What is this necessary link between investment and governments that you imagine? Why would you think people would not want to earn money by lending without governments, and why in particular do you think banks would restrain from doing so? Thinking back through the centuries-old history of banking, can you not think of any bankers making money through lending without concern for any governments? None?
I have never lived somewhere that didn’t have cherry tomatoes either. How far do you want to carry these non sequiturs?
Are you…sober? Banks have expertise in negotiating loans. People who know how to do that well, who understand money and finance, frequently work for things we call “banks”. People who want to receive such investments typically go to those places we call “banks”. That is not the expertise for you, me, the typical bank depositor, or the typical grocery store. Instead, people like you and me and the grocery store owner, who lack that expertise, loan money to banks in the form of CDs so that we can make a small part of the profit that said banks make from their investments.
The MAIN reason banks make loans, or that any company does anything, is to make a profit. Investing is not a government-defined practice any more than is trading widgets for chickens. Law and order, such as may be provided by a government, can certainly facilitate trading widgets and chickens, but it is not the motivator of chicken trading, nor is it an active party in doing so. Counterfeiting money can certainly make it easier to loan out more money, but again, it is of course not a necessary component.
You may personally WANT for some fascistic reason to forcibly prohibit companies that label themselves “banks” from engaging in lending, but companies that store money are always likely to attract people who understand money, and people who want to put their stored money to use. It is not only an obvious place to go looking for investment expertise, it is a tradition as old as banking itself.
I hate to be so explicit, but incorrect glib remarks call for some return to reality.
Not all loans wind up SUCCEEDING as profitable investments, but the loaner always intends to make profit dependent upon the increased wealth of the borrower, and the borrower always expects to get more value than he’s giving up. Otherwise, neither party would engage. If you do a full accounting of anticipated costs and benefits, voluntary loans are investments.
In response to my description of CDs, you talk about demand deposits? You realize that doesn’t make any sense, right? You know what a CD is? If I were to tell you that “apples are X”, why would you reply “No, sheep are Y”? Or were you just making an unrelated point, rather than responding?
It’s called fractional reserve banking. The government allows the bank to lend out more money that it actually has.
Why do you think that I ever said or suggested such a thing?
Because, just like a grocery store is in the business of providing groceries, banks are in the business of holding deposits. Now granted, there is nothing in a free market restricting either grocery stores or banks from getting in the business of investing. But that is not their primary purpose.
Again, banks can lend money. And so too can grocery stores. But when I say grocery store, do you think of a business in the business of lending money?
And you can’t recognize the fact that banks lend out money they don’t have and that it is fraud?
Is that what you call the housing bubble?
Yeah, because “money” and “finance” are such hard concepts for people to understand right?
So why are there stock brokers then? Oh wait, most people with money go to banks to DEPOSIT their money. Not LEND their money.
And the banks are making the profit on cheap money from the Federal Reserve…
Since there would be no central banks in a free society, banks would probably not offer CDs. Instead, people would go en masse to places like prosper.com that let people loan other people money. But oh wait, I wonder how they do it, since they apparently know nothing about money or finance?!!
You’ve selected a quote that only strengthens my point and weakens your attributes, how embarrassing for you.
“It is perhaps a “second-best” solution to the ideal of treating fractional-reserve bankers as embezzlers, but it would suffice at least as an excellent solution for the time being, that is, until people are ready to press on to full 100 percent banking.”
Ideally, he’d have fractional-reserve bankers treated as embezzlers, criminal. You selected a passage where he describes an alternative, a “second-best.”
without government securing the deposits, a deposit certificate with a clause could not be traded as a deposit certificate without a clause. At best, it would be some sort of a financial instrument, but certainly not cash substitutes.
He asked for proof, first you give a non-sequitar, now you’ve given an assertion. An assertion that’s already been refuted
Fine. If you want to define FRB as only X, and demand deposits as only Y, have at it. At such point you are attacking a straw-man and not the FRB being defended. White even covered this bizarre approach ages ago.
That’s not an assertion. It is a fact, and therefore, valid as proof.
It is a fact that a deposit certificate with a clause and a certificate without clause (backed by 100% reserves) cannot be treated the same by the market unless the former is deceived into looking like the latter. That they are different commodities is an undeniable truth like apples are not oranges.
Have you never heard the expression in advertising “30 days same as cash”. That means if you pay me in 30 days there is no penalty and it is just like you paid me today in cash. The market will treat CD’s however it chooses to, it is not limited by your assertion, as proof the very common practice of accepting delayed payment with no penalty. . If the CD is backed by something or someone people feel is reliable then there is no reason to think that it is impossible for the CD to be treated the same as cash. Do you really think a CD redeemable tomorrow is impossible to be used as the same value as cash today? The time preference if any is based on the person accepting the CD, not your assertion.
If in a particular situation I am indifferent between cash and accepting a CD then the CD will act as cash.
Nobody said you can’t, for example, buy or sell a CD on the market, but its value will be expressed in some money prices. The same applies for your demand deposits with a clause.
Here is the crux of the argument: you have money deposited in some vault, and receive some claim tickets for that money, the ticket has a clause that says either:
for CD: redeemable only upon expiration of loan, otherwise pay fine.
for demand deposit: redeemable on demand with no 100% guarantee that the money will be there.
And you will still maintain that these tickets can somehow be treated as money substitutes when by definition, the clause says that they are not!!
The only way for a CD to become money is if the CD certificate itself is somehow accepted as circulating medium of exchange, but then it is impossible for the CD to retain the commodity money value of its face value, for the simple reason that the two are not exchangeable due to the time constraint of the certificate. The CD and the commodity money would become like 2 different monies with an exchange rate. This is of course silly, and doesn’t make any sense why such a scheme could possible evolve in a market.
I see rothbardians are still in denial. This will apparently not ever change. So what was the point in restarting this topic? There is already 100 pages on this topic for anyone interested. The actual arguments here will not convince anyone to change opinion, I have debated Cantor cranks enough to know that.
“You selected a passage where he describes an alternative, a “second-best.””
Yeah. I can read. And I don’t usually select quotes without reading them. I wrote what I did in my post, BECAUSE of those Rothbard quotes. I think you need to listen to what I actually wrote, instead of what the voices in your head tell you that I wrote.
“Since there would be no central banks in a free society, banks would probably not offer CDs. Instead, people would go en masse to places like prosper.com that let people loan other people money. But oh wait, I wonder how they do it, since they apparently know nothing about money or finance?!!”
Rather than going through and trying to respond to a tidal wave of non sequiturs, let me just see if I can nail down your “thinking”. Is it your belief, that without government coercion, there would not exist institutions that offer both money warehousing services AND investment services?
“Remove FDIC and demand deposits can no longer be guaranteed to be available on demand. Either it is available on demand or it is not. Available maybee on demand is not a demand deposit but a lottery ticket.”
Are you even reading my posts that you respond to? Or are you randomly selecting me to quote for unrelated nonsense? Where did I refer to demand deposits? Perhaps I should reply to you about ETF diversification, or crop management. I give up. You’re nuts.
Their credit is and always has been money. The law is a recent addendum to money. The law changed nothing.
By your question you display ignorance. Everything that the bank does, is now done with government approval, but the government approval is recent, and did not change what and how the bank operated.
Who is that? I was educated in conventional economics 35 years ago, but even from that mess I had a better understanding of money than Rothbard. After a few decades of separating fact from fiction, I am firmly convinced that all the economics I was given in business college is lying propaganda. I am sure that EB is just as useless as Rothbard. Not interested at all in opinions. Give me fact.
If you can use a CD as cash then it is acting the same as cash. You assert people are not allowed to treat CD’s as money substitutes…why? I have given you a very specific and very common example where people treat delayed payments as cash. Your theory when applied to predict actual human behavior without government interference fails…people do at times treat delayed payment as cash…it is just a fact.
If i have a CD redeemable one second from now, you are saying it wont trade at face value. There only needs to be one example where you are wrong to prove your theory is incorrect. There are a lot more than one example where people accept delayed payment at face value.
Sorry, just saying “it is a fact” doesn’t make it so.
There really isn’t any reason why the certificates cannot be treated the same by the market without deception. You are placing a “can’t” in place of a “won’'t” to try and mask a mere assertion. Trust in the bank being an obvious counterexample, making your quibble obsolete. A quibble thats already been refuted here before. As we already know different commodities frequently exchanges for the same amount.