If the investments made were based on real savings accounts, or timed deposits, then the business which took the loan is under contract to return the money at the end of said loan. In other words, the person who had originally deposited the money gets his or her own money back, and now has the ability to spend it. Effectively, that person has saved a certain amount of money until the end of a business’ investment. Where is the distortion which took place? I understand that we are talking on an aggregate, given that the business may decide to take out a second loan to continue the investment if interest rates are low enough, but I don’t think that a decrease an increase in savings would be immediate. In other words, on aggregate investment would decline as more and more depositors abolish their timed deposits at the end of the contract and instead put the money in a demand deposit. But, that money was effectively saved until the end of the investment period.
With a time deposit, money is transferred from saver to borrower for a period of a fixed period of time. The saver surrenders ownership of the money and cannot consume it during that time. This is simply another way of saying that real goods that have NOT been consumed are being channeled for investment, i.e. somebody else will consume those goods and promise to pay them back (plus interest). There is no increase in money supply, goods have been simply transferred from person A to person B. While person B is consuming those savings, person A is not. Since we are talking about money, then Person A has transferred some monetary demand to person B. In the real economy, 2 people (or more) cannot consume the same goods at the same time, so time deposit simply reflect this economic reality from a monetary point of view.
With FRB demand deposits, person A does not surrender ownership, thus creating 2 tittles for the same amount of real savings (actually multiple tittles depending on the reserve requirement). Using a clearance mechanism allows both person A and person B to utilize the saved purchasing power. Since the owners use their claims for exchange instead of the actual gold coins (or cash), the money supply is effectively increased by FRB as long as the owners don’t actually claim the real physical money commodity.
You (FRB proponents) keep emphasizing that as long as person A doesn’t claim his money, there is no problem of person B using it but you forget that the clearance mechanism of FRB allows the multiple tittles of the same physical amount of savings to be used for exchange at the same time. That is the fiduciary media or “money out of thin air”. This does not happened with time deposits.
And you can try legal positivism all you want; won’t help you.
There is a long history of demand deposits legally being considered warehouse receipts. I don’t know where you’re getting your info, but you’ve been lied to.
You have to stop thinking about demand deposits as fundamentally different from time deposits. Think of the demand deposit as “warehouse receipts” plus time deposit accounts from a 100% reserve regime. The reserve ratio under FRB is the ratio of these two components. Instead of having two different types of accounts the depositor has one account and it is up to the bank to figure out how much to “store” and how much to lend. A distortion only occurs if there is a calculation error on the part of banks, meaning they get the ratio wrong. Central bank injection of money can distort this ratio but it isn’t FRB itself that causes the problem.
The point is that it is inconsistent to say demand deposits are distortionary while time deposits are not, without introducing further assumptions. I don’t think there is a distortion from time deposits.
False.
Is there some reason that legal positivism is in vogue these days?
The law is what it is, not what Rothbard and Block conjured up in their brains.
And we could say the same about the Nuremburg Laws and Jim Crow. Still want to play Legal Positivism?
It is basic rothbardian title transfer theory, but whatever.
No, it isn’t. Why?
[size=30]NO TITLE IS BEING TRANSFERRED. ONLY POSSESSION IS.[/size]
Get it now?
The law may be unjust but that is a different issue. You just asserted that a demand deposit was a bailment without considering the history or economics of the issue. Under Jim Crow laws, black people had to sit in the back of the bus. By your logic, not only should they not have to do this but they actually did not have to do it.
Make the lie big and repeat it often, huh? You still have not provided evidence for your claim. Show me a modern bank contract for a standard checking account that says it is a warehouse account.
No it isn’t.
Irrelevant. You can call a circle a square in a contract, but that doesn’t make it so, does it?
So law that is unjust literally doesn’t exist? Is that your claim?
Well, under the terms of the contract all cirles would have to be treated as squares so in a way, yes.
No. It’s simply not relevant. We’re speaking of banking qua banking and demand deposits qua demand deposits. The current legal system regarding banking is quite irrelevant for such discussion.
I’m sorry, but I am having trouble seeing your logic, or how the second part of that paragraph pertains to the first. Demand deposits and timed deposits are fundamentally different. If somebody opens a demand deposit, the money in that deposit can be redeemed on demand. Under contract, the bank is required to have that deposit’s assets ready for the depositor. In other words, the depositor can spend that money whenever the depositor feels like it. In a timed deposit, the depositor is under contract to keep that money in the deposit until the end of the contract, otherwise the depositor will face a penalty fee. The difference is that if money is lent out from a demand deposit, the bank faces the fact that it does not actually have possession of the money it lent out. So, either the depositor cannot get the money back, or the bank must open a new account to take into consideration that there is money being lent that the bank does not actually own (or money made out of thin air).
As aforementioned, the second part of the paragraph does not make any sense.
It’s not inconsistent, as far as I can tell. You haven’t been able to make a sound argument that the position is inconsistent. I’m not saying you are wrong and I am right. I am saying that your argument is weak.
No, not at all. The contract would not be able to re-define them as fact, merely as part of the contract. So it’s still not relevant. And legal positivism is a dead-end.