I seem to have come up with the final point that shows fractional reserve banking isn’t fraud, therefore is a consensual activity that could not be banned in a free market:
All any fractional reserve bank need do is print something like this on every note:
Payable to the holder, at its price in gold, pending supply:
We keep 10% of our notes’ total values in reserve at all times.
Of course it’s already not fraud, because nobody is being deceived into thinking there is a Scrooge McDuck vault with all of the gold. But the above notice makes this crystal-clear.
The same person who owns money you deposit in a mutual fund.
The bank is acting as your proxy, investing your money for you. But instead of charging you a fee for the service (like a mutual fund), and making your deposit hard to obtain or use, the bank does it free of charge, and leaves your access to the investment almost purely liquid. In return for these benefits, the interest you earn is much lower, either manifesting only as free services, or as some minimal, but guaranteed, interest rate.
But Rothbard’s socialist claim that all fractional reserve banking should be banned would therefore have instead been “fractional reserve banking is completely legitimate, but the bank needs to be clear on what it’s doing with the deposits, and the conditions of the notes”.
Unfortunately, his goal seems to have been to justify banning a consensual activity, rather than believing that the free market could solve his objection.
(I wish the Quote link worked, so it would include your username)
But you don’t manually type user=“Kaz” every time, do you?
I expected that clicking the Quote link would produce the tag pair, perhaps even including hilighted text, but it does not. I am manually typing (bracket)quote] pasting quote here (bracket)/quote] each time
You are engaging in a popular strawman fallacy, unless you can substantiate your claim regarding Rothbard.
Your above scheme (with the clauses) is not fractional reserve banking. It’s a lottery of some sort. Your argument is based on an equivocation, which is a logical fallacy.
I would say that you legally own it, until it is lost by the fund. The fund acts as your proxy, investing it for you.
That is the whole point of a fractional reserve bank.
If you started a full reserve bank tomorrow, nobody would want to use it (except angry Rothbardians willing to lose money for their dogma), because you’d have to charge everyone interest on any money they deposited, in order to cover your significant costs in providing them the basic storage and handling services.
In return for being able to invest your money, the fractional reserve bank does it free of charge, and provides other services in addition. These are, in effect, a form of interest return for investment.
Then go out, tomorrow, and rent a safe deposit box. I’m not terribly clear on why that isn’t the only way Rothbardians use banks.
Of course you should be able to at least get the electronic transfer benefits, so you could use a check/atm card, at a real full reserve bank…but you’d better expect to pay hefty interest for that service. And, in real life, there’s no market for that.
When you try to use it, it’s there.
That is pure liquidity. It doesn’t matter that it’s not the same paper dollar you handed them. If it does, get a safe deposit box.
Every dialup Internet company in the country has about 8% of the phone lines that it has customers, or less. This is because they know that you’ll almost never have more than 8% of customers trying to call at once. Even though they offer you 24/7 dialup, this isn’t fraud…it’s just statistics.
I’m a professional web developer…and I don’t mean one of a million self-declared ones, I mean I consult for Boeing, Charter, NASA, the Washington Post, Energizer, real big-name sites doing hardcore development…if you’re struggling with some open source software, I may be able to help, especially if it’s in a language I use professionally, like PHP, JavaScript, PERL or (looking at the URL) ASP.NET, XML, C#.NET, MVC.NET, et cetera.
Actually, given that a mutual fund is an investment, I no longer own the money. I own stocks, bonds, etc. instead.
I wasn’t aware that our discussion was limited to how things are today. The topic of this thread is “The Myth of Fractional Reserve Banking as Fraud”, which suggests that fractional-reserve banking cannot ever be considered fraud. So why does it matter how people will behave if I opened up a full-reserve bank tomorrow?
With that said, what’s wrong with charging a fee (not necessarily interest) for keeping one’s money safe? And what makes the costs necessarily “significant” (whatever you mean by that term)?
Under fractional-reserve banking, I also lose money, because the bank takes it.
My question was hypothetical. It doesn’t depend on the present-day situation. I think you know that, so why the apparent obtuseness?
Your answer also presumes the existence of fractional-reserve banking. That presumption seems to be under debate, and I for one refuse to accept it for the time being.
“In real life” today, you mean. Why the jump from here-and-now to forever-and-inherently?
Can you prove that a market could never exist for such a thing?
Again, what makes the interest necessarily “hefty”?
Is it? How do I know? Can I see my actual money (i.e. the gold) whenever I want to?
“When you try to use it, it’s there” doesn’t satisfy my question about what you mean by “(almost) pure liquidity”. And why are you assuming that I’m necessarily using paper dollars?
I didn’t deposit phone lines that I already owned with the dial-up internet company. Your attempted analogy doesn’t follow.
By “claim” I presume you’re talking about the bank note(s)?
Why should I transfer ownership of my actual money to the bank?
The utter confusion results when the amount of gold claims outstanding (tickets or bank notes) is greater than the amount of actual gold that can satisfy those claims.
I understand that. What I don’t understand is why anyone would transfer ownership of their property essentially for free. If the depositors think they’re giving it to the bank for safekeeping, but the bank thinks it’s taking ownership, there’s a problem.
There is no problem under such terms. But under such terms, the “depositor” relinquishes ownership of his gold. It’s hard to believe that this is what the depositor has in mind, but even if it is so, it becomes impossible for the holders of such claims to claim the exchange at any given time. Such a claim would have to be fraudulent indeed. The impossibility can be logically substantiated by testing the case of all the ‘depositors’ making such a claim at the same time.
That would be outside the realm of economics, to be honest. Well; your savingsaccount to make interest, your checking account to make a lower interest, while still be able to use it as literally money in your pocket (like your current account works). Furthermore; it’s also then keeping it in your own pocket in certain occasions. If you want, you can also use another type of bank that uses a more strict dichotomy - something like a wharehouse.
Also keep in mind that in return, you get a banknote that you should interpret as the right to a property claim. It’s like a contract and the contract says that whenever you show up, the bank has to give you something. But the bank is the legitimate owner, untill you hand in the money. This is very apparent, when, for example, a bank is robbed. It’s not ‘your money’ that’s gone, you still own the claim to something. It’s different with a wharehouse where, if it’s robbed, you actually loose your property.
That’s really not that big of a problem. A lot of people have more debts than they can afford on any given time. The difference is, of course, that usually, when we talk about debt, the time period is specified, which is often absent with ‘money’. (But not completely; chances are high that when you check the contract with your current bank, it will say something like ‘if you want big amounts, you’ll have to wait some time’. Historically; similar systems have been developed.)
Obviously; this could go wrong. Just like any other business could go wrong. Especially because we are dealing with a business where, in theory, all the debtors could come at the same time and make a claim. That’s the element of competition to keep the banks in check.
Well, if there is confusion on the relation people have with a business, then they should check your contract. But most people know that their bank isn’t keeping the piece of paper they are donating in a safe. It’s irrelevant to ‘predict’ what will happen in a free society, but the idea that people trade gold in for checking accounts, doesn’t seem all that strange to me. Remember: they are not transfering ownership ‘for free’: they have something easier to transport (claims for gold) and with the possibility of interest, depending on what the bank can do with it.
