You slightly overlook the fact that apples are not money.
This is quite easy. If people are cheated into accepting paper money, they are not really cheated. Hey, VALUE IS SUBJECTIVE. And so is everything else. If you drink poison, but you don’t believe it is poison, you die, but hey, VALUE IS SUBJECTIVE.
Sorry, I forgot to add that VALUE IS SUBJECTIVE. And so is everything else.
The banker doesn’t lend out 100 apples. He lends out 10. Then that 10 can be loaned out by a different bank. The potential increase in the money supply is based on the reserve ratio which is a function either of government decree or of the time preferences of the banks’ customers. To put it a different way, the reserve ratio doesn’t hydraulically “set” the money supply; the reserve ratio itself is a function of people’s time preference. You have the causation backwrads.
You slightly overlook the fact that money’s only function as a medium of exchange is that it’s value does represent real goods that you can exchange for that money. Otherwise, it would be useless as money. Economic calculation would not be possible.
Infact, your assertion only makes some sense in the Keynesian world. I think that White and Selgin themselves would disassociate themselves with your statement. No offense.
Ah, but ‘value is subjective’ which, again, means that whatever mistake people make is never a mistake. In other words, you are arguing against wannabe ‘economists’ who have a completely dogmatic (and ridiculously wrong) position.
No matter what you say about ‘money’, they can retort that people accept it ‘voluntarily’, and if you hint at the existence of fractional reserve FRAUD, that’s because you are not a libertarian and thus oppose ‘free banking’. ‘Free’ means, of course, free to cheat.
Completely ignoring the fact that its only money to people who value it seems to be a good defense for you. This argument can be applied to any good, “you grew 10 more apples than last year, now the pie market will become distorted!” Again, you have done nothing more than assert that it will be misallocated without any sort of evidence, historical or even theoretical. Nobody has to accept the notes, so saying it automatically leads to misallocation is just you groping in the dark.
Or you could have just read the above or below.
Not a problem for FRB given contracts. Also, if you allow loans to be lent how do you they will be allocated properly, oh you don’t and can’t, therefore (via DD5 groping) loans lead to misallocation of resources.
Unproven assertion again.
Good thing it isn’t “created out of thin air.” as I already explained. Its value is completely subjective, some from this you cannot prove that it won’t still maintain the natural rate of interest, nor is the natural interest rate necessarily fixed.
I never made any such claim, you did. Alas, without proving it.
As I said, the only non-argument you have is that people doing something because they are making a mistake or are being wilfully misled, means that in reality they are not making a mistake or being misled.
Like the rest of the pseudo-economists you don’t really understand money.
Guys, just let me put this in context. Juan holds two PhDs from MIT and U of Chicago (both in economics, just for the fun of it) and has done since he turned 15. Since 18 he has been nominated for the nobel prize every year, they’re just begging him to accept. Fortunately, Juan has stood strong to his principles of rejected the offer every year with the note “no, you statist pig”. Juan was also nominated for a number of other prizes such as the John Bates Clark award, and he been published under various top publishers such as MIT press, Stanford University Press and Routledge. Of course, all these were under pseudonyms. Juan first got into the AER and QJE at 12 and 13 respectively, and he managed to write his dissertation in 3 pages with the third consisting entirely of insults directed at statists, rightists, conservatives, socialists and everybody else besides his group of socially liberal anarcho capitalists.
Given this it’s all pretty reasonable that Selgin and White are pseudo economists.
Kid, all you have is an appeal to authority. And, by the way, selgin and white are not exactly, say, Newton.
hey everybody - Obama holds a Ph.D. as a Constitutional Lawyer!
Juan, who cares about Newton? He’s an intellectual lightweight next to your majestic brain. Good for you! Not capitalizing the “S” and “W” in Selgin and White respectively. They’re not worth the effort of holding shift!
Giles, dear, I was trying to explain to you that if you are going to use fallacious arguments, at least try invoking a real authority. Dunno, keynes for instance.
You mean Murray Newton Rothbard, correct?
Hehe. Good call =] - Actually, I would try this : What Is Money? Frédéric Bastiat
Look, the view that FRB causes misallocation in general doesn’t make sense. The reason is that the loans made by banks under the current system would be made without banks in a zero-transaction cost world. Think about it. Without banks, individuals would be forced to loan out the money they don’t want to hold themsleves. This money would be used by firms to pay for factors of prodction and would eventually end up in the hands of workers who would then loan it out again. This is exactly how the current system works except the lending is done by individuals rather than banks.
Now we introduce banks. Banks are specialized at finding viable firms to lend to and they allow individuals to “pool their time preferences” in much the way insurance companies pool individual risk. An individual’s time preference may be volatile but generally the aggregate time preference of the population is pretty stable. Where is the “artificial credit expansion?” Banks that don’t loan out money in accordance with the time preference of their depositors will be competed out of business. Sure, a contagion leading to a run on all banks will bring down the system but there are other solutions to this problem than just eliminating FRB.
The takeaway is that banks are just an intermediary formed by the desire for specialiazation and the reality of transactions costs. The same amount of loans are made by banks as would be made without them, theoretically. The lending is just more efficient. This is pretty basic stuff. Mises certainly understood it. Did Rothbard? Actually, I don’t know what his real view was. Was he just afriad of contagions or did he actually think FRB led to gross misallocation? It isn’t clear from his writing and I’m forced to conlude that he was working entirely off of political motives rather than economics. It’s ironic that Rothbard developed what he called “Rothbard’s law” under which economists write the most on the topics they are most wrong about, specifically applying it to Friedman.
Actually, I have an almost limitless supply on non-arguments.
And that doesn’t happen to be one of them. There isn’t any insistence on my part that anyone is being misled, thats all you.
I’m sorry but it almost seems like you are confusing money with wealth. You must be in order for the above example to make any sense. I’m sure you will agree that creating new money adds no real wealth to society, since money’s value is only derived from it’s exchange value. When you create new money and inject it into a particular point in the economy, the first receivers benefit because prices have not risen yet. They benefit at the expense of the late receivers. The benefit for the receivers of the new money is a one time thing. The price increase that arises at the injection point is a bubble. It does not reflect new demand that has shifted from something else. As soon as the money cripples through the economy, this fact will be revealed.
When this new money is injected into the credit markets, it deceives the market into thinking that there is more real saving then there really is. Since time preference has not changed, a credit shortage will be revealed as soon as prices begin to rise and consumers continue to spend as they did. There is no way you can inflate the money supply via credit markets without distorting the interest rates.
Unproven assertion? The multiplying factor that arises in FRB is an assertion?
The example with the apples is my sanity check on this issue. It seems that nobody from your camp can give a proper explanation this problem is resolved or what is wrong with the example. Even White and Horwitz will agree that real savings MUST amount to real goods that have been previously produced and not consumed.
The problem is that the money lent out is not just cash holdings like you are suggesting. It is not simply utilizing the deposits for efficient use and solving the problem of fraud by contractual agreements (which I believe you fail to do, but that is besides the point).
The problem is that FRB takes this money and multiplies it. There is no way to do this without causing the inter-temporal distortion of the structure of production which is at the heart of the boom/bust cycle.
It is an unproven assertion that it is destabilizing.
You should read my two comments above. I addressed this point.
I already debated this issue with you and we ended up debating about basic supply and demand curves.
I’m not going to argue about this basic point that investment=real savings.
10 apples were saved and that is all that can be directed toward investments. Not 100!
There is no way for you to go around this point without resorting to Keynesian fallacies, where all of a sudden it’s all about money and nothing about real goods.