You confirm my theory that you think money comes from society, and then you go on to rant about my ‘“theories”’'. Did you take your stupid pill today? Did you accidentally overdose?
You confirm my theory that you think money comes from society, and then rant about my “‘theories’”
This explanation of where money comes from is quite non descriptive. Yes, this seems to be the best that the conventional economist can come up with, but if you don’t see it as vague, then you aren’t reading it well.
Yes it does. The value of the dollar is in its scarcity. When the quantity is expanded, the real value goes down. No part of society is isolated from the dollar’s deterioration.
Inflation does not contribute to a boom in any way. An economic boom will always feed some inflation, because as the velocity increases, the same dollar will go through more transactions and so will appear to be less scarce. Economists as a general rule create reverse causality.
Banks would loan out the money that people loan to the banks. Banks are expert in finding good credit risks, while depositors are not. To you it would be like CDs. You loan a sum of money to a bank under set terms, including a restricted withdrawal schedule. The bank then loans that money out using its investing expertise. Their profits from the loans would be spread between the interest they charge borrowers, and the interest you charge the bank.
Rothbard did not necessarily advocate banning fractional reserve banking per se. If not banned outright, however, it was imperative that the bank suffer the consequences of inadequate funds–e.g. bankruptcy. That way the market could regulate the credit expansion risk. If a bank somehow managed to find a successful fractional reserve business model that allowed it to survive panic after panic, who are we to claim to be better bankers? But that is a big “if”.
The switch wouldn’t be too complicated for most depositors. Banks would likely usually charge depositors for demand deposits instead of paying a paltry interest like they do now. If you wanted to try to earn interest on your funds, you’d expressly loan it to the bank (like CDs). But that would restrict your use of it (as well it should). So typically, you would minimize the amount you kept accessible in your checking account–probably not unlike you do now. But the rest would probably be loaned out to the bank the way people currently keep staggered CDs.
Fractional reserve banking may be exceedingly risky, but it is doing so with demand deposits that is fraudulent. It is deliberately falsely promising to have more funds available than it really does. Just because they USUALLY do wind up having the funds available when people usually want them doesn’t keep it from being fraudulent. Runs on banks should never leave anyone without the funds the bank promised them. Loans are different than demand deposits. Every loan has an assumed risk of no payment. Of course who knows what the banks would dream up. They may allow “demand deposit” functionality under normal conditions with the bank option of tying up your funds for a period of time if they so chose. That alone might be sufficient to survive runs.
Conventional wisdom is that NOT having fractional reserve demand deposit banking would suppress economic growth. In fact, the only “growth” it would suppress is the run up of a credit bubble–along with the subsequent recession. Since bubbles are actually a misallocation, a squandering, of resources–a dead end–they represent a ‘paradoxical’ loss of wealth even during the high times of the bubble–a loss only being realized during the correction. Thus suppressing bubbles would only serve to increase long term economic growth.
“0% reserve banks” are therefore, not banks.
If I deposit money with a bank that promises to have it on hand at all times, and they do not, would you not call that fraud?
dmuldoon,
Are you under the impression that
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Money originates only by banks lending (or creating) money.
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That the producers loan market (Banks) is the primary means of businesses to acquire capital financing.
Because both statements above are false.
What? He clearly considered it to be fraud, why wouldn’t he advocate a ban on fraud (a form of aggression)?
Fraud. Pure and simple. Fraud enabled by the bankers’ cartel: the US Federal Reserve.
Murray Rothbard’s Economics 101 (from the mises.org store) explains this very clearly.
He was at the opinion that since FRB is inherently fraudulent, it should be outlawed and would be in the free society. Rothbard analyzed free banking with legalized FRB and concluded that it would, by forces of the market, not be able to expand much credit, if at all, and would converge into a hard money near %100 reserve banking system anyway.
Exactly, Rothbard would have banned it.
Frankly no one promises that. Phew, the day is saved!
Only because the Banks got the State to “insure” the day of reckoning. Otherwise, banks and the law could not engage is such logical contradictions that, by the way, take place only in the banking sector, thus, further popularizing the myth regarding the importance of the loans market in the economy.
Only what? Please prove such promises actually exist!
When I accept a money order check from a buyer, there is no question of whether the money will be there or not upon redemption. When was the last time somebody came to redeem a check and the bank said: ‘oh sorry, you’re out of luck, we have no money for you’?
How is this possible when you know that the system is not sound? Because every few years, the Central Bank must provide it with liquidity so that this doesn’t happened.
The money order check is treated as a substitute for cash not becuse it really is but because the government makes it that way by force.
I’m trying to make sense of your question in the context of your selected quote from my post.
If you loan money, you typically don’t demand that the person you loan it to “have it on hand at all times”. In many cases, that defeats the whole purpose of the loan.
Additionally, failure to pay back a loan is not always fraud. That is part of the calculated risk independent of considerations of fraud.
It sounds like you don’t understand the difference between a demand deposit and a loan. Can you clarify what you are asking me?
And where do you thinkk money becomes money? Do you think that money comes from government? Do you think there is something magical in the ink? Money is a marker of bank liability, and is created in the lending of it. All money that is circulating has been borrowed (or stolen) from the banking system. Money that has not yet been lent is not yet money, whether it is in the printer or in the bank vault.
NSF.
Yeah, the government only play the role of providing liquidity and nothing else.
It was not my intention to attribute the last two sentences (starting “If a bank…”) to Rothbard. But your question is easily answered by a direct Rothbard quote:
“One great advantage of this plan is its simplicity, as well as the minimal change in banking and the money supply that it would require. Even though the Fed would be abolished and the gold coin standard restored, there would, at this point, be no outlawry of fractional-reserve banking. The banks would therefore be left intact, but, with the Federal Reserve and its junior partner, federal deposit insurance, abolished, the banks would, at last, be on their own, each bank responsible for its own actions.”
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“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.”
– Murray N. Rothbard. The Case Against the Fed. Pages 150-151. (Emphasis mine).
And yet, it is suggested that the bank’s lending to society that is reciprocated when society lends to banks is somehow fraudulent.