That’s 100% correct but that is because FRB would practically not exist. Credit expansion would be severely curtailed to the point that it would be virtually non existent.
If you want to understand how FRB got by (although not at the same level as today) before the Fed, then perhaps The Mystery of Banking would be a good source. It’s a quicker and easier intro then de Soto’s big volume.
This is what Selgin and White and co deny, despite claiming to be treading close to Mises… When the topic is fiduciary media they think curtail is merely to constrain/cap…but at a significant (dominant) amount, that it limits from expanding beyond all proportions… but not from steady/significant expansion)
whereas my reading of Mises (and the other ‘free banking but frb causes business cycles’) is that fiduciary media would be de-facto suppressed by market forces. Even as opposed as I am to positivist methods of conducting economics I would be happy for an experiment to occur to test this theory (since it would mean we would have a free society to experiment on!)
Currency school?? you’re confused.
see Monetary Theory and Trade Cycle by F.A. Hayek for why the boom/bust is an inherent feature of FRB. The enevitalbe bust is explained by the Modern theory of the Austrian School. No currency or banking school.
Austrian Boom/Bust theory has developed considerably since 1933.
By the money cranks, yeah.
Based on what? Your dreams?
Yeah, Rothbard, Hülsmann, etc… [;)]
Based on sound economic analysis which the FRB crowd are unable to respond to.
This is why you keep finding yourself having to equate oranges with apples.
Do you want to add Mises to that list also? (note text in bold)
It is a mistake to associate with the notion of free banking the image of a state of affairs under which everybody is free to issue bank notes and to cheat the public ad libitum. People often refer to the dictum of an anonymous American quoted by (Thomas) Tooke: “free trade in banking is free trade in swindling.” However, freedom in the issuance of banknotes would have narrowed down the use of banknotes considerably if it had not entirely suppressed it. It was this idea which (Henri) Cernuschi advanced in the hearings of the French Banking Inquiry on October 24, 1865: “I believe that what is called freedom of banking would result in a total suppression of banknotes in France. I want to give everybody the right to issue banknotes so that nobody should take any banknotes any longer.”
–Human Action
I sense your acrimony against Rothbard, but alas I don’t understand it. Not well read enough I guess! I googled “Rothbard is wrong” and could only find shabby critique of his self-ownership axiom.
Could you indulge me with 2 or 3 sentences to summarize the thesis about why Rothbard is a “money crank”? Thanks in advance.
This entire thread and a lot others are a debate about that thesis. There is no need for google.
Would it be too much trouble just to summarize the argument against him for me? I’m lazy and don’t want to scour a lot of threads to deduce the core argument against him. Just something simple like “Rothbard believes the earth is flat” or something like that. Think of it as a Christmas present for the lazy! Cheers.
When scineram talks about a ‘new austrian school’ he’s likely referring to Selgin.
If you want to call advocates of hard money such as Rothbard, “money cranks”, you can of course do that. You can also believe that the moon is made of cheese if that makes you happy.
A demand deposit is a loan to the bank. That is just what it is, a call loan. Once you understand this simple fact the entire embezzlement argument collapses into nothingness.
scineram, would it always be inappropriate to describe an explicit bailment-type deposit as a ‘demand deposit’ ? it seems you are committed to affirming that it would always be inappropriate.
No, it’s not. Are you seriously telling me that you deposit your money into demand deposits as loans, not because banks are the best method (which you know) to store your money, electronically account for your expenses, et cetera?
It could be confusing, but what matters are the actual terms of contract, not how someone calls them. You either agree to the terms or not. Renting a safety deposit box is different from opening a checking account.
you think its confusing to say about a bailment that funds have been deposited, and the original depositor has access on demand, and that he has a demand deposit?
This is nonsensical. The terms of the demand deposit contract is that your money is available to you on demand; if the bank is lending out a fraction of your money, it is risking not being able to fulfill the terms of the contract. In a world without central banking and deposit guarantees (to a certain maximum limit, of course), bank runs would occur fairly often in this case (as history has even proved to us). “Renting a safety deposit box” is not the same as a money warehouse, because that deposit box does not keep track of your expenditures and rearrange your funds for you (and for those you give your money substitutes to). A safety deposit box would be no different from stuffing money under your matress. People don’t do it because the bank provides a service; I remember when banks used to charge for that service (as it should be).
I agree with scineram here. Although I quibble with the term “demand deposit”. I like these terms:
safe deposit = money you deposit in a safe deposit box kept in the bank’s vault which they are warehousing for you for a fee and which they may not lend out to others.
unsafe deposit (aka deposit aka demand deposit) = money you deposit in a checking account, savings account, money market account etc.. This money is actually a loan to the bank and is indeed recorded on their balance sheet as a liability. As the recipient of loaned funds, they may do what they wish with it: pay their rent, salaries of bank employees, lend it out to others whatever. Unless a certificate of deposit with explicit delayed repayment terms, banks typically promise (brazenly) that the lender (depositor) may return at any time and have their loan repaid in cold hard cash.
I don’t see how you can argue that common “deposits” are not actually loans. I don’t see how this weakens Rothbard’s advocacy of hard money either. I think it would speed up the demise of FRBs if the general public were keenly aware that their “deposits” were in fact loans to banks…“And remember Johnny, when you lend money to anyone, there’s always a risk that they might not pay you back.” Don’t you think calling deposits what they truly are, loans, would help end the damage we have been experiencing from FRBs and central banks now for hundreds of years? Maybe I’m missing something glaringly obvious.