Well, actually money is not edible or at least that is not its primary use, its assumed money will remain physically the same and that there are two demands for it the holding demand and the exchange demand.
Now how loans in a 100% reserve bank work is that the banker would ask for a time deposit and he would formalize when the depositor has drawing rights to his money. This means that $10 in gold becomes both $10 money at time T1 (the present) and $10 money at time T2 (when the original depositor gets the right do withdraw the money again)
In a fractional reserve system all that’s different is that there is no formalizing of dates. Instead the entrepreneur bares this as a risk instead. Instead of saying “look you can’t take your money out till february 2010” the entrepreneur anticipates that the depositor won’t take his money out till then.
There is absolutely no difference between the two.
In the time deposit there are two or more claims to the money but at different times. In the FRB situation there are two or more claims to the money at different times only the times are not formalized and its up to the entrepreneur to bare risk.
Really it is very very very falacious to think that in FRB 10 golds become 100 golds.
Yes, its the logical position for the people who demand that fiduciary media be prohibited and who demand the prohibition of the issue of notes without a full metal backing.
To continue what your dots cut off.
And to contine where they pick up.
Again, there isn’t really a disagreement. Banking would still exist if fiduciary media was prohibited, however it wouldn’t have any of the benefits.
Quote 2:
Actually, my quote was used to merely show Mises’ defense of fiduciary media.
You’re quote shows Mises taking apart the Banking School, hes correct, it is impossible to permanently maintain more notes than will meet public demand. The Banking School wanted to use the Real Bill Doctrine to determine rates in conjunction with the Bank of England, the central bank.
Here is the full quote, how I “mined it from another part of the book” I’d love to hear.
Mises is expounding the resource-saving view of Adam Smith. The “undesirable consequences” are the diversion of capital and labor from “other branches of production to the production of the monetary metal.” If fiduciary media had not been created “the welfare of the community would have suffered” because “a smaller quantity of economic goods would have been available for the direct satisfaction of human wants.”
Please point out where I have chopped up passages and then put them together. The only one being intellectually dishonest seems to be you.
It is backed, by equity or liabilities. Neither of those sources come from thin air, they come from the expenditure of real resources. Falling back to commodity is just a rehash of the LTV.
There is no strength behind any arguments such as “fraud” and “money out of thin air.” The only thing that matters is if the system works. Mises’s views on the essence of fiduciary media are also irrelevant to this discussion.
Will the 100% reservists please present their strongest arguments in a couple of bullet points so we all know what we are talking about?
I’m not necessarily pro-FRB, when did I say I was.
I just maintain that there is no difference between time deposits and fractional reserve banking other than the element of uncertainty. Which is largely correct. So 10 apples can become 100 apples in 100% reserve banking too its just formalized where as in FRB its more flexible
10 claims may or may not become 100 claims. This is irrelevent because the point is this would happen under a time-deposit regime as well. There is no difference between the demand deposit and time deposit systems in terms of the money multiplier.
You haven’t read the whole thing. Yes HA was written after TMC, and you can assume it represents Mises’ views better. His views could have changed, for the better or worse. Both sides wrestle for Mises, and its largely a waste of time, as great as Mises was, he was occasionaly wrong. I don’t know why you hold a special place for him really, as you haven’t been to kind to him before.
What’s the point? The strongest possible argument is that it’s fraudulent: that’s a knock-out blow right there. But you’ve already said that’s not what you want to hear, so…
Say you have Smith who deposits $10 with Paul&Co Bank under the condition that he won’t take out this deposit till march ten years from now. Further suppose this money is then loaned out to Jones in the mean time.
Now there are two claims to the money: one ten years from now by Smith and another in the present by Jones. Jones purchases a widget with these $10 from Brown. Brown then deposits this same $10 promising he won’t withdraw till twelve years from now. These $10 are then loaned out again.
However notice that now there is both the claim from Smith on these $10 ten years from now and a claim from Brown on these $10 twelve years from now as well as a claim on whoever the money is loaned out to in the present.
Under 100% reserves the bank will make as many of these claims to the $10 as it wants using the instrument of the time deposit as long as it thinks it will be able to meet all obligations at the time they are due.
So $10 in gold can very much so become 10 different claims to those very same $10 under 100% reserves.
Thus the requirement for 100% reserves is just a way of eliminating uncertainty from banking and formalizing the dates upon which the claims fall. Nothing else.
Under Fractional Reserve Banking when the claims for the $10 will fall is not set in stone, and instead the uncertainty of this will be borne as risk by the entrepreneur.
This is the only difference.
Aside from this the banks operate under the same principle, maximizing how many loans and investments they make while trying to maintain enough capital to meet all obligations at the time they are due.
A claim to $10 in the future is not the same as money in the present. This is not at all the same as the same $10 being in many people’s pockets at the same time under FRB.
A fractional reserve bank note IS a claim to money in the future. In this case the future being whenever the holder comes to collect the money guaranteed on demand by the bank.
I think if you stop and consider this for a second you will find it is exactly the same under both FRB and 100% reserves, except when depositors will come to withdraw the money is known under 100% reserves and it is unknown in FRB
In FRB holders of bank liabilities are holding a future claim to real gold (indeed, in the present they hold no gold just claims to gold at some uncertain point in the future) . In 100% reserves holders of time deposit certificates are holding a future claim to real gold (indeed, in the present they hold no gold just claims to gold at some certain point in the future")
Which is of course a non sequitur. People who know full well how things work did, do, and will do make such contracts and arrangements. The fraud issue is so braindead I know of no person who has actual legal education yet buys this.
Its not fraudulent for depositors they will get back his money, but its fraudulent for entire economy because supply of money is going to increase and that cause inflation.
How is this at odds with methodological individualism? It’s just working at a level of abstraction, and using shorthand. If you really wanted me to, I could phrase it differently in terms you may be more comfortable with (for example, instead of writing “the demand for money increases” I could write “a substantial number of individuals begin to rank money more highly on their value scales”) but to be honest, I think you’re just being pedantic.
I suppose this is what passes for an argument for a full reserve banker, telling the “opponent” they need to learn “real economics” and quoting Frederic Bastiat. Look, regardless of what I think of Bastiat, I’m quite certain he’s not read the works of White, Selgin, Horwitz, Sechrest et al so I don’t really think he’s a very reliable source in a debate on modern free banking theory.
If you really like, I could mention it. I just don’t see why I would up to this point. If you want me to drop more terms that are somewhat irrelevant, I can do it.
These free market institutions you refer to are pretty simply, namely, the enforcement of contracts. And yet, you would want certain types of contracts to be punished and even outlawed. These contracts, by the way, are voluntary agreements between two individuals concerning their own property. So, yeah, you want a centralized ban on FRB when every other market can work fine without such legal restrictions.
That certainly sounds consistent with Austrian theory…
This is true whether the money granted is fudiciary media or not. Look, even in a 100% reserve system is a bank grants a loan there will be money injected in a certain market, I don’t see why FRB is different in any relevant manner. I mean, you talk about how money is created out of “thin air” (it isn’t, if a bank has no assets, it can’t expand any loans) but this just doesn’t matter in the present context. The only way for an entrepreneur to tell whether the demand for his product is “genuine” is through profit and loss accounting.
You’ve still not answered the question, if people wish to hold more bank notes, there full reserve crowd would literally have to turn around and say " no, we can’t allow for expansion of supply in the face of increase in demand" which is, of course, only allegedly true in the market for money. Keep in mind, this is only one such inconsistency and nobody has really managed to rebut the others.
Scineram’s Gene Callahan quotation is especially relevant here. If a bunch of gold entered the economy rapidly, without consumers and entrepreneurs having knowledge of this, it could cause a boom-bust cycle in a full reserve environment. Once again, I’ll issue the challenge I did earlier. If there is a full reserve banking system and people suddenly desire to reduce their savings, not by decreasing their lending to the banking system, but by reducing their demand for cash, what would happen? As far as I can tell, there would be a rise in the natural rate that would not be followed immediatly (due to less than perfectly flexible prices) by an increase in the market rate. And, of course, we all know what happens when the market rate is pushed above the natural rate, right?
Of course, arguing in favour of an entirely free banking system is my preparation for working for a central bank. Yes, I would be delighted to work for a central bank, for numerous reasons (the knowledge I could obtain in doing so, the impact it would have for a grad school application).