So I am not free to do with my money as I please. What is the point of a free society if you can’t bank where you want?
A very good point. I was wondering about the same.
Tell me how depositing money in a demand deposit isn’t a bailment but is, as you claim, a loan.
And then explain how this is different from ‘leasing’ your money to the bank through a timed deposit.
There are two points : 1. In a free society you can do whatever you please with your property. 2. you don’t understand FRB.
A critique that advocates of FRB don’t get.
Sorry, but the problem is not whether FRB as a contract is valid or not. The point is that the people who advocate FRB either don’t understand it, or are lying, or both.
Which point, this one?
That’s actually the whole point of contention, if that is a valid contract or not.
And a total strawman due to the use of ‘force’, according to the ‘libertarian’ no one can force anyone into doing anything. Generally speaking, of course.
Since we’re contradicting each other allow me to explain.
If it is fraud then any voluntary contract would be invalid as it is based upon fraud.
Well, yes. But let’s pretend, for argument’s sake, that people who put money in a FR bank sign a contract saying that they risk losing all their money ? Of course the banker claims that such a clause is a mere formality because they are soooo good at ‘cash management’…
Now, despite such a contract and its debatable validity, FRB will fail for economic reasons, which is something that FRB advocates constantly deny, as if they didn’t understand economics. It baffles me.
It has had such a successful history after all…
The only FRB system that hasn’t failed is the current one and the jury’s still out on that one. If Iceland is any indication of things to come the verdict will be in soon enough.
What on earth are you talking about? Have you actually read any Rothbard? (Hint: Rothbard opposed FRB very strongly indeed!)
There are no contradictions. Check your premises.
In your case, you are arguing that a contract between two consenting adults is ALWAYS legally and morally acceptable.
The situation here is that the person opening and using a transactions deposit is ignorant of the implications of the contract. He doesn’t know that he will certainly lose his money if the agreement goes on for a time long enough. Not maybe, certainly. And he doesn’t know that he is causing inflation, lowering his own standard of life. He doesn’t even need to know, because he is hiring an expert to think for him.
In a Libertarian society, a judge confronted with the case would find the banker guilty of fraud. It was the banker’s responsibility to be proficient in his work, of studying all the possible consequences of his actions, and of advising the customer, all according to the state of the art. If an engineer manufactures and sells a boiler without making the necessary quality controls, and then the boiler explodes, he will be prosecuted and sent to prison. Why wouldn’t a banker face the same consequences?
I can imagine the defense attorney would claim that everybody is doing the same, but if the prosecutor can prove that there exists at least one methodology that could predict the consequences of FRB and that it was available to the banker, then the banker would be found guilty just because he didn’t read (and apply) much enough.
Oh please, this legalism is ridiculous.
As opposed to what, ‘I thinks FRB is Okey because it just feels right and its been around for a good long spell’?
Its not our problem that the FRB fanboys can’t overcome the small problem that it is impossible for two people to have exclusive control over the exact same good at the exact same time. Legally speaking of course.
Is it possible for you to loan me money and the maturation date to be when you demand the money? If not why not? Please explain.
Let’s say I lend you a spade. Now, when you are halfway using it I say : please give it back to me. Do you think that’s practical ? You’re forced to either leave your work unfinished or default.
Or let’s say the bank lends you a billion dollars for you to setup a chip fab - you’re supposed to use the money to build the plant but at the same time be able to repay the loan on demand ? How is such magical trick going to be performed ?
The real question here is why you never directly answer a question but always answer with another question?
Yes we know your claim that a demand deposit is a loan but how does that explain why they are the only industry who has a specific immunity from bailment law if a demand deposit isn’t a bailment contract?
Which really doesn’t matter to the case at hand because if you read the link I posted earlier that is the description of a demand deposit to the T.
It is up to you to prove that a demand deposit is a loan because a few hundred years of custom and (bad) law support my position.
So what? This is typical evasion. Practicality has not much to do with legality. Besides demanding the spade too early is not very likely so the problem would be small anyway. I lend dvds or books for unspecified terms all the time. Especially with money which is not for consumption but exchange so I can trade the right of redemption easily for the same effect without the need to actually redeem it.
Do we have to pays storage fee in other industries under a bailment contract?
Well, that’s one of the reasons why we are libertarians.
When I gave that example to solve that apparent contradiction in the austro-libertarian theory of banking, it wasn’t a ridiculous legalism. It was a prediction of how the case would be handled in a common law environment.
As someone else pointed out, I guess neither you or Max has ever used a bank. Current Accounts (Transactions Deposits, Demand Deposits or whatever you call them) don’t pay interests. Call you nearest Santander office and ask them how to open a current account. They ask you for a minimal first time deposit, they charge you for every operation you make with the money and for every check you write. It works just like 3rd party warehouse. They don’t rent less than a specified quantity of space and charge you with fees for every time they need to use an employee and/or a forklift to move your things. I know some banks offer to pay interest on demand deposits, but that is not a current account, that is a savings account; which theoretically is an automatically-renewable-24hours-time-deposit or something like that. And they still charge you for every movement you make.
The savings account is bastard hybrid between a demand deposit and a time deposit. That is why it is so hard to understand the working of that kind of accounts.
But I have to repeat: a savings account is not a pure breed demand deposit.
It is the product they usually offer to you first, to have your paycheck deposited and to pay your expenses. At least in my country it falls under the FRB regulations too.
By the way, during 2002, when there was huge bank run in Argentina and Uruguay, the public employees (all from bureaucrats to teachers) almost lost their paychecks precisely because of the FRB. The government arbitrarily decided a year prior to the bank run that the salaries would be paid through two “friendly” banks (state-owned or related to government officials) using savings accounts. They had to bailout (for a short time) one of the banks to guarantee the payment of salaries.
If you are a university student or a teenager probably what you have is a savings account. Then I can understand your confusion.
Obviously that is not how insurance works or that plan would already be in effect.
Insurance exists for events that can not be planned for. If something is a controllable risk, like business failure, it can not be insured.
If my deposit is insured I no longer have any incentive to make good loans. This is pretty much the exact moral hazard that exists in lending today because of the de facto bailout guarantee.
Hilariously, you are proposing the pyramiding of fractional reserves; the same thing achieved by the FDIC, which “insures” all deposits but is capitalized at 1% of total insured deposits.