“2) FRB might exist in the absense of a state, but if so it would only be because many people have foolish ideas about banking (due to brainwashing, etc.). In other words, stateless free banking would only survive if people fail to see what is in their best interests.”
That sounds awfully open to parternalistic prodding.
If the intellectual world were populated entirely by people like AJ, everything would go so much more smoothly.
I was only responding to your particular question about whether you should worry about your money in the bank now. I explain my argument with more subtlety below.
This, but not sustainably so as one can’t fool everyone all the time. To the extent that FracRB is not shoved down people’s throats by the prince, it is “sold” to the masses by intelligent professors writing thick books about it. Until it isn’t.
That’s the purpose of these debates (and sites like LvMI): education and enlightenment.
Logically, even to a 7yr old, FracRB (just like any “honest” Ponzi scheme) is unsustainable as conflicting property claims must get resolved at some point in the future. Btw, FracRB is the only industry in which the resolution of property claims is synonimous with a collapse or a “run on the bank”. It is also the only industry where a business’s collapse translates into a whipe-out of the customers and usually not the owners. The brainwashing through mere language (“money”, “bank”, “deposit”, “collapse”, “run” all have special meanings when applied to FracRB) is really astounding.
Empirically, FracRB supporters wave off the risks inherent in their scheme by stipulating that “some point in the future” is usually too far away for an average person to worry – and the more people don’t worry, the further in the future that point gets pushed. So the “magic” of FracRB seems to work best when most customers are not worried about the point of property reckoning (which is logically inevitable). IIRC Keynes said: “In the long run we’re all dead.” In the meantime FracR bankers accumulate returns risking other people’s capital while throwing them a bone of token interest and free checking.
That’s why it is crucially important to have professors convincing the masses: “Don’t worry, be happy. All is good. Scientific research shows that things have been good in 18 century Scotland (with 2% reserves no less!), and in many, many other instances – until it inevitably wasn’t good but that’s all because of unpredictable human nature and human spirits and such (i.e people demanding their property for no good reason. The panicky bastards.) So we had to go in business with the prince and invent a central bank.” Since we’re playing empirics, I propose that the unsustainability of FracRB in a free market is hinted (if not proven) by the only two outcomes of every such scheme: (1)collapse or (2)collusion with the Prince.
FracRB supporters claim they don’t need the Prince to sustain their scheme. Both logic and empirics overwhelmingly show that they do.
I think Z suggests an interesting twist. How much of the previous [sic] success of FRB was due to information asymmetry which no longer exists in our commercial society? Isn’t the bank run itself a result of increased information (accurate or inaccurate) about the situation of an institution?
Are you suggesting that ignorance can overcome reality: two individuals cannot be the exclusive owner of the same thing at the same time. It’s a praxeological truth that cannot simply be contracted away no matter how stupid people are. Z said it well. This conflict would resolve itself sooner or later. I presume rather quickly absent State intervention.
DD5, we need other attacks since Selgin and Whte deny that when you deposit with a bank you have any title to what you deposited.
You cannot define your way out of logical contradictions. If two people cannot be the exclusive owner of the same thing, definition that attempt to circumvent this apparently little inconvenient truth are useless and will usually be self contradictory.
So you don’t own X (as in not having a title to it) but you remain in full control over it (as in having access to it and the right to do whatever you want with it at will)? That’s like saying you don’t own X until you decide that you do (i.e. until you act as X’s owner). What kind of (non)-ownership are we talking about here? The word is mightier than the sword, indeed.
Putting on Selgin and White shoes, I suppose I would say that you don’t remain in full control over it. But what do you want exactly? to pass of your IOU to someone else, ok, thats you exchanging your iou for somones good or service.. Or you want to draw on the funds explicitly? come over and we’ll see if we can help you out depending on how well kept our reserves are.
Lets face it, this form of ‘banking’ is really a low-yield lottery. it is explicitly designed as such. You pay in to have a stake in the lottery, and everyday you play you risk walking away with nothing.
nigrahamUK,
Precisely, the bank is not offering warehousing services; it is offering the services of a financial intermediary. Whatever you “deposit” in a bank immediately becomes the full property of the bank. What you own is an IOU issued by the bank which obligates them to repay money on your demand (perhaps with interest and subject to other conditions). The relationship is analogous to a call loan: the “depositor” is the creditor and the bank is the debtor. As Selgin has painstakingly explained, this relationship has been acknowledged in law for hundreds of years and is explicitly detailed in banking contracts; among economists, bankers, and courts, the term “deposit” is conventionally used to describe this kind of transaction.
You might not like this, but it shouldn’t be difficult to understand.
I know, but this is what I mean by attempting to redefine your way out impossible situations. The end result is always that there are more tittles to property then actual physical property. Property can be transferred between people but it cannot be increased somehow magically by an increase in the number of tittles, and it is an undisputable empirical fact that the number of tittles (or bank notes) in exchange is greater then physical property.
But there is another clever way I think to demonstrate the futility of this attempt to redefine the deposit according to Selgin and White. I’m short in time right now. I’d like to elaborate on this later.
You do not remain in “full control” over what has been deposited. The bank is the full owner, because the deposit is a loan. It is possible the bank will miuse the funds it has been lent and be unable to pay the depositor back on demand. In other words, the bank may default on its obligations to its “depositors” – that is the risk of being a creditor.
You no more own the money you deposit in a bank than you own the goods purchased by issuer of a bond you hold.
As Selgin has painstakingly explained, this relationship has been acknowledged in law for hundreds of years and is explicitly detailed in banking >>contracts;
There’s truth in here, Carr vs Carr established this in English Law in 1811 (legal positivism?)
and 200 years later the British Public have no idea:
You are aware that banks have both creditors (buyers/holders of their bonds) and depositors (customers), correct? Now you are suggesting that their customers (depositors) are nothing but creditors, as well? As I explained, and as Nir’s pie chart shows, FracRB only works with either brainwashed or coerced masses (or both). It is logically unsustainable (i.e. immediately collapses) whenever all owners act as the owners of their property.
nirgrahamUK,
The conventional meaning of words changes. Sometimes this can be misleading and detrimental; sometimes this can be elucidating and beneficial; most of the time this is just an arbitrary reassigment of symbols. Whatever the case, trying to fight these changes, especially when they occurred hundreds of years ago, is normally a futile endeavor. For most purporses, a bank deposit is a bank’s debt to its customer. In some contexts it may be prudent to affix qualifications to the word deposit for clarity, such as “FR deposit,” “warehouse deposit,” or whatever else. But since Selgin is not writing exclusively for people seeped in the Austrian economics community, such qualifications will normally just create confusion and need continual explanation.
But since Selgin is not writing exclusively for people seeped in the Austrian economics community, such qualifications will normally just create >>confusion and need continual explanation.
On the contrary, I find Selgins audience is an elite group , he disregards 90% of the British Public as ‘morons’
Of course, what relevence do you suppose that has? They are just two different kinds of debts to the bank. A depositor must be repaid on demand, whereas a bond holder is repaid on a prearranged schedule. The extra risk associated with debts that must be repaid on demand is why banks hold fractional reserves. What is your point?
By golly I think he’s got it!
Yes, that’s another “good” brainwashing argument: People don’t actually need their money (property). They only need the stuff they can buy with it. Preposterous.
Yes, now that we have you by the balls let’s see how we can “help you out”. If we can find a way where both (1) you could buy the stuff you need and (2) we still have your property invested in our name, then everyone’s happier for it, right?
Yes, while language and brainwashing (science!) has been bamboozling masses into believing otherwise, for centuries and still going strong. Your pie-chart was eye-opening!
nirgrahamUK,
The chart you provide is interesting but irrelevant. Given present banking institutions (e.g. fiat money, central banks, deposit insurance, etc.) what do people care who owns the base money they deposit in a bank? So long as their debit cards are accepted they have no reason to care. But even in the relatively regulated banking systems of pre-1850 United States, banks would post details about their balance sheets on the window to reassure depositors of the banks solvency. People know these things when they have an incentive to know.
Moreover, the British public may not be so moronic. So far as the British public are concerned, the IOUs in their bank account are money. They don’t care about the ins and outs of banking, or the relationship between inside and outside monies. The fact is they do own the IOUs in their bank account, and as far as they are concerned that is money, because they routinely use it as a medium of exchange. A more enlightening question would be whether people understand that, without deposit insurance, there is a risk associated with holding money in a bank account. But even that wouldn’t be particularly relevent to this debate, since we are so far from either a fractional reserve or 100% reserve free banking ideal.
Why not simply use debt (both in language and action) just like everybody else? What could be the motive behind (successfully) brainwashing one’s largest body of creditors into believing that they’re not creditors (non-collateralized, no less!!) but merely “depositors”? Take a wild guess.
Oh, no worries, I’ve had it for a long while. It’s the Ponzi-playing sheep that I’m concerned about and the professors that “scientifically” prove to them that “it works” as long as no one panics (i.e. exercises their property rights).