Rothbard describes inflation as (among other things) wealth redistribution to the benefit of those who first receive the new money and a tax to those who receive the money last (the people in the more remote parts of the economy whose prices rise before the money trickles down to them). My question: why isn’t a loan based on purely voluntary savings, and no inflation, subject to the same criticism? If I get a loan from pure investment to buy consumer goods and bid up prices at companies around me, the same trickling effect will occur until those in the remote parts of the economy are stuck with higher prices before the money makes it around to them.
What is missing from this equation? If both a loan from inflation and a loan purely from voluntary investment are subject to the same criticism, why bring it up at all?
Loans have no relation to printing money in that respect. It’s purely the printing money that redistributes. Suppose that you have $0. You can’t buy anything. Then you print a trillion^10 dollars. You can now buy the entire world, because your holding of 99.99% of all money allows you to outbid everyone else on everything. A loan for all of the money in the world would mean that you could buy the whole world, but you would later have to pay the whole world back plus interest.
Banks in a fractional reserve system do engage in this kind of inflation; it’s how the multiplier effect works(not the fiscal multiplier that advocates for stimulus use). The government and the Fed do a great deal to support this inflation. Recall that one of the principle roles of the Fed is to clear checks between banks. If you have the Fed managing when bank loans get called in, you will and do see a great deal of inflationary credit. The act of calling in loans is what works against the inflationary effects of credit creation, by demanding that the loan come from some real savings, so the loan in effect has only displaced savings from the lender. The main distinction between a loan based on inflation(from the Fed) and a loan based on voluntary savings(from a commercial bank in any banking system) is that you can’t call in a loan from the Fed. If you go to the Federal Reserve to redeem you $100 Federal Reserve Note, what will they give you? In contrast, if you take a $100 check written out from a Bank of America account to the bank, they will gladly hand you a $100 Federal Reserve Note.
BTW, there is a big schism among Austrians dividing those that see that kind of commercial credit creation in fractional reserve lending as morally identical to what the Fed does(in other words they subject both kinds of loans to the same criticism).
The loans have to come out of savings withdrawn from the economy, lowering prices. Credit creation de novo on the other hand increases the amount one can loan out without requiring an increase in savings. That is why it is inflationary in a way in which spending money borrowed out of savings is not. BTW, no one has a right to a given price nor can one own the value of something. The only reason FRB is theft under the current system is that one is forced to use the devalued currency. If one can freely give it up and adopt another form, it’s not theft or coercive in anyway so long as the bank is clear on the terms it is offering.
So as long as I am free to evade the robbers by moving to a city with less robbery, then robbery is OK in the legal sense? Or it is only theft because I am forced by law to stay where I am? This is what Irenicus just said!! And this is the type of “logic” used to justify free banking FRB.
On second thought, I only agree with the first part of Jon’s original answer. I’m undecided about the second. I’d prefer to see FRB made illegal, but free banking is still an attractive and self-regulating alternative.
Well, that’s not a law. That is simply mob aggression. I don’t see how you could oppose FRB on principle, and then abandon those principles to stop FRB.
My point is, you can’t make it illegal. It isn’t illegal. It’s a lottery. We live in casino economies, where saving is disincentivized, and high risk investment is incentivized.
What is wrong, is that they are a monopoly, via legal tender. When that legal tender monopoly is removed, people can gamble with free banking, but I suspect FRB will be reduced to the equivalent of a savings lottery. The real money in FRB, has always been in owning the bank, not in placing deposits within it.
Fair enough, but what if the bank lied about their terms? They claimed to be full-reserve but then end up being fractional-reserve. This is a violation of terms. How should that be treated?
Not all parties involved are given this choice. If the currency issued by the bank represents a claim to money sitting in the bank, there is no way to multiply this claim without deceiving some party. Even if the depositor and banker mutually agree to bare the risk, the people holding this commodity money or using it in exchange are being robbed regardless if they are accepting your bank notes or not since the ultimate purchasing power of the money is derived from the real stock + the claims (bank notes) in circulation. The bank notes are no different then counterfeiting!
Not true! The people in possession of the money commodity couldn’t care less about your notes and still suffer a loss of value due to others accepting them. They have no control over a bank issuing multiple claims to the same amount of a particular commodity money. They have chosen the money commodity and NOT your notes. The choice that you and Jon Irenicus are referring to DOES NOT EXIST for those holders of the money commodity. There is no way to practice this without deception. The deception is the fraudulent element. It’s still counterfeiting!
And if the value of their commodity money falls then they simply chose poorly. Its no different than any other competition, stocks compete and effect each others value, its not deception in any way. And the choice is obviously there.
So, would you two (DD5, Jon Irenicus) agree that the fundamental difference between how you regard inflation in a legal sense depends on whether or not a person is entitled to the value that goods in the market place would have had there been no inflation in the money supply?
This sort of defense should hold for the basement counterfeiters as well then! As long as people accept their notes due to them being exact replicas, then all is legitimate since I don’t own the value of my money. There is nothing special about a bank! You are confusing bank notes backed up by nothing and Fractional Reserve Banking where there is actually commodity money. The first is OK (hypotheically since it wouldn’t survive the market test), and the latter is counterfeiting!
Did you actually read my post? They chose NOTHING accept the commodity money! You deceived them by printing multiple claim tickets. You forgot that there is a 3rd party not involved in your contract. Even though the logical validity of the original contract between depositor and banker is questionable, there is a forgotten 3rd party that has been fraudulently deceived.