Good point, Mises does have his weak moments in Theory of Money and Credit. Plenty of good stuff is in there that gets carried along ,but plenty is superceded (i.e. Human Action).
Here is a very good article about Theory of Money and Credit
http://www.indytruth.org/library/journals/libertarianstudies/18/18_3_4.pdf
Yes, but the point is this adjustment between different monetary equilibrium’s.
In the long-run you are correct. But the adjustment process is the problem. We can allow prices to adjust, and that would indeed restore monetary equilibrium, but that’s very painful (and unnecessary).
I know very little about the modern free banking school. I’m not going to defend them.
Also, a secondary source about what Mises “really said” or “truly meant” in Human Action is meaningless to me. I will read it myself after I finish Pure Theory of Capital. I’m beginning to think that there’s a substantial difference between Hayek/early Mises and the modern free banking school; that, or the 100% reserve guys are attacking a straw man.
my long run is a day how long is yours? if i want to increase my cash holdings, then I start buying less, and I start selling my wares for cheaper. I can do that today. I am not special.
what economic arguments can be mustered to bear out the claim that market actors adjusting prices so the markets for their goods can clear( given a change in the actors subjective values) is ‘very painful’ ? is it more painful than alternatives?
This statement is almost an exact description [word for word] of the “paradox of thrift”, except that you describe the transition as “very painful” and a Keynesian may describe it as problematic. Keynesians too share almost your exact concerns only in the short run.
I’m not saying you’re a Keynesian, don’t misunderstand me. You realize that the price system can coordinate and they are clueless, however, your argument is gradually taking you to the same conclusions. One cannot deny at least the resemblance.
You don’t know what the paradox of thrift is. The paradox of thrift is based on the circular flow model and deals with “aggregate demand.” I’m talking about inter-temporal stability and the structure of production. This has nothing to do with an illusory correlation between the total aggregate demand for consumer goods and employment, nor does it predict a Wicksellian rot. The economy adjusts, and that Say’s law holds. You should try to understand Keynesian and Mercantilist doctrines before you accuse others of supporting them. The only similarity is that both Keynesians and Austrians understand that prices are sticky (this was “revolutionary” in the Anglo-American world).
I made it very clear that you don’t agree with Keynesians on theory, however, your conclusions are very similar. I don’t need you schooling on “the paradox of thrift”.
This demand can be satiated through the debt market. Short-term loans, bridge loans, “just to tie me over until next week” loans, merchandise loans, salary loans, etc. I’d gladly lend my capital (savings) for any of these needs given a rate of return that is commensurate to the creditworthiness (collateral, credit rating, etc) of the borrower in need of such liquidity. I don’t see why any of these would necessitate FRB.
Today, banks are corporations called with a different name (“banks”) merely due to the special status granted to them via the central banking and fiat money regime. In a free market, “banks” would be just like any other corporation. Without this special status (granted by whom, btw?) the market would treat a bank that lends non-existent capital, just like it treats a car-dealer that sells non-existent cars. In a free market, “free banking” would be as viable as “free car-dealing”.
Z.
Because banks existed houndreds of years before corporations.
Wed. 10/02/24 18:39 EST
.post #5
Is the problem…
I question assertion #4.
I deposit $100 in the Rapture Bank. Rapture Bank lends 90 of my dollars to some businessman, yet my account statement still shows a balance of $100. Then I write a check for $100 to someone, and my account statement now shows a balance of $0.00. At this point, the Rapture Bank must somehow replenish the $100 to re-establish the 10% reserve requirement. It can do this by borrowing $100 (from, let’s say, the Fed’s “discount window”). At some point, either after other customers have made sufficient new deposits, or after the original business loan is repayed, the bank’s debt to the Fed is, or at least can be, repayed.
If this simplified scenario is correct, then I don’t see that Fractional Reserve Banking, as practiced today, is “bankrupt.”
“Without this special status (granted by whom, btw?) the market would treat a bank that lends non-existent capital, …”
are you saying that banks currently lend non-existent capital?
what do banks lend now as you see it?
Is there a problem with having somewhat similar conclusions? Keynes’ theory, after all, is pretty much just a special case of Austrian theory. One where all the variables line up just right for his high level of aggregation to be useful. That never occurs in real life, of course, but then again, Austrian macro-economics doesn’t exactly line up with real life, either, just a lot better than rival theories. It just so happens that Keynes’ special case applies in a broad sense to an institutional structure that includes an irredeemable paper currency that is also legal tender and is issued by a monopoly provider. Now, his specific policy recommendations didn’t work out because, like I said, it only applies in a broad sense. To make it apply in a specific sense would require governments to take ever more control over the economy as it innovated itself out from under the current set of policy controls.
In a real free banking environment, where we don’t save long term in the same money we spend in the short term with, there’s more flexibility. Real fractional reserve banking contains a set of costs which limit issues of new notes and deposits to real demand to hold them. From there fractional reserves allow for the adjustment process in the restructuring of the capital structure in response to shifts in the structure of demand to happen quicker and more painlessly than would happen in a world of 100% reserve banks only. No property rights are violated because the fact that someone’s demand deposit is actually an item bought with the currency deposited which pays interest for the service of bearing the risk that the loan the currency deposited went into making will default is contained the contract when somebody opens an account with a bank. That’s why demand deposits are liabilities on a balance sheet rather than gold coin in a vault (or even dollar bills in a drawer). It won’t drive credit expansion because the base money markets will differentiate between specie and notes and deposit claims. No legal tender means that no one anywhere has to take a note or coin or anything except at what they judge to be the current market price. Any fractional reserve bank that over issues its notes or demand deposits will quickly find businesses (not just other banks) discounting the notes by not selling things for the notes or demand deposits at par with specie. The bank experiences a run and the banker is ruined (along with his depositors, unless they’re insured). This all happens with only a local disturbance in interest rates whose exact magnitude depends on how developed financial markets in your economy are.
Let’s not just concentrate on who said what about banking 70 years ago, now, a lot has been done in free banking since. While both schools (FrRB and FuRB) have survived, it’s at least my personal opinion that the FrRB school has made the better case in recent decades.
No.
Yes.
Keynes’ theory includes a flat, invariant capital structure. In other ways, it’s 100% Austrian. Keynes’ theory would have been good for the de-monetized economies of early medieval Europe. The Austrian theory became necessary as capital deepening proceeded.
This is true for his early stuff where he was working with the Wicksellian framework. But it’s not true for the GT, where the interest rate is solely a monetary phenomena, and the money supply is exogenously determined. But an invariant one dimensional capital structure would have a 0% interest rate (I think).
What if a group of people decided to engage in FRB on a voluntary basis? Could a Rothbardian anarchist advocate the use of state violence to terminate the practice?
Interesting comment from Steve Horwitz.
Horwitz>>The guy knew his shit and he understood monetary theory better than just about anyone who claims his mantle on any side today.
Horwitz>>Yes, Mises does suggest that. That’s an empirical/historical prediction about which I think he is incorrect.
well, I lol’d
Well… That’s interesting, but for all intents and purposes, if everyone regardsthat cat as a dog, what’s the real difference?
To get out of the world of metaphors, if people regard certificates as money, it works the same, people live with it, seems to be manageable to me.
Excellent post by Bill Woolsey on creating fiduciary media and malinvestment.
I didn’t get through the whole thing, but increasing cash holdings does not equal saving.