Austrian fractional-reserve free bankers...

[scineram]

@DD5

where it actually requires labor to produce the money

lolololol

Sooo 19th century.

[Juan]

Yes, OTOH, the idea that pieces of paper have value just because of…magic, is not something that belongs to the 19th century - rather it belongs to prehistoric times when quack doctors and pseudo-economists ruled the earth.

Anyway, DD5 is referring to something called commodity money - a concept you (and others) seem to have trouble understanding.

[Angurse]

@DD5

I am not ignoring anything. You are ignoring basic logic because you are so fixated on your preconceived notions of how the economy works.

There is no way you can introduce new money via credit markets and still maintain investments=real savings where real savings means real goods that are being channeled into investors instead of being consumed by the saver.

If you want to avoid real economics, i.e. the exchange between real goods, and instead continue with you velocity of circulation, then I’m afraid we’re at a dead end. At this point, I’m not sure you fully realize what savings really means.

Preconceived notions? You’ve yet to prove once that fractional reserve banking even causes a supply of credit in excess of real savings, yet to explain how the concept of velocity is meaningless, yet to explain why MV=PQ is useless, yet to explain why demand for new money “doesn’t just accommodate,” etc. Ignoring seems like too soft of a word. Honestly, how does a bank accommodate a prior increase in demand for money?

@DD5

With respect to a demand for money, they can’t do anything productive except hold that money for you, or convince you to convert that money into a time deposit (CD) where you can earn interest. Anything else will be unproductive.

I think your answer to my above question is Yes?

Respect to the demand for money? Hardly. Such inaction would prove to be quite disequilibrating. If the bank fails to increase the quantity of notes and the price level does not immediately fall, an excessive demand for notes will arise, accompanying that will be an excessive rise in the supply of goods, curtailing any good investments (unless you’re a Walrasian nut!). Holding money for later spending, rather than spending it on consumption now, does, in fact, defer consumption to the future (where is a different story). Also the act temporarily lends funds to the bank of issue in so doing so it can safely make investments of corresponding length.

@DD5

Your “velocity” does not provide you with real answers regarding real economic analysis of real goods being exchanged.

You simply have no clue how to resolve the problems with the apples: I save 10 apples, yet your are lending out claims for 100. No velocity or demand is going to solve this mystery. When you decide to analyze the economy in terms of real stuff, maybe you’ll see your blunder.

When you understand that the money supply as a whole is demand-elastic (i.e. real), you’ll see its been answered. Your line of thinking, if practised, just spells disaster. You can avoid common economics terms and principles all day, it won’t make anything more “real.”

[Angurse]

@Juan

Yes, OTOH, the idea that pieces of paper have value just because of…magic, is not something that belongs to the 19th century - rather it belongs to prehistoric times when quack doctors and pseudo-economists ruled the earth.

I don’t think anyone here has said once that the pieces of paper having value for no reason. But that LTV seems to keep creeping back up on us again and again.

[wilderness]

@scineram

@DD5

where it actually requires labor to produce the money

lolololol

Sooo 19th century.

yes working is hard for some people, but that’s how real production happens

[DD5]

@Angurse

@DD5

I am not ignoring anything. You are ignoring basic logic because you are so fixated on your preconceived notions of how the economy works.

There is no way you can introduce new money via credit markets and still maintain investments=real savings where real savings means real goods that are being channeled into investors instead of being consumed by the saver.

If you want to avoid real economics, i.e. the exchange between real goods, and instead continue with you velocity of circulation, then I’m afraid we’re at a dead end. At this point, I’m not sure you fully realize what savings really means.

Preconceived notions? You’ve yet to prove once that fractional reserve banking even causes a supply of credit in excess of real savings, yet to explain how the concept of velocity is meaningless, yet to explain why MV=PQ is useless, yet to explain why demand for new money “doesn’t just accommodate,” etc. Ignoring seems like too soft of a word. Honestly, how does a bank accommodate a prior increase in demand for money?

@DD5

With respect to a demand for money, they can’t do anything productive except hold that money for you, or convince you to convert that money into a time deposit (CD) where you can earn interest. Anything else will be unproductive.

I think your answer to my above question is Yes?

Respect to the demand for money? Hardly. Such inaction would prove to be quite disequilibrating. If the bank fails to increase the quantity of notes and the price level does not immediately fall, an excessive demand for notes will arise, accompanying that will be an excessive rise in the supply of goods, curtailing any good investments (unless you’re a Walrasian nut!). Holding money for later spending, rather than spending it on consumption now, does, in fact, defer consumption to the future (where is a different story). Also the act temporarily lends funds to the bank of issue in so doing so it can safely make investments of corresponding length.

@DD5

Your “velocity” does not provide you with real answers regarding real economic analysis of real goods being exchanged.

You simply have no clue how to resolve the problems with the apples: I save 10 apples, yet your are lending out claims for 100. No velocity or demand is going to solve this mystery. When you decide to analyze the economy in terms of real stuff, maybe you’ll see your blunder.

When you understand that the money supply as a whole is demand-elastic (i.e. real), you’ll see its been answered. Your line of thinking, if practised, just spells disaster. You can avoid common economics terms and principles all day, it won’t make anything more “real.”

I read it all but there is too much to cover here. Much more basic then just free banking and FRB. Your concept of real savings is completely fallacious. I don’t believe it is even consistent with the White/Selgin/Horwitz concept of savings. Your theories are more in line with monetarism then they are with Austrian.

First, since you are so impressed by the equation of exchange I suggest you read: The Fallacy of the Equation of Exchange

The minute you had to resort to a completely fictitious equation in order to avoid the economics of apples, you exposed your lack of fundamental Austrian economics.

Second, I find it hard to believe that you’ve read Human Action by Mises

Third, if you think you are an expert in mainstream economics, I would suggest you read The Failure of the New Economics by Henry Hazlitt

[Angurse]

1. I haven’t really presented a concept of “real” savings (but it is definitely in-line with White, I haven’t read much by Horowitz.)

2. I actually didn’t resort to MV=PQ, I’ve answered the apple question already, however you rejected MV=PQ before I even came into this without explaining a thing. You simply have this “habit.” And again, you call it fictitious without explaining why.

3. I never claimed to be a mainstream expert, or even knowledgable about the mainstream. My views are far more in-line with the Austrian School, as thats pretty much where I’ve gotten them from, but I’m definitely no expert there either.

4. I’ve read all of those, I actually find it hard to believe that you’ve read very much by White and Selgin or even Mises for that matter as he seems to show a view similar to my own toward FRB in both Human Action and and even more so in The Theory of Money and Credit.

You have read The Theory of Money and Credit right?

[DD5]

First here is a good not long paper of exactly our discussion:

Fractional Reserve Banking and Boom-Bust Cycles by Frank Shostak. It specifically addresses White and Selgin.

@Angurse

1. I haven’t really presented a concept of “real” savings (but it is definitely in-line with White, I haven’t read much by Horowitz.)

2. I actually didn’t resort to MV=PQ, I’ve answered the apple question already, however you rejected MV=PQ before I even came into this without explaining a thing. You simply have this “habit.” And again, you call it fictitious without explaining why.

So why do you need an equation to explain how credit is not in excess of real savings. We don’t need an equation to explain capital theory. And we don’t need an equation to explain the business cycle.

If you read Human Action, why are you so shocked about my treatment of this equation. The equation reveals no useful information. It is simply a truism that bares no scientific value (It cannot be used to predict anything). There is nothing useful that you can do with this equation except to misuse it. Once again: please read The fallacy of the exchange equation.

@Angurse

3. I never claimed to be a mainstream expert, or even knowledgable about the mainstream. My views are far more in-line with the Austrian School, as thats pretty much where I’ve gotten them from, but I’m definitely no expert there either.

You have read The Theory of Money and Credit right?

Yes, but Mises talks more about the misconceptions that arise from mathematical equations such as MV=PQ in other works such as Human Action

Also, how about for your next future reading, something serious on banking and Austrian capital theory other the White:

Money, Bank Credit, and Economic Cycles by Jesus Huerta de Soto (I admit that I have just started reading this myself)

[Angurse]

@DD5

First here is a good not long paper of exactly our discussion:

Fractional Reserve Banking and Boom-Bust Cycles by Frank Shostak. It specifically addresses White and Selgin.

Yes, its a good paper.

@Dr. Shostak

…we can further infer that it is not the failure to accommodate the increase in general demand for money that causes an economic bust, but actually the accommodation by means of money out of “thin air” that does it.

I largely agree with him. Fortunately, as I’ve already pointed out, the money simply isn’t made out of “thin air” (see Mises on this). Also, he falls into the same mistake as many others when he says the bank notes have to be backed by good X (apples, gold, etc…) to have value. Good X only has value IF people demand it, which can also apply equally to bank notes, luckily the notes are in demand, so a bust isn’t around the corner. He just missed the mark.

@DD5

So why do you need an equation to explain how credit is not in excess of real savings. We don’t need an equation to explain capital theory. And we don’t need an equation to explain the business cycle.

If you read Human Action, why are you so shocked about my treatment of this equation. The equation reveals no useful information. It is simply a truism that bares no scientific value (It cannot be used to predict anything). There is nothing useful that you can do with this equation except to misuse it. Once again: please read The fallacy of the exchange equation.

Yes, MES is a masterpiece, I’ve read it. But again, I never used or defended the equation once. I mentioned it, as well as others, for no reason other than to point out your incessant disregard of points, arguments and questions, without any explanation.

@DD5

Yes, but Mises talks more about the misconceptions that arise from mathematical equations such as MV=PQ in other works such as Human Action

If you’ve read The Theory of Money and Credit, then you’d fully understand that banks (read: private, competing banks) don’t just create money out of “thin air” as and that FRB is possible (or at least plausible) under careful management.

@DD5

Also, how about for your next future reading, something serious on banking and Austrian capital theory other the White:

Money, Bank Credit, and Economic Cycles by Jesus Huerta de Soto (I admit that I have just started reading this myself)

I’m working on that myself actually. Perhaps, you should read a pro-FRB book next.

[Avram]

If apples are, lets say, not edible and their primary use is for exchange and that they are a good in their own right and that they were less like apples and more like gold i.e not physically destroyed in its use

Then:

One Apple X = The same Apple X at time T1, The same Apple X at time T2, The same Apple X at time T3 etc.

Depending on the bank’s ability to manage the time structure of its liabilities and assets this one apple can be used as many different apples belonging to different positions in time.

Fractional Reserve Banking and Fractional Reserve Warehousing accommodates this time dimension peculiar to the good money and other ultra-durable goods.

This, as I see it, is the orthodox view FRB supporters take against the claim “It seems the FRB crowd is arguing 10 real apples are 100 apples.”

10 real apples are always 10 real apples but these 10 real apples can exist in other states of time and how many different apples in different states of time these ten real apples can represent (i.e how many future uses of the apple the existing apples can acount for in the present) depends on the entrepreneur’s (who holds then ten apples) ability to time structure his liabilities. His success just like in any other enterprise depends on his anticipation (additional income from the issuing of bank liabilities) and of course the interest earned on capital (in this case ten apples). His losses would come from an inability to anticipate the demand (in time) of his consumers (i.e the creation of too many or too few claims to the apples given to the wrong people etc.)

[AdrianHealey]

@Juan

@AdrianHealey

I’ve learned absolutly nothing new from the ‘full reserve bankers’ throughout this discussion. I did however learned a few new points in favour of the monetary equilibrium view.

Well, for starters you should learn that tbe theories about ‘equilibrium’ are not really ‘Austrian’ - they are not sound economic reasoning at all. People who babble about equilibrium are your typical positivist, pseudo-scientist, pseudo-economist, who’s got human action and mechanics confused, I dare say, on purpose.

Yeah; Austrian Economists doesn’t use equilibrium…

I take it you didn’t get the ERE, which is a part of the Austrian Equilibrium analysis, depending on what your view is on ‘equilibrium analysis’, of course.

[hayekianxyz]

@DD5

I don’t recall your challenge. There are too many exchanges here.

I don’t know how somebody who has some basic knowledge of sound economics can reach the conclusion that I have adopted fallacious treatments of money that Austrians would reject. Perhaps only by “Austrians” such as yourself.

Well, I’d appreciate it if you could give your thoughts on my question to you.

Of course you’ve rejected a fallacious treatment of money, you tried to seperate the real economy from the monetary economy, which every good Austrian macroeconomic would deny the possibility of. Look, as Garrison writes, other macroeconomists tack money onto the analysis at the last minute in a fashion that makes it nothing more than a numeraire. Money, on the other hand, is central to the Austrian vision, and as such you can’t just assume that if you were to remove money from the picture the economy will stay the same.

[Laughing_Man]

@Angurse

Good X only has value IF people demand it, which can also apply equally to bank notes, luckily the notes are in demand, so a bust isn’t around the corner. He just missed the mark.

Woha woha woha…what happened to the regression thereom? All monetary base has to start with commodity backing.

[hayekianxyz]

@Laughing Man

Woha woha woha…what happened to the regression thereom? All monetary base has to start with commodity backing.

You’re getting confused between two different issues, the evolution of the base money and the evolution of the banking system.

[DD5]

@Angurse

I’m working on that myself actually. Perhaps, you should read a pro-FRB book next.

Believe me I have. I don’t criticize what I am not familiar with.

If you’re serious, you’ll come around.

@Angurse

Good X only has value IF people demand it, which can also apply equally to bank notes, luckily the notes are in demand, so a bust isn’t around the corner. He just missed the mark.

You ignore the inter-temporal distortion in the structure of production that is caused by the credit expansion. You keep talking about demand for notes, as if the business cycle is just about confidense in notes. You’ve missed the whole point of what has happend in the real economy as a result of the credit expansion.

[DD5]

@Avram

If apples are, lets say, not edible and their primary use is for exchange and that they are a good in their own right and that they were less like apples and more like gold i.e not physically destroyed in its use

Of course apples are edible. That was the whole point of saving them (either to save them for a rainy day, or to lend them out to somebody).

You missed the point of the apples example. The point is that it is real goods that are ultimately exchanged. The money commodity’s only useful function is to facilitate this exchange. It is not money per se that finances the purchase of capital goods, but the goods that can be exchanged for that money.

[DD5]

@GilesStratton

@DD5

I don’t recall your challenge. There are too many exchanges here.

I don’t know how somebody who has some basic knowledge of sound economics can reach the conclusion that I have adopted fallacious treatments of money that Austrians would reject. Perhaps only by “Austrians” such as yourself.

Well, I’d appreciate it if you could give your thoughts on my question to you.

Of course you’ve rejected a fallacious treatment of money, you tried to seperate the real economy from the monetary economy, which every good Austrian macroeconomic would deny the possibility of. Look, as Garrison writes, other macroeconomists tack money onto the analysis at the last minute in a fashion that makes it nothing more than a numeraire. Money, on the other hand, is central to the Austrian vision, and as such you can’t just assume that if you were to remove money from the picture the economy will stay the same.

How could I have separated the real economy from the monetary economy, if I am explaining to you that the boom/bust cycle is created by the monetary expansion of FRB? I have clearly relied on a monetary phenomenon.

I might as well use Garrison’s own exposition of the business cycle to explain this.

[Angurse]

@DD5

Believe me I have. I don’t criticize what I am not familiar with.

If you’re serious, you’ll come around.

You sound like a cult member, you really shouldn’t just accept a particular view as correct beforehand. De Sotos book, while very interesting, makes several errors. And, in my opinion, arguing over the history of demandable bank accounts and whether they are necessarily warehouse contracts, is just a waste of time - that all participants engage in - history is extemely complicated and unclear, the past doesn’t matter. What matters is theory, and FRB definitely can work in theory.

@DD5

You ignore the inter-temporal distortion in the structure of production that is caused by the credit expansion. You keep talking about demand for notes, as if the business cycle is just about confidense in notes. You’ve missed the whole point of what has happend in the real economy as a result of the credit expansion.

Once again, you are ignoring the environment over which the money is being expanded. Of course, you’ve simply rejected “velocity” so what should I expect?

[DD5]

@Angurse

…, and FRB definitely can work in theory.

And I sound like a cult member?

@Angurse

Of course, you’ve simply rejected “velocity” so what should I expect?

I believe in science. I also reject spirits and the after-life.

It’s just a useless hypothetical truism. People use it in a completely pseudo-scientific manner. Is it any wonder that 90% of economists favor deficit spending and liquidity injections by the Fed as a way to revive the economy?

[Angurse]

@DD5

And I sound like a cult member?

Yes, as I’ve (Mises, White, etc…) actually explained why, you however just dogmatically deny, deny, deny.

@DD5

I believe in science. I also reject spirits and the after-life.

It’s just a useless hypothetical truism. People use it in a completely pseudo-scientific manner. Is it any wonder that 90% of economists favor deficit spending and liquidity injections by the Fed as a way to revive the economy?

And? Those people are as foolish as yourself. Just because pseudo-scientists use rulers incorrectly or to come to unrelated conclusions, doesn’t mean rulers are useless.