It’s only because I have the car that it sounds silly. But what if I trade this title with you for $5000? I did not trade this car according to you but only a promise to pay up the moment you actually show up at my driveway to pick it up. I’m just saying that I can then give you the same argument: The title is a promise to actually give you my car keys the moment you bring it.
Sorry, DD5, but I don’t get it: a genuine “title” indicates ownership; an ordinary banknote doesn’t. That’s all there is to it. If a bank gave out pieces of paper saying “We certify that the bearer of this note is the true owner of X ounces of gold stored at our premises,” or something like it, then the paper could properly be termed title or claim to X ounces of gold, and the bank in turn would be guilty of fraud if it did not actually have X ounces on hand for each such claim. But if the paper merely says that the bank “will pay the bearer X ounces of gold on demand,” it is a debt obligation only. Rothbardians seem generally to share your confusion regarding the standard language courts settled on long ago for distinguishing a title from a promissory note (of which banknotes are a specific type), and so have been arguing, foolishly, that fractional reserve banks have been cheating their customers, when in fact they haven’t.
I wouldn’t want to argue with you about what the customer in the unhampered free market would actually understand as “will pay the bearer X ounces of gold on demand”, I mean would it matter if the term “redeem” is used instead of “pay”?
But I think you’re missing the point. The “Rothbardian” is not confused. He is remaining consistent about what it means to demand money, that is, like every other commodity, the individual is paying for attaining and possessing that commodity. The only value of the bank note is its function as a money substitute for the specie deposited. They are holding notes and deposits because they are equivalent to holding money. Otherwise, they would be worthless. No matter how you slice it and what you call these deposits or notes on some contract, the end result of your contract always makes multiple people demand the same amount of specie which results in a insoluble conflict.
Economically, the money cannot be working twice (or even multiple times). If holding money has its own yield, it cannot also be invested in capital goods.
If you happen to think the Austrian framework is the most sound, keep in mind that Selgin himself doesn’t consider himself an Austrian (he’s an “eclectic”), and a lot of his propositions are based on Friedmanite doctrines that most Misesians consider fallacious.
I’m actually writing an article contra monetary equilibrium theory (specifically, the “problem” of deflation caused by an increase in the demand for money). Bagus sort of beat me to the punch, but I had originally proposed this article about six months ago – w/e, it will build on what Bagus says. Fwiw, I don’t think MET is needed to see the merit in the microeconomic theory of free banking.
I don’t see what this has to do with the claim that banknotes are really “claims” or 'titles."
well no… Mises didnt advocate FRB as a second best option, he advocated it because as he says in human action: Free Banking is the only method available for the prevention of the dangers inherent in credit expansion." People like Horwitz, White, and Garrison would say, i agree with them, that Mises advocated 100 reserves as a second best option
But i wouldn’t say that Rothbard would have been or was tolerant of free banking banks. didnt he advocate for the abolishment of FRB on the basis that it is fraud?
You don’t deny that people demand bank deposits for the sake of demanding money. I mean, it’s not like you’re saying that people deposit money in banks because they want to loan it out, i.e., because they demand IOUs. No, you maintain that indeed people demand money for its own yield. Well, it’s difficult to make a logically consistent argument for demanding money for its own sake and not either demonstrating that one must have in his possession the actual physical money or at minimum a property title or claim to some money safely deposited in some “warehouse”. There is no other way to demonstrate demand.
Due to its inherently risky nature, one can logically deduce that a bank that engages in fractional reserve banking has to offer some extra benefits compared to benefits offered by full reserve banks to attract customers.
With that in mind, I believe that if one is willing to accept the inherent risks of a fractional reserve bank and is also willing to sign a contract containing such logical absurdity such as two people being the full owners of a single thing, in exchange for some benefits, I don’t see how this individual would refuse to engage in a contract with a bank that is part of a central banking scheme, as this would actually protect this individual.
Therefore I think that if fractional reserve banks were to exist in a free market, central banks would soon emerge as a consequence of their existence, and I don’t need to explain what central banks do.
And seeing how fractional reserve banking theorists enthusiastically give advice on what the FED should do, I don’t think they would even dispute that hypothesis.
Free banking seems very profitable. I could establish a firm that deposits a lot money into a FRB bank, then short the bank’s stock, and then cause a run on the bank by pulling my money out.
Whether such paper was issued/signed by a “bank” or by your broke neighbor Joe, its value (discount to actual X ounces of gold) will reflect the market’s perception about the amount of such paper and the “bank’s”/Joe’s actual gold available for payout on demand. As I said, the free market would treat the broke “bank” just like it would treat broke Joe. The only way FracRB “banks” could receive full (par) valuation for their paper notes by the market, is if the prince and his thugs enter the picture – hence, a central bank and legal tender laws.
Both theoretically (logically) and empirically, the inherently unstable FracRB inevitably converges to either (1) a central bank, or (2) FullRB. I believe this was Mises’ conclusion, as well.
Another tedious characteristic of Rothbardians is theirfondness for repeating false arguments even after they have been rebutted again and again. But for the sake of anyone reading this who isn’t a die-hard Rothbardian, and therefore incapable of being swayed by logic or facts, centuries of experience show that banknotes are perfectly capable of circulating at par despite being backed with only fractional reserves, and without any propping-up by the state of any kind. Scottish banknotes fir the bill, for instance, despite tiny reserve ratios. And don’t even think of bringing up Rothbard’s supposed “proof” that Scotland dependent on the Bank of England: it’s been tried many times on this same forum, and bringing it up again only serves to reveal either ignorance of or willful refusal to recognize White’s thorough rebuttal of Rothbard’s arguments in the 2nd ed. of Free Banking in Britain.
As for what Mises may have thought, it doesn’t impress me, and ought not to impress anyone, if it is contrary to a wealth of evidence. (Oh yeah, another Rothbardian habit: never refer to evidence if you can cite a passage in Mises instead. Remind you of any other group?)
I don’t think you meant that.
Daniel can you name any people who you would call “die-hard Rothbardians” that also support the historical evidence of free banking’s success?
Re-read the passage I quoted.
EDIT: He said that those reading his thread who aren’t die-hard Rothbardians are incapable of being swayed by logic and facts. But I don’t think that’s what he meant.
Oh lord. My mistake. Forgive me hahaha I still can’t believe I missed that.
Well, after reading it again, it could be the other way around, but I could see where the confusion comes from.
It’s certainly confusing. Also, I don’t think Selgin proofreads many of his posts, which could lead to misunderstandings.
Indeed, my syntax leaves a lot to be desired. I ought to have written “and who therefore isn’t incapable of beng swayed by logic” etc. Sorry!
Selgin, for someone claiming to be no X-ian you sure love throwing loads of Y-ian labels around. While I disagree with Rothbard on many things, I think he’s spot on regarding FracR banking. As I’ve said before, I have no pony in this race other than my selfish enlightenment. Like you, I’m mostly z1235-ian.
White’s “rebuttals” in Ch.3 of his 2nd edition are so poor that the reader is often left wondering about the side he’s actually defending. I invite anyone interested to read it (pg.45-62) and judge for themselves.
I’ll let your tedious referrals to your non-existent rebuttals speak for themselves, as well.
Much bluster and bravado, but no argument. I hope readers will take up your suggestion that they read White, for there they will see just how misplaced Rothbard’s claims about Scotland were. For example, they will find that there is absolutely no truth to his claim that Scottish banks relied on the Bank of England as a lender of last resort.
Whether you regard yourself as one or not, it takes a devoted Rothbardian to conclude that Rothbard knew more about the Scotttish banking system, or was a more meticulous and responsible scholar, than Larry White.
What is more important, legal precedent and definition of instruments or the actual ‘mechanistic’ function of the instruments?
I think you are splitting hairs with words and definitions. Under any fractional reserve system, by whatever legal definition of the instruments involved, how can you deny that a fraud is being committed when the facts are if everyone who held the notes issued in excess of the reserves cannot collect on demand what they have a claim to?
With that said, I would agree that there is no fraud if all parties involved understand the risk involved in fractional reserve banking, that they may not be paid on demand, but the problem is that the layman has no clue how fractinal reserve banking really works.
Would fractional reserve banking exist if enough people actually understood how it really works?