Fractional Reserve and Property Rights

[Knight_of_BAAWA]

@scineram

You cannot lend out what you do not have.

Sure you can. That’s what frac-reserve allows.

[sthomper]

“you cannot lend what you dont have…”

this is true.

if the dollar-credit that is poofed into existence is different from the deposited money that was loaned out then the units of dollar-credit is not the dollar itself.

do banks have credit? i wouldnt think they should have any mor ethatn any individual should have.

[Maxliberty]

@GilesStratton

@Maxliberty

Austrians wish to prohibit the ability to convert assets to meet redemptions thus making mixed commodity banks impossible

Max, two points:

1. Austrians don’t wish to do anything, Austrian economics is strictly value free. Perhaps Rothbardian libertarians wish to prohibit FRB, but Austrian economists qua economists don’t advocate anything.
2. Not all Austrians do wish to prohibit FRB. I wouldn’t call myself an Austrian economist (not yet at least) but I do adhere largely to the teachings of the Austrian school, and I am pro - FRB. Similarly, Horwitz, Garrison, White and Selgin may all be considered Austrians and yet all of them have written pro - FRB articles and books.

Giles,

Here is a couple of points for you:

Either FRB is fraud or it is not. If it’s not then there is no point in discussing it because it is just people acting in the free market. If it is then we need to ask the Anti-FRB group what exactly is the fraud?

The Anti-FRB response is that its fraud because the bank says they are holding the money for you and you can have it at any time with no restrictions but secretly wihtout your knowledge or permission the bank is loaning the money out and only holding a portion of the redeemable item. If the bank was doing this I think we can all agree it would be fraud.

Of course the banks do not do this, in fact the contracts they have with customers come with all kinds of restrictions about the nature of the relationship with the bank and the circumstances under which a depositor may have their funds. The Anti-FRB/Anti-freedom crowd says that these contracts are contradictory. When asked to explain how, they can only say it is a square circle and can not address the actual contracts. As you rightly pointed out the idea of a callable loan becomes fraud if we were to accept their definitions. The idea of a mixed commodity bank becomes fraud because the conversion of an asset to meet redemptions is considered fraud by the Anti-freedom crowd.

I am not pro-FRB just pro freedom.

[Maxliberty]

@nirgrahamUK

the point is if people want to convert some property to send it on to someone else, thats not unlibertarian. whats unlibertarian would be selling square circles. so it all depends on what these contracts would say. present contracts are no good for me to analyse because they are all government regulated and definitely fraudulent/criminal.

so if you want to propose various possible contracts i will analyse them along with you in an effort to find which possible contract is compatible with rothbardian contract theory and which ones arent.

Here is the contract.

You deposit your 1 oz of gold in the freedom bank. The bank contract says you will receive 1 bank note that can be redeemed for one oz of gold or the equivalent amount of ounces of silver based on the current days prices. The contract also says that in the event that the note holder requests redemption and there are not sufficient either gold or silver reserves to meet immediate demand then the note holder agrees to give the bank up to 60 days to meet the demand request. The contract also states that the bank is not obligated to hold any particular mix of assets backing the bank notes and that there is some risk that the assets the bank may hold may be inadequate to meet all demand requests and that the depositor accepts this risk.

Is that fraud?

[Juan]

I am not pro-FRB just pro freedom.

No. You defend a fascist system which is wholly backed by the government. Stop pretending otherwise.

[Juan]

The bank contract says you will receive 1 bank note that can be redeemed for one oz of gold

A piece of paper ? A piece of paper that could be used as money ? That is, you put an oz of gold in the bank, and the bank lends it. And you get a piece of paper…which you can spend whenever you want ? Or do you need to go to the bank and convert it back to gold in order to spend it ?

[DanielMuffinburg]

@Maxliberty

Giles,

Here is a couple of points for you:

Either FRB is fraud or it is not. If it’s not then there is no point in discussing it because it is just people acting in the free market. If it is then we need to ask the Anti-FRB group what exactly is the fraud?

The Anti-FRB response is that its fraud because the bank says they are holding the money for you and you can have it at any time with no restrictions but secretly wihtout your knowledge or permission the bank is loaning the money out and only holding a portion of the redeemable item. If the bank was doing this I think we can all agree it would be fraud.

Of course the banks do not do this, in fact the contracts they have with customers come with all kinds of restrictions about the nature of the relationship with the bank and the circumstances under which a depositor may have their funds. The Anti-FRB/Anti-freedom crowd says that these contracts are contradictory. When asked to explain how, they can only say it is a square circle and can not address the actual contracts. As you rightly pointed out the idea of a callable loan becomes fraud if we were to accept their definitions. The idea of a mixed commodity bank becomes fraud because the conversion of an asset to meet redemptions is considered fraud by the Anti-freedom crowd.

I am not pro-FRB just pro freedom.

Just because something is not fraud, it does not follow that it is compatible with the free market. Austrian economiist cannot make value judgements; however, libertarians can. Instead, Austrian economists simply explain what would happen during FRB, not should FRB be allowed. Furthermore, there are those Austro-libertarians who do make value judgements; that is, not only do they explain what would happen during FRB, but they also maintain that FRB should not be allowed.

With regard to FRB itself, how can two people each have 100% rights to the same specific object? Liberterians are anti-FRB because there is a contradiction of rights; right cannot conflict.

[scineram]

@Juan

The bank contract says you will receive 1 bank note that can be redeemed for one oz of gold

A piece of paper ? A piece of paper that could be used as money ? That is, you put an oz of gold in the bank, and the bank lends it. And you get a piece of paper…which you can spend whenever you want ? Or do you need to go to the bank and convert it back to gold in order to spend it ?

Willing buyers and sellers, you know. But mutually beneficial exchange is alien to you.

[Juan]

Do you think you can manage to answer my question ?

[scineram]

Yuo can spend it if there are willing buyers. And there were.

[Juan]

Let’s say that 1000 ounces are deposited and 900 ounces lent out - the bank keeps 100 ounces as ‘reserve’ and issues tickets for 900 ounces. Can those tickets be ‘spent’ right now ?

[Maxliberty]

@Juan

Let’s say that 1000 ounces are deposited and 900 ounces lent out - the bank keeps 100 ounces as ‘reserve’ and issues tickets for 900 ounces. Can those tickets be ‘spent’ right now ?

The bank takes in 1000 ounces and issues a 1000 notes. The bank then is responsible for its asset mix. Is that fraud? Please answer that question.

[nirgrahamUK]

please motivate why a shopkeep might be willing to accept such a note? (it might help me figure out what your note ‘means’, since you make it entirely implicit)

[Maxliberty]

@Daniel

@Maxliberty

Giles,

Here is a couple of points for you:

Either FRB is fraud or it is not. If it’s not then there is no point in discussing it because it is just people acting in the free market. If it is then we need to ask the Anti-FRB group what exactly is the fraud?

The Anti-FRB response is that its fraud because the bank says they are holding the money for you and you can have it at any time with no restrictions but secretly wihtout your knowledge or permission the bank is loaning the money out and only holding a portion of the redeemable item. If the bank was doing this I think we can all agree it would be fraud.

Of course the banks do not do this, in fact the contracts they have with customers come with all kinds of restrictions about the nature of the relationship with the bank and the circumstances under which a depositor may have their funds. The Anti-FRB/Anti-freedom crowd says that these contracts are contradictory. When asked to explain how, they can only say it is a square circle and can not address the actual contracts. As you rightly pointed out the idea of a callable loan becomes fraud if we were to accept their definitions. The idea of a mixed commodity bank becomes fraud because the conversion of an asset to meet redemptions is considered fraud by the Anti-freedom crowd.

I am not pro-FRB just pro freedom.

Just because something is not fraud, it does not follow that it is compatible with the free market. Austrian economiist cannot make value judgements; however, libertarians can. Instead, Austrian economists simply explain what would happen during FRB, not should FRB be allowed. Furthermore, there are those Austro-libertarians who do make value judgements; that is, not only do they explain what would happen during FRB, but they also maintain that FRB should not be allowed.

With regard to FRB itself, how can two people each have 100% rights to the same specific object? Liberterians are anti-FRB because there is a contradiction of rights; right cannot conflict.

Explain how the contract I describe is a violation of someone’s rights? By making the deposit you accept certain risks and restrictions on the gold you deposited.

[nirgrahamUK]

i think you should consider the difference between mentioning and describing vis-a-vis your references to these contracts you favour.

[Maxliberty]

@nirgrahamUK

please motivate why a shopkeep might be willing to accept such a note? (it might help me figure out what your note ‘means’, since you make it entirely implicit)

A shopkeep will accept the note if he believes that when he takes it to the bank he will be able to redeem it as described. Shouldn’t this decision be left to the shopkeeper?

[Knight_of_BAAWA]

@Maxliberty

The bank takes in 1000 ounces and issues a 1000 notes.

False analogy. The banknotes are NOT loans.

[nirgrahamUK]

yes, shopkeepers should be allowed to accept mere promises, so long as these arent confused with real assets (i.e. real enforceable contract) when they are offered.you have made it clear that the notes are not receipts for real assets in storage.

[Juan]

@MaxLiberty

@Juan

Let’s say that 1000 ounces are deposited and 900 ounces lent out - the bank keeps 100 ounces as ‘reserve’ and issues tickets for 900 ounces. Can those tickets be ‘spent’ right now ?

The bank takes in 1000 ounces and issues a 1000 notes. The bank then is responsible for its asset mix. Is that fraud? Please answer that question.

1. you are not answering my question. I might answer yours if you first answer mine.

2. I’m trying to establish whether your bank operations turn 1000 ounces of gold spendable now into 1000 ounces of gold spendable now PLUS tickets ‘supposedly’ worth 900 additional ounces which can also be spent now.

That is :

Before banking enters the picture we have :
1000 units of gold money

After banking :
we have 1000 units of gold money + 900 units of tickets which are as good as gold ?

[DanielMuffinburg]

@Maxliberty

@Daniel

@Maxliberty

Giles,

Here is a couple of points for you:

Either FRB is fraud or it is not. If it’s not then there is no point in discussing it because it is just people acting in the free market. If it is then we need to ask the Anti-FRB group what exactly is the fraud?

The Anti-FRB response is that its fraud because the bank says they are holding the money for you and you can have it at any time with no restrictions but secretly wihtout your knowledge or permission the bank is loaning the money out and only holding a portion of the redeemable item. If the bank was doing this I think we can all agree it would be fraud.

Of course the banks do not do this, in fact the contracts they have with customers come with all kinds of restrictions about the nature of the relationship with the bank and the circumstances under which a depositor may have their funds. The Anti-FRB/Anti-freedom crowd says that these contracts are contradictory. When asked to explain how, they can only say it is a square circle and can not address the actual contracts. As you rightly pointed out the idea of a callable loan becomes fraud if we were to accept their definitions. The idea of a mixed commodity bank becomes fraud because the conversion of an asset to meet redemptions is considered fraud by the Anti-freedom crowd.

I am not pro-FRB just pro freedom.

Just because something is not fraud, it does not follow that it is compatible with the free market. Austrian economiist cannot make value judgements; however, libertarians can. Instead, Austrian economists simply explain what would happen during FRB, not should FRB be allowed. Furthermore, there are those Austro-libertarians who do make value judgements; that is, not only do they explain what would happen during FRB, but they also maintain that FRB should not be allowed.

With regard to FRB itself, how can two people each have 100% rights to the same specific object? Liberterians are anti-FRB because there is a contradiction of rights; right cannot conflict.

Explain how the contract I describe is a violation of someone’s rights? By making the deposit you accept certain risks and restrictions on the gold you deposited.

Why? I didn’t say your proposed contract was a violation of rights. What I did say was that FRB is a contradiction of rights. Anyway, the contract you propose doesn’t seem to be FRB.