Not so.
A competitive bank has to expend real resources to attract customers by the providing services and offering interest. Bank loans have to be funded by liabilities or interest in assets, the source of the funds exists, in thick air (or something). This only applies to competing banks though, for a central bank you are correct.
ok, i hope you are satisfied by your theory of thick air.
Instead of making totally out-of-context quotes, I suggest you read this.
XVII. INDIRECT EXCHANGE 12. The Limitation on the Issuance of Fiduciary Media
http://mises.org/humanaction/chap17sec12.asp
So its agreed, you just haven’t read enough yet. Maybe you can find it in German. But even in HA, Mises did distinguished between fiat money and fiduciary media (money substitute)
Exactly. We are talking about a free banking system where there is no central banks of privileged banks, only competing ones.
As did you. (Also a reading problem).
I apologize if its confusing, if you’d like I can try and explain for you again.
Maybe you should avoid admitting you haven’t read the book next time, before calling quotes out of context. It makes you look… worse (which is pretty astounding).
fiduciary money is money that is not fully backed by a commodity. to an extend that there a money certificates out there, saying worth 1 unit of a commidity, some definite portion of them are backed, and some arent. those that arent have been created out of thin air. this is what we mean by thin air. thin air is merely a metaphor for them not being backed. im sure you agree they are not backed. so perhaps you can agree that they come from ‘thin air’
I haven’t read what book ? As I said I read some parts of the TMC - And you are obviously quoting out of context.
What is agreed sonny ? By the way, HA was written after the TMC - So I can assume that it represents Mises views better.
Well, that’s something never existed, for starters. And please, don’t parrot the free-banking-in-scotland nonsense.
All you can do is babble about ‘demand for money’ and equilibrium. Great for pseudo-economists, but it’s not to be taken seriously.
DEHOMOGENIZING MISES’
MONETARY THEORY
Nikolay Gertchev*
keep on studying and maybe one day you can outmises mises too.
(oe agree with his later self over his younger self on some issues…)
Part 3 starts on page 293 in my version of TMC so I don’t know what version you’re using, or if you just made these numbers up.
The quotes you provide directly undermine your position:
Quote 1 and 3 merely state how lucrative FRB and issuing fiduciary media are for the banks.
“Recognition of the fact, which had been pointed out before the time of Ricardo, that there is no way in which an issuer of fiduciary media can protect itself against the consequences of a panic or avoid succumbing to any serious run, may lead, if one likes, to a demand that the creation of fiduciary media should be prohibited (end FRB). Many writers have adopted this attitude. Some have demanded the prohibition of the issue of such notes as have no metal backing; others, the prohibition of all clearing transactions except with full metallic cover, others again, and this is the only logical position, have combined both demands. Such demands as these have not been fulfilled… It is clear that prohibition of fiduciary media would by no means imply a death sentence for the banking system, as is sometimes asserted. The banks would still retain the business of negotiating credit, of borrowing for the purpose of lending. Not consideration for the banks, but appreciation of the influence of fiduciary media on the objective exchange value of money, is the reason why they have not been suppressed.” Page 361, Theory of money and credit, chapter 18.
Quote 2 is not talking about the “price stabilizing” effects of Fiduciary media, as Mises obliterates that position in the book (when he deals with Fisher/Strong/the Banking school):
“The doctrine of the elasticity of fiduciary media, or more correctly expressed, of their automatic adjustment at any given time to the demand for money in the broader sense, stands at the very center of modern discussions of banking theory. We have to show that this doctrine does not correspond to the facts, or at least not in the form in which it is generally expounded and understood. Tooke, Fullarton, Wilson and their English German disciples, teach that it does not lie in the power of banks-of-issue to increase or diminish their note circulation. They say that the quantity of notes in circulation is settled by the demand within the community for media of payment. If the number and amount of the payments are increasing, then, they say, the number and amount of the media of payment must also increase in number and amount; if the number and amount of payments are diminishing, then, they say the number and amount of payment must also diminish (Keeping “MV stable”). Expansion and contraction of the quantity of notes in circulation are said to never be the cause, always only the effect, of fluctuations in business life. It therefore follows that the behavior of the banks is merely passive; they do not influence the circumstances which determine the amount of the total circulation, but are influenced by them… It is in this sense that the doctrine of the elasticity of fiduciary media is generally understood today…But the fundamental error of the banking school lies in its failure to understand the nature of the issue of fiduciary media. When the bank discounts a bill or grants a loan in some other way, it exchanges a present good for a future good. The issuer creates the present good that it surrenders in the exchange–the fiduciary media–practically out of nothing… The issuers of the fiduciary media are able to induce an extension of the demand for them by reducing the interest demanded to rate below the natural rate of interest, that is below the rate of interest that would be established by supply and demand of the real capital were lent in natura without the mediation of money, whereas on the other hand the demand for fiduciary media would be bound to cease entirely as soon as the rate asked by the bank was raised above the natural rate. For this reason the banking principle is unable to prove that no more fiduciary media can be put into circulation than an amount determined by fixed circumstances not dependent on the will of the issuer… The assertion that lies at the heart of the position taken up by the Banking School, namely, that it is impossible to set and permanently maintain in circulation more notes than will meet the public demand, is untenable; for the demand for credit is not a fixed quantity; it expands as the rate of interest falls, and contracts as the rate of interest rises. But since the rate of interest that is charged for loans made in fiduciary media created expressly for that purpose can be reduced by the banks in the first instance down to the limit set by the marginal utility of the capital used in the banking business, that is, practically to zero, the whole edifice built up by Tooke’s school collapses (They fail to recognize that underbidding the natural rate of interest creates a demand for money in the broader sense (fiduciary media)).” Passages from chapter 17 and 18.
In the second part of your quote, which you mined from another part of the book, he’s addressing the points made by Adam Smith who claimed that commodity standards are inefficient because they require industries who are devoted to the mining of gold/silver thus bidding resources (labor and capital) away from other more warranted economic activities. Adam Smith considered commodity standards a “road through fertile land,” and fiat systems a “bridge over the fertile land.” Mises actually agrees with this position in principle, but claims that the benefits of commodity money greatly outweigh the costs.
You are chopping up passages and putting them together hoping that I won’t notice; unfortunately, I have noticed. Hence, there are two possible scenarios: 1) you misunderstood what little you’ve read from TMC, or, 2) (more likely case) You’re lying/being intellectually dishonest, which is what you “free-bankers” seem to do quite frequently.
no. we want to claim that he has no right to print up tickets which amount to claims against 2 meteorloads of gold in his garden when he only has 1.
unless its a fraud.
oh, i didnt realise ‘careful management of reserves and loan portfolios’ was a commodity…
Wanna outlaw stocks, bonds too?
no?!?
Don’t understand this at all.
I reed the book mystery of banking and i see that fractional reserve banking is completely inflationary. Bank made money from “thin air” the money which is not fully covered. Every banks forget about “gold bank role” that they cant give more loans then they have deposits.
Nermin is 100% correct.
Dino says, “your brain is a Lamborghini engine.”
Hahahahaah i have to start talking about my future work… “banking” swap contracts and things like that and specially about financial derivatives.
Perhaps the metaphor “out of thin air” should be replaced by a more natural description. [:)]
