No matter what they do, government involvement in the baking industry will always result in moldy bread.
One thing I forgot to bring up in my last post is the case of a low-reserve bank lending more money than they have, i.e. issuing bank notes for unbacked resources. As long as it does not claim to have 100% backing, it is not fraud by any definition. It is up to the purchaser of the banknote (whether they get it from the bank or from a private individual) to decide what value he places in it. A bank with unsound practices will not gain a lot of trust among people and therefore, the holders need to be compensated for the risk of holding its bank notes. In other words, the money will lose value, maybe up until the point that it actually reflects the value of the resources being held by the bank, who knows? And similarly, people will trust a bank issuing sound money, and that money will generally accepted, and therefore more valuable. Transparency and backing of resources will be demanded by the consumers, but I don’t hold it to be true that consumers would necessarily demand 100% backing of the bank notes. And there is no reason to forbid people from buying unbacked bank notes, any more than forbidding people from buying bad art. You can buy an ugly painting, just like you can buy a worthless banknote, but no one would call the painter fraudulent merely because the consumer was unable to appreciate its value properly.
It depends on what constitutes “bad” to you. If “bad” includes business cycles, it is “bad”. Fraud is deception. Suppose I sold you a car with with no engine, gas tank or drive axles and you only found that when you tried to leave the lot. If I argued that it’s your fault for not looking under the surface, would that be deceptive?
FRB is not the cause of business cycles, not even in Austrian theory. The currency monopolies of central banks are. In a free society, you can simply stop accepting bad money when you stop trusting it. No sane person would ever assume that his money was laying idle in a vault if he receives interest on the money he deposited. The bank doesn’t claim to keep all the money in their vaults, and anyone receiving interest would assume that they did. Hence, there is no deception, any more than a mongoloid child is deceived when he realizes he can’t pilot the spaceship on the poster he just asked his mother to buy for him. Unless the banknote actually says “redeemable at any time”, there really is no fraud going on if the bank doesn’t have any gold in its vaults. Fraud requires lies. If indeed the banknote said something in that order, then yes, it would be fraud. So point still stands: Fraud is bad, but FRB does not necessarily involve fraud, and therefore it is logically invalid to state that “since fraud is bad, FRB is bad”.
This is what I have been trying to get the FRB opponents to explain to me for a very long time. Assuming the bank does not pretend to have full reserves, then why is FRB fraud?
This is incorrect. The cause of all cyclical activity is the divergence between the market rate of interest and the natural rate of interest. This can happen many different ways. You can have a real endogenous change which elevates the natural rate above the market rate (mass immigration, for example), or you can have some exogenous authority suppress the market rate below the natural rate. Either way, you will get an inflationary induced boom, and deflationary correction/contraction.
It’s not. The moral argument against FRB is akin to saying that makeup should be banned because people don’t know that it contains carcinogens.
If a novice who discovered AE 2-3 years ago and thinks that he knows something and a guy who doesn’t even know AE are going to spam giant jpgs, I need not wonder why Liberty Student left.
