No, it isn’t… I don’t see your point.
The bank can honour their guarantee, they haven’t promised to redeem all tickets on demand, rather “by week X after the demand has been made.” That’s a guarantee that certainly can and should be honoured.
(The bank should go out of business for not properly balancing their reserves and assets in a timely manner)
You are the one trying to reinvent the lexicon though, not I. I never once said the tickets posses the qualities of money, where are you getting that? What I did say was that they possess the qualities of a fiduciary media. Which they do, by even Mises’ own definition of the term, you seem to be using a different one.
“week” is an assertion. It could be “month” or even “year”, but that is besides the point that by your own admission, these tickets are not substitutes for the money commodity sitting in the vault as reserves. So if gold is the money commodity, then these tickets cannot constitute gold substitutes. The public, aware of this fact, will not accept these tickets for gold substitutes as it will not accept apples for oranges.
Ok, so let me make sure that I understand this,
Time deposits: Have the advantage under a full reserve banking system because this way banks would know that however many people would not want their money back before whatever date, this would actually mean that more money could be lent out because they wouldn’t have to keep any reserve for person X before the date that their deposite expires and thier interest is due. This would also utterly end the practice of bank runs.
Time deposits would become common, indeed most non timed deposits would begin to dissapear, those who chose to remained untimed for whatever reason would have to pay the banks money to do this. This allows their funds to be in a secure environment for them, although this would detract a fair amount of poorer individuals from taking part in the banking system.
Does this look about right?
I’m not sure why you believe that “most non-time deposits” would begin to dissapear. I think that most money would be kept in demand deposits, or warehoused (in other words), or it would depend heavily on time preference.
Again with the clause? I asked you for the quote that Mises equates bank notes with a clause (meaning that the public is aware of the practice) and you did not provide it This is because Mises NEVER claimed that the public was aware of anything, but simply described the practice as is currently taking place.
I am really getting tired of your obfuscation. I think my argument with you has gone long enough.
Its merely an example.
Not quite. No, they cannot be considered substitutes for substitutes for the money “sitting in the vault as reserves” what they are substitutes for are the assets held by the bank equal to their value in said commodity money, which they will have been traded for by “week X.” Its still convertible for money at its face value, its still a form of money in both the broad and narrow sense, still a money-substitute.
You are simply asking for more than required. His definition of fiduciary includes fractional reserve bank notes (i.e. with a clause) you may not like it, I don’t care.
Please show where Mises said the public wasn’t aware or cease this nonsense (as it doesn’t add to the debate whatsoever).
no, it only includes the portion of the notes which are not backed. it leaves out the portion that are backed.
Because there would be no interest in it, therefore it is more profitable for the individuals who would be opening the accounts to go for time accounts because that way they not only keep all of their money, but they get more through interest… So basically because there remains little actual insentive for keeping intermeidiate sums of money in a bank as opposed to at your house, indeed the shift from paying the deposit owner, to paying the bank would deinsentivise many individuals from even considering demand deposits.
Yes. The portion backed by money is a money-certificate, the rest is fiduciary media. But you’d need to see the bank sheets to know the percentages. Regardless, its still, a100% money-substitute.
Obviously, this is subjective and not always true. We have already established that interest would not be high all the time. There could be low demand for loans, and there can already be a high supply of loanable funds as compared to demand. There has always been demand in money warehousing, because it is a means of keeping your money safe, and with the advent of electronic bookkeeping it also makes accounting for your money far easier.
If it was true that time deposits would garner more for all individuals, then all individuals today would invest their money in time deposits and not in checking accounts (today, interest on checking accounts tend to be <.2%, to give you an idea).
Exactly, thats why I said most non timed deposits would dissapear, not most of them. Also some interest is better than none, particualarly with the larger deposits. And of course people save if they don’t have enough for significant paybacks on interest by not keeping money in banks although this would only apply with certian sums.
They did. END OF STORY.
Not really. Investments of a bank can always go bust making it unable to pay depositors, timed or not.
No, most deposits would probably remain demand deposits. The interest rate depends both on demand and on supply, and those who decide to invest their time in time deposits also face a variable amount of uncertainty. Like I said, if what you were saying were true then people would already invest most of their time in time deposits, but they don’t.
But is this not largly due to the fact that they currently recieve money through this? There is an insentive to save in demand deposites. I’m not arguing but please simply tell me what the insentive of demand deposites would be, and wouldn’t interest in time deposites be rather high? Especially if few people wanted to work with time deposites because then there would be little money with which banks can recieve their funds.
No, like I said, interest on demand deposits is extremely low (less than a fifth of a percentage point). Demand deposits exist because they act as money warehouses and accounting services.
These are not savings, and never were. Demand deposits have existed throughout history for specific reasons (when specie was used, mostly for protection, now for electronic storage and accounting).
The interest on time deposits depends entirely on the demand for loans and the supply of loanable funds. It could be low, or it could be high.
Yep, that response pretty much summarizes the “scientific” theory behind free banking.
So what is your argument again in regards to the supply of and demand of money?
My reason is that Shostak’s argument is strange and I don’t think he’s really addressing what monetary economics is all about and how velocity of money places a part in the equation of exchange.
What I’ve been taught is that the velocity of money is related to the level of inflation and deflation in the economy relative to the price of money. Shostak seems to either ignore this or just not give it any thought. I’m really not sure what he’s getting at, to be honest. Is it that all economic transactions must be, in the long run, paid for not with money, but by products? Ummm… Ok. But that’s not really the point of what monetarists like Friedman are getting at.
So, I guess it’s not so much that I disagree is it is that I don’t really get what you guys are getting at.
Within the context of your original post, that they are not proportional or equal.
You wrote:
Say there’s no increase in the money supply at all, but velocity increases ten fold. What’s the difference?
Shostak actually engages the mainstream view on the velocity of money. If you read the article, he explains why the velocity of money does not effect money’s particular purchasing power. Shostak is not the only Austrian economist to critisize the theory of velocity as a determinant of prices: