Which would result in less depressions and recessions?
To answer your question, should I assume that the law would actually prevent banks from practicing FRB?
I’d say that the first would probably result in the fewest recessions. The second would probably be more healthy however.
Yes:)
How come?
Then yes. But that is an unrealistic assumption.
The first is helping to cut off part of what starts recessions to begin with, the second is provided by emergent market order.
In the short run the first would work the best because it is an imitation of what (I believe) the market would arrive at. The second however would be the transition from state regulated to market regulated which is not a pleasant transition.
I don’t think we can know… but it really doesn’t matter… we still know that the right solution is to permit the market to regulate itself, not legislate one-size-fits-all solutions.
Clayton -
The latter. The former would just retard progress.
How would the former retard progress?
Thanks for answering:)
Increasing interest rates by reducing the efficiency of the mechanism channeling saving into investment, hence depressing investment.
The question itself is grounded on a false dichotomy. At least according to all those that advocate full reserves.
You are wrongly presuming that a full reserve requirement amounts to a special banking regulation. On the contrary, it is the removal of a special privilege granted to banks that no other business enjoys. I argued this in the other thread by pointing to the fact that banking is the only business where the time structure of their assets are always longer then its liabilities. This violation is a direct result of the privilege granted by the State to operate with fractional reserves. When there was no such privilege in the past, banks simply committed fraud according to the traditional laws of that time.
The more appropriate dichotomy should be:
Free banking subject to the same legal principles as any other business vs. Free banking with the privilege to operate with fractional reserves.
Keynesian fallacy.
Rothbardian fallacy.
That hoarding is detrimental is a Keynesian fallacy. This is one fallacy that has been debunked over and over again by Austrians. A fallacy which you are trying to bring back to life.
Here is Mises and [not Rothbard]:
Whenever an individual devotes a sum of money to saving
instead of spending it for consumption, the process of saving
agrees perfectly with the process of capital accumulation and
investment. It does not matter whether the individual saver
does or does not increase his cash holding. The act of saving
always has its counterpart in a supply of goods produced and
not consumed, of goods available for further production
activities. A man’s savings are always embodied in concrete
capital goods. . . . The effect of our saver’s saving, i.e., the surplus
of goods produced over goods consumed, does not disappear
on account of his hoarding. The prices of capital goods
do not rise to the height they would have attained in the
absence of such hoarding. But the fact that more capital goods
are available is not affected by the striving of a number of
people to increase their cash holdings. . . . The two
processes—increased cash holding of some people and
increased capital accumulation—take place side by side.
(Mises, Human Action, pp. 521–22)
I never said hoarding is detrimental. Just don’t want to artificially restrict credit.
They’re not restricting anything. If they are hoarding by restricting consumption, then resources are freed from consumption to higher order stages just like in the case of investment. That is the whole point of that quote. The price system will coordinate the changes in real credit and interest rate that result from hoarding. If you agree with this, then consider to retract the following statement:
Yes, by increasing the supply of fiduciary media thus decreasing the price of credit.
So again, you’re back to hoarding is detrimental. Unbelievable! We’re talking about people holding money either under their mattress or in a 100% reserve bank. Make up your mind. Detrimental or not?
What, who talked about hoarding other than you?