Ah, very nice, that “money (property).” Why, you almost slipped that right past me, you clever fellow!
And yet, I conceed it: I admit that bank money is “property”: the holder owns an IOU, just as someone who buys a bond owns…a bond! What he emphatically doesn’t own is the base money surrendered to the bank in exchange for the IOUs. That base money became the bank’s property, until the bank in turn lent it.
And as for whether I know a “better” survey than the Cobden Centre’s: well, every anti FRB type on this thread appears to “know” what banks are up to–or else what is it that all are so vehemently condemning? Do all think themselves so much brighter than average bank customers? If not, that’s my survey. Or will someone on this list admit to being one of the knuckleheads who thnks a bank is just warehouse?
And as for, the suggestion that a bad survey is better than none is …shades of “if you can’t measure, measure anyway”!
Selgin, what do you think your ‘survey by this thread’ proves?, that there is no problem with heavily regulated bank systems under regimes of fiat money and legal tender laws where the banks engage in fractional reserve banking, that may as well just be full reserve banking since when banks go under tax payers get the bill anyhow? that we all know the government intervenes in the market for financial services and yet we still all participate in the distorted market that therefore there are no problems and nothing to criticise?
Dr Selgin, can you indicate why you think credit expansion by banks under free banking would not lead to business cycles of the kind predicted by the ABCT?
As an admitted amateur(especially at macroeconomics, I had a humbling experience w.r.t that recently…), I can hazard a guess as to one way this problem could be offset in a free market. This would be through the operation of a secondary discount market in fiduciary media. Speculators on these markets would look to make gains based on their better knowledge and impression of different banks’ activities and balance sheets, making profits on the differentials between anticipated future discounts or reserve ratios at redemption and the discount at which these “IOUs” are purchased. Operations on these secondary markets would then effect the behaviour of consumers, retailers who accept these fiduciary media as well as the banks that issue them, all of whom would either emulate these prices for their transactions or adjust activities in accord with them.
The system would not be perfect, owing to a lack of omniscience, uncertainty and human error, but nothing associated with the free market and human action is. Speculators on the market would make money proportional to their ability to perceive the relative recklessness and soundness of the banks concerned. On the other hand the banks would be rewarded for their ability to also perceive better investments, even if these are financed at a “leverage” due to a lower than 100% reserve ratio, while their recklessness would be punished too. Meanwhile the pyramided credit expansion by which the business cycle is accentuated would be offset to a large extent if not almost eliminated via the operation of an efficient discount market in fiduciary media(the banks themselves would probably be major participators in such markets too). Their operation would also help smooth out the fluctuations in money supply as a result of bank runs that has otherwise occured via FRB systems in the past. Indeed more efficient banks may effectively be able to expand credit at the expense of less efficient ones, making the market in a sense “cannibalistic” too.
The discount market would moreover be aided in its functional capacity due to the abolition of legal tender laws and deposit insurance, making speculators and buyers of bank media no longer effectively compelled to purchase them at par. Hence as a result, such a market would help regulate free bank activities in much the same way that stock and bond markets currently help regulate and govern the flow of capital to public stock companies. Meanwhile it would also help offset lot of the economic (not ethical) side-effects of FRB that the 100% reserve school has been concerned with. What do you think, am I just being ignorant/smoking something really good?
I think the FracRB “deposit” (more like, bond) free market would look much like you described it. The moment a bank customer wakes up one morning and sees his “deposit” account (i.e. bond, IOU) trading at $.70 on the dollar in the open market he will perceive it as the junk bond that it actually is. As I said in my first post in this thread, people who want to lend their money, lend their money. The ones that want to maintain access to it (i.e. enjoy the liquidity benefits offered by it) deposit it.
i’m guessing you know more than average about all sorts, like marginal utility and the law of how it diminishes, the mutual gains from trade, the impossibility of rational economic calculation in a socialist commonwealth, the regression theorem for money… I could go on.
You mean an economic good like burgers or sheep? Do you understand that economic goods (property) can not be willed into existence simply because someone “demands” them?
Yes. A good (property) is demanded because someone needs (values) it it for something. So?
I can critique whatever I want. You earn interest on loans (bonds – junk or others). You pay service fees on deposits (or they’re free if you agree to look at pop-up ads). Just making you aware that there is a difference. You pays your money and you takes your chances.
What’s the point of this question? I merely asked z if he believes in the demand for money.
It is simply an economic fact that money is demanded because of its ability to facilitate exchange. This shouldn’t be controversial at all. Chapter 8 in Mises’ Theory of Money and Credit provides a full explanation.
Did I say that media of exchange are identical to all other economic goods? There are clear differences between them, but it is an economic good nonetheless, and there is a demand for it.
Not only is this entirely immaterial but it is also blatantly incorrect. It doesn’t matter to me whether money is produced in a factory, or found in a cave, or simply created by banking practices (a bookkeeping entry). Again, I value it because of its ability to facilitate exchange and eliminate certain efficiencies associated with barter.
You put money demand in quotes before, so it seemed as though you dismiss the concept of money demand and therefore monetary equilibrium altogether.
Yet this particular IOU matures instantly at face value the moment its holder shows up and demands it. It’s rather fascinating that all it took was essentially two things to be redefined in order to overcome the praxeological impossibility of having two individuals being the exclusive owners of the same thing at the same time.
The claim ticket or warehouse receipt is redefined as an IOU
The depositor is redefined as creditor.
Yet evertying else remains the same. We still have a fixed amount of pysical property and a greater amount of claims (call them IOUs) issued, each representing a claim to the full amount orignially deposited. Nothing has changed except terms are redefined by you, yet the process in principle remains the same.
Answer my question. Am I a “brainwashed moron” because I (a) choose to earn interest rather than pay storage fees, and (b) voluntarily exchange my base money for bank money (which is quite convenient)?
Esuric, I think you are a regular dude that is going to avail themselves of the checking services of banks, particularly under the circumstance that you can rely upon deposit insurance and government backstoppery.
But this only relates to your position vis government regulated banking, and doesnt say much for fractional reserve banking outside of government control, which you have no personal experience in.
Deposit “insurance” doesn’t protect the real value of your deposits; it only protects the total nominal value, which I don’t care about. In other words, I prefer the services of a fractional reserve bank over a “storage warehouse” in almost all circumstances (unless the fractional reserve bank is engaging in overly risky behavior), even when there is no deposit insurance. Now I’m not saying that this is necessarily the case for everyone. Extremely risk-averse individuals may prefer the storage warehouse, or to keep their money under their mattress. But saying that FRB exists solely because of federal deposit insurance is an assertion with little-to-no evidence, empirical or otherwise.
What are you telling me Esuric, that government intervention in the financial markets are so mild that banks and their customers face no moral hazard vis simple savings accounts? that we should look up on the current market for financial services as a good example of what banking would be like if there was no government?
Let’s just touch base here on what should be very trivial: When your bank creates more claims then actual physical gold, it is increasing the supply of claims/notes, not the supply of actual gold. Agree? (hopefully)
Now then, how in the world is the greater supply of bank notes being maintained at a fixed par with the gold? Now don’t evade and tell me what I already know; that the notes are treated as money substitutes.
No. What I said was this: I would prefer the services of a frb over a “storage warehouse” even in the absence of deposit “insurance.” I understand that such “insurance” doesn’t really protect the real value of my money in the bank, but I also realize that this may not be the case for most individuals. Most people believe that their deposits are entirely protected by the FDIC, and as such don’t discriminate between banks, which creates substantial moral hazard. Additionally, our current monetary system is characterized by a consolidation of all banks into essentially one bank, governed by a central bank which centrally plans the monetary system and destroys the natural market mechanisms that attempt to eradicate monetary disequilibrium (mechanisms which exist in a free banking environment).
My only point is that I see no reason whatsoever why Rothbardians are so sure that individuals, across the board, would prefer holding onto metallic base money (very inconvenient) over bank money, and pay storage fees rather than earning interest. Are people really this risk-averse? History suggests that they are not.
