transacting that don’t result in a full clearance
If by centralized storage, you mean a government monopoly on money, I know I would be opposed to it. Even with a gold standard the government routinely went off of it to finance it’s wars among other things. Whatever the market chose for money I would imagine they would prefer the convenience of tranfsering that money electronically to the alternative. I see no problem with there being some sort of network to facilitate these tranfers among banking institutions so long as the state does not have the ability to control the supply.
Ok. So why not have central storage of money so you don’t have drive it around from bank to bank (at least the net owed after all clearing for the days business). It seems to me a very practical thing to do is to have it ledgerized and centrally held.
the customer doesnt have to drive it from bank to bank…
if you think a bank merger might be profitable, try it. if you go bankrupt cause your business model sucks. so be it.
Are you really arguing that because there are transportation costs in moving commodity money, all the commodity money should just be kept in one place? Ya know, sometimes things that are good are actually worth the price for. And a legal monopoly (i.e. artificial centralization) of any product or service sucks, and so it does for money. im sure you dont disagree on at least that point.
as liberty student said if centrally storing makes the most sense then it’ll be centrally stored
So. The Austrian school is not against centralization per se. Only if it arose independently as part of the marketplace processes and not because of a government requirement. Therefore, a central bank for clearing only is not against the Austrian school principles. Specially if no bank is forced to be part of it. If a particular bank wants to physically settle then be it (it might cost more: transportation costs, security costs and physical theft risk).
You still have transportation costs to and from the banks to the central bank. You still have security costs at the central bank. You still have risk of theft (inflated) because all of the loot is in one spot.
Like the argument against the risks of storing your money at home. Well, you have to pay a 100% reserve bank a warehousing fee. So that is the cost of security. You could just as easily pay that to a local security firm, a local warehouse bank, keep the money and take your chances. There is no one size fits all answer. But if you fashion your arguments where the central bank only provides benefit and no cost, and the alternatives have costs but (in your eyes) no appreciable benefits, then you’re constructing a flawed argument. There are opportunity costs to central banking. Only by testing such a scheme in the market, can we determine what best suits the demands and purchasing power of the consumer.
Yes, it is necessary to understand these, and the reasoning behind them. Have you read anything from the Austrians thus far? If you need a reading list, folks here would be happy to help you with that.
The fact that money is not stored directly in your branch’s vault doesn’t make it any less 100% reserves. The fact that money were centrally or regionally stored would not make any difference. So long as it’s not being loaned out.
Does this mean that to Austrians a central bank that exists for clearing only (no base money creation or open market operations to influence interest rates) is perfectly acceptable?
Still the question remains: Why has the marketplace not produced a banking service which would provide 100% reserve account without having to worry about FDIC limits?
My hunch is that if such a service existed it would be very difficult to justify the lie of deposit insurance. Banks are “forcing” the public to take credit risks (yeah I know I can put my money under the mattress but that is not a practical alternative). This allows the banks to inflate profits by private money creation (via fractional reserve lending). Yes. It is a monopoly and the government is aiding and abetting it. That is why I propose that the change should come via force of law (actually repeal of most banking laws) and creation of a “free banking” environment.
It seems to me Austrians want to make fractional reserve banking illegal by force of law? Is this a correct statement?
there’s no benefit to 100% reserves versus fractional in a fiat system. Whether it’s under your mattress or in a ccount it depreciates at the same rate. You may as well get a small interest benefit and the convenience of electronic banking .
Only if it is a product of the marketplace. It can sell laser guided missiles, train rabbits to oil paint, and sing songs to children, as long as it is freely created and maintained by the market.
Because the state has removed market forces from the banking industry.
Some people like comfortable lies that don’t ask them to think too much or take action.
The law is a legal monopoly run by the government. Why would they surrender their control of the central bank and FDIC? They have no incentive to use their own laws against themselves, to produce more honest outcomes.
No.
We need not expand the money supply for economic growth. The economy will grow on it’s own as new services and technologies are introduced and outdated technique’s are purged. The market itself is constantly beating down the cost of living for everyone. Without raising the money supply a steady price deflation will occur as the consumers purchasing power continues to grow. Attempting to keep the money supply up with the ‘pace of the economy’ can only be done arbitrarily. It does not create new wealth, it distorts and perverts the market of what new wealth is actually created. It makes it difficult for market actors to adequately calculate, entrepreneurs and housewife alike. Distortions in the money supply effects all market actors who participate in the market whether as a producer or consumer.
Austrian’s in general explode the fallacies of ‘price stabilization’ and inflating the money supply to keep up with the economy.
Changes in the money supply perverts economic calculation and sends business’s into mal-investment.
The other issue is measuring economic growth. All systematic or economic measurements of economic growth are derived entirely arbitrarily. All algorithms used are arbitrarily made and as a result do not truly offer a metric for reality. Human Action is difficult to capture on an individual basis, monitoring global human action is next to impossible. Whats worse is most of the algorithms used are based off the very monetary units they distort. In other words, printing more money makes GDP look great.
Please read Stabilization on Page 219 of HA.
The market regulates interest rates on it’s own. In the absence of a central bank the price of credit would be entirely regulated on the market. You wouldn’t see the type of monetary expansion we see today. Supply and demand would come back into the picture. I’m sure you already knew this…
The difference between the ‘public’ safety net and a private failure is this. In the private failure’s loss is isolated to those who risked taking that banks service. In the public failure;s the costs are distributed amongst all members on that currency, devaluaing the currency for everyone and destroying the purchasing power.
Is it not correct that in general over long periods of time when gold and silver were really used as money the money supply (gold and silver supply) grew faster than the growth of the real economy? So, there was some (small, 1% to 2% perhaps) monetary inflation in olden times.