Thank you very much.
I almost thought we were done. Since It seems that you appreciate references, I made an extra effort for you on two critical issues.
I’m not sure I understand what he means but I’m quite sure that what you are alluding to is wrong.
Hayek in the “The Pure Theory of Capital” already showed that it is basically impossible for the income growth which arises from investment financed by credit expansion (fiduciary media) to provoke enough voluntary saving to sustain the investment.
So long as any part of the additional income thus created
is spent on consumers’ goods (i.e. unless all of it is saved),
the prices of consumers’ goods must rise permanently in
relation to those of various kinds of input. And this, as will
by now be evident, cannot be lastingly without effect on the
relative prices of the various kinds of input and on the methods
of production that will appear profitable. (pp. 378)
Also,
All that is required to make our analysis applicable is that,
when incomes are increased by investment, the share of the
additional income spent on consumers’ goods during any
period of time should be larger than the proportion by
which the new investment adds to the output of consumers’
goods during the same period of time. And there is of course
no reason to expect that more than a fraction of the new
income [created by credit expansion], and certainly not as
much as has been newly invested, will be saved, because
this would mean that practically all the income earned from
the new investment would have to be saved. (pp. 394)
You must go to the full text the get the full context. However, what is meant is that in order to avoid the inevitable crisis, all economic agents will have to save absolutely all of the income derived from the new investment. Of course, this is impossible. Consumers will always spend at least part of it, (if not most of it).
It will do no such thing. First, the premise doesn’t make any sense. Assuming (as you did for the sake of argument) the 100% reserve system is achieved naturally by free banking, how can you say that anything is above (or below) the natural rate, since by definition, “natural” corresponds to the free voluntary action of individuals.
But the error in your economic reasoning is as best described by Mises (my bold highlight):
Whenever an individual devotes a sum of money to saving
instead of spending it for consumption, the process of saving
agrees perfectly with the process of capital accumulation and
investment. It does not matter whether the individual saver
does or does not increase his cash holding. The act of saving
always has its counterpart in a supply of goods produced and
not consumed, of goods available for further production
activities. A man’s savings are always embodied in concrete
capital goods. . . . The effect of our saver’s saving, i.e., the surplus
of goods produced over goods consumed, does not disappear
on account of his hoarding. The prices of capital goods
do not rise to the height they would have attained in the
absence of such hoarding. But the fact that more capital goods
are available is not affected by the striving of a number of
people to increase their cash holdings. . . . The two
processes—increased cash holding of some people and
increased capital accumulation—take place side by side.
(Mises, Human Action, pp. 521–22)
Actually, when you really start to grasp Capital Theory, together with Austrian/Misesian theory on money, the above makes perfect sense. Although the above is hardly a trivial observation. Jesus Huerta de Soto in “Money, Bank Credit, and Economic Cycles” actually goes into greater details and points out some minor differences that take place at the micro level during the adjustment phase, but in principle, the two lead to almost identical processes.
Straw man again. I have said it a million times, as well as a few others here. So why do you keep at it.
There is obviously a misunderstanding or a disagreement, but it is very convenient for you to just asset your correctness on the matter and insist everybody else is conspiring against the free market.
I agree! But I know this, because like you, my knowledge in Austrian economics has helped me to see the truth and expose the statist myths. We are a small minority. What is your point with this comment, I have no idea.
Because you know everybody else around you is clueless. There is no way they will make a run on the bank. They believe in FDIC and the government.
When they do wake up, it will be too late and you will already have taken your money out of there and stored it in safe keeping FOR A FEE in gold bullion.
False dichotomy - pay fee vs earn interest
You conflate two types of savings that are entirely different from the perspective of the individual. savings by “hoarding” , or saving by investing in business ventures. That is the correct dichotomy from the individual’s perspective; investing or hoarding. He will choose if to earn interest or not according to which ever type of saving he embarks on.
When the individual wishes to hold his money, he is willing to not earn interest or even pay a fee. This is why people, and I’m sure most Austrians, store gold bullions in safe deposits. No, they don’t want to earn interest if they just let the bank can risk it and lend it out. They could have done that by leaving their money in a regular savings deposit. They want to hold on to the gold, and not subject it to the risk of business failures.
So this whole “earn interest” instead of fee is completely fallacious.
rsthompson: