Why is it ‘impossible’ to be fraud when 25 people show up and not when 24 show up? I don’t see any contradiction there. You are correct: the nature of the promise doesn’t change. And when 24 people show up: all promises are respected. When 25 show up, someone has a claim to something that says that he can get something, but the bank can’t deliver. The bank said it would deliver something when that person wanted it, he wanted it but the bank couldn’t deliver. That person was wronged.
I don’t see any contradiction what so ever in this story.
The nature of the promise is: we will pay you on demand. This doesn’t change. 24 people got what was promised. The 25th (and any number above) didn’t get what was promised: they were wronged.
I’m sorry, I fail to see the contradiction-argument you are making.
There may be some mysterious but perfectly viable explanation for why fractional reserve banking is perfectly sound and I, as well as others, are wrong. However, all the arguments brought fourth thus far are theoretically unsound on praxeological grounds. It is no accident that fractional reserve advocates always find themselves on the “hot seat” trying to find their way out of one logical fallacy only to end up in another fallacy. It is true, White heavily relies on historical data to build his theory, but as I have pointed out before, historical data is useless absent praxeology. To illustrate the case, there are ample alternative explanations (for example see Hulsmann) for what White and Selgin interpret as free banking.
To be clear; I think my arguments against the claim that it’s fraud per se are logically sound.
To be fair; I think you should say that this ‘hot seat’ depends on who’s making what argument. If you can define the terms, it’s easy to put the other guy in the hot seat. It’s also true that you keep claiming I make logical fallacies, but - obviously - I fail to see which ones. It’s no surprise that where you see a logical fallacy, I see failure to explain the concept in a way that you get my point. (If I were thinking I was giving logical fallacies, I wouldn’t be making those arguments, obviously.)
I don’t think praxeology has any say in the question wether or not it’s fraud or not. It does have a say in discussions like: does it cause an ABCT or something.
The discussion wether or not ‘free banking’ has historically happened and wether or not it was with government intervention is exactly that: an historical discussion, absent the realm of praxeology.
The only thing praxeology has no say in is value, that is, it does not make any value judgments regarding end goals. Fraud is a category of human action (man commits fraud), therefore, it has everything to say about it. Now, the particular actions that constitute fraud can be debated, but however we end up defining ‘fraud’, praxeology demands logical consistency and one same action cannot be both fraud and not fraud (both a and not a) at the same time, simply because different outcomes can result from the same action.
That one same action can be both a and not a is precisely what you’re claiming.
This is all very academic, but I think we’re missing the point. Fractional reserve banking increases the money supply, thereby allowing the people who obtain the newly counterfeited paper to purchase goods without contributing anything in return. The people who get the money last are “defrauded” with a lower purchasing power, eroded savings etc.
Actually; if we assume for the sake of argument that the banks manages to make due on all of their claims - i.e. the situation that I don’t consider to be fraud - than there is no lower purchasing power or eroded savings.
Think this through: the bank is lending out money that’s on the checking account, right? That means the bank has more liabilities out than they have in their vault, strictly speaking. But lending out money also creates liability claims from the bank with the people who lend the money. If all these loans are paid back, the amount of liabilities will be the same again as the amount of gold in the vault.
The ‘job’ of the bank in this case is to estimate what part of the checking accounts - what people are holding onto in their demand for liquidity - is used in a form of savings. Let’s assume perfect knowledge - don’t worry, we’ll drop this unrealistic assumption shortly - of the bank in knowing how people will spend their money. So they know that, for instance, I’m holding money on my checking account for a year and after that year I’m coming by to trade in the liability claims, right. During that year I’m using that checking account - even though I’m keeping it in my checking account to satisfy my demand for liquidity - as a form of savings, because I’m not using it to pay anything. That means the bank can lend it out for a year, get interest on it, pay me an interestrate for keeping money on the checking account and after a year the loan is paid back and I come by to trade in my liabilities. No lower purchasing power has happened, no eroded savings. Although I’m using my checking account to satisfy my desire for liquidity; the totality of all these checking accounts hold more money than is actually used for liquidity, so part of it is a form of savings, which can be used to lengthen the structure of production.
Obviously; in real life the bank doesn’t have perfect knowledge. It’s the bank job to make estimations on what part of the checking accounts are a part of savings and act accordingly. Because of competition, they’ll have to be prudent, of course. But as long as the bank is sound in it’s operations - i.e. manages to pay back all the liabilities when people show up - there is no problem what so ever.
For some reason people want to keep accusing the bank of fraud and even explicitly say ‘I don’t care that it manages to fulfill all their contractual obligations’ - but I disagree with such a statement. If the promise is ‘I’ll pay the bearer on demand’ than as long as they actually pay all the bearers on the specific time period - ‘when they are demanding it’ - than there is no fraud. So for the 7th time or so: fraud (imo) is when you don’t manage to perform the contractual obligations you’ve gone into. As long as you do, no fraud is happening.
1 a:deceit, trickery; specifically: intentional perversion of truth in order to induce another to part with something of value or to surrender a legal rightb: an act of deceiving or misrepresenting :trick
2 a: a person who is not what he or she pretends to be :impostor; also: one who defrauds :cheatb: one that is not what it seems or is represented to be
I don’t think I am. Because ‘managing to pay up’ is not the same as ‘not managing to pay up’.
What you are doing is defining the essence of the action in one way, but you are ignoring that there is, in fact, an important difference. Something can not be A and Not-A at the same time, but something can be A and B at the same time. I’m claiming that ‘being able to pay up on the point of demand’ is not the same as ‘not being able to pay up on the point of demand’. Seems hardly a logical inconsistency.
I know you want to focus on what might happen - ‘it might be that the bank would be able to pay up’ - and therefore calling it fraud. But I find that hardly worth relevant: why is it important what ‘might’ happen in the absence of human action - ‘it might be that the bank won’t be able to make due on their commitments’ - and not what is actually happening (‘the bank actually paying up on all their legal obligations’)?
Again: they are not promising: we have all the money in the vault all the time. They are promising: when you show up, we will have the money ready. This has an element of uncertainty - they have to estimate when people will arrive and make sure they have enough for it - but they aren’t doing anyone anything wrong until the point they don’t manage to pay up what people want. Seems like a logical consistent case to me.
What you are saying is this: just because an action might result in wrong-doing - the ability of not being able to pay up - it must follow that the action is wrong in itself. And I don’t think that makes much sense: a lot of people make loans where there is a possibility that they won’t be able to pay up. But there isn’t anything wrong until the point arrives where they have to pay up and don’t manage to do so. It’s exact same thing with this bank account: until the point arrives where the bank can’t pay up - i.e. when a bearer on demand shows up and claims his gold - there is no one defrauding anyone.
But I don’t really have the feeling we are making any kind of progress, so unless new elements show up, I’m fine with leaving it at that. People can read up and form their own opinions.
After reading these posts, I can’t help but notice that you are not agreeing on what the bank is telling its clients.
DD5, you are speaking as if the bank says “You can redeem your money at any time, period.”
AdrianHealey, you are speaking as if the bank says “You can redeem your money at any time, pending demand/supply, and FYI this bank only keeps xx% of reserves on hold.”
I don’t think you have agreed on what statement you will use as a starting point to determine if FRB constitutes fraud. If it is statement 1, then i believe it is fraud. If it is statement 2, then i do not believe it is fraud.
I am not implying which one I think has been the case historically, because I do not know. And also, I am not taking into account how likely a consumer would be to agree to #2 without a governmental backstop, or how likely it would be for someone to claim that a governmental backstop is necessary.
I’m not saying that the bank says ‘pending demand/supply’. (Historically; they did, but that’s not important here.) The question, as I see it, is: does ‘will pay the bearer on demand’ implies that the bank should have the exact amount in their vaults as there are liabilities. They argue yes, I argue no.
I’m saying that the bank is not saying ‘we are keeping the same amount in our vaults as we are lending out’. If the bank was saying that, than they should have the same amount in their vaults as people have liabilities. I’m saying that as long as they can match all obligations at the point in time they ought to be matched - the time that the person shows up and returns the bank liability. They are arguing that the bank should be able to match these obligations and any point in time in absence of people showing up and demanding their claims. I see no reason to demand such a thing. ‘I promise to pay the bearer on demand x’ is just that: promising the bearer on demand. When he demands it. Not on any time in absence of him demanding it. Only and when he demands it. A = A and not something else like ‘and we will keep the same amount in our vaults as we are lending out’.
Yes, this might go wrong. People might show up, demand stuff, and be unable to get gold for their bank liability. The bank is than in the wrong: it promised to pay on demand and it didn’t deliver. That person, that shows up, is wronged. But in the absence of this situation, I don’t see anyone wronged. The people that show up get their gold on demand. And the people that didn’t show up still have their promise due. But by the fact they are not showing up, they are saying ‘well, I don’t want to trade this bank liability for gold just yet’, so the bank has no obligation to be able to do so. It’s not until that point in time they are showing, through their actions, that they want to bank to pay up, that the bank has to pay up, imo.
Assuming, of course, the bank doesn’t advertise itself as a wharehouse, of course.
With all due respect, haven’t I already explained why?
It’s not about possibility. There’s always the possibility that a given contract will not be respected. What’s important here is that the contract cannot be enforced per the terms.
(FYI - “warehouse” contains only one “h”. :P)
Okay, now I see better where you’re coming from. You’re saying that all of the contracts with a fractional-reserve bank are respected at the same time if not everyone shows up to get his money at that time. In other words, you’re saying that the contracts of those who didn’t show up to get money at that time are still respected.
While this makes sense, DD5 and I are arguing from a “higher” level. We see “on demand” specified in the contracts, take that to mean “at any time, period”, see that the amount of money kept in reserve is only a fraction of the amount specified in the contracts, and conclude that each person cannot redeem his money claims at literally any time he wishes. The reason for this is that “any time he wishes” necessarily includes a hypothetical future time at which everyone else also wants to redeem their money claims. So what DD5 and I are doing is essentially “integrating” over the time specified, to use a math metaphor.
If the contracts are inherently contradictory, as hopefully explained above, why does it matter whether some or all of them happened to be fulfilled?
If something is ‘inherently contradictory’ shouldn’t it follow that it’s impossible to be fulfilled? (Like contracting for a square circle. That’s impossible. Or contracting that I will be in New York and Washington at the same time. That is also impossible.)
But due to the fact that it is, in fact, possible to respect all of the contracts - depending on the time that people show up and return their liability - I fail to see why it is ‘inherently contradictory’.
You are saying that it ‘cannot be enforced per the terms’, and I wonder why. The terms stipulate: the bearer on demand: when he shows up and demands gold. Well; those are clear terms. And it’s the banks job to have gold in their vault when the person shows up and demands it. Terms are quite clear and it is possible to respect these claims - as you have admitted.
You are arguing along the lines that it’s like saying ‘I will be in washington the whole 4th of July’ to person A and ‘I will be in New York the whole 4th of July’ to person B. Well; this is, indeed, inherently contradictory. And the person that can sue me, is the person in which city I don’t show up.
It’s the same with the FRB: when a person shows up and the bank cannot deliver, the bank is in the wrong on that moment in time.
Yes, because the contract stipulates ‘the bearer on demand’. They are not demanding it yet, so the contract is still respected.
Well, thank you for that. It’s a nice change.
And I know you are doing that, but I fail to see why this is relevant. ‘On demand’ means ‘when you show up, we’ll pay you’. But it does not follow that it’s necessary to keep all the money in store all the time. It only means that you have to be able to pay everyone that shows up. And if you have enough to pay everyone that shows up, you’re good on what you contractually promised.
I know you guys take ‘on demand’ to imply that the bank should keep everyting in the vault all the time, but I’m saying that that’s a different promise. There is a difference between ‘we’ll keep all the gold for liabilities in our vault all the time’ and ‘we will pay everyone on demand what we owe him’. The first one can be checked by an outsider. I can come to the bank and check how much they have in their vaults and check how many liabilities they have given to people. If these don’t match, they are, in fact, lying. But ‘pay on demand’ is just that: on demand. It’s not possible to check this as an outsider in the absence of people showing up and returning their bank liabilities.
I see no reason to say that ‘pay on demand’ implies ‘gold in stock matches liabilities 1 for 1’. It only implies ‘gold in stock should match liabilities that are returned at any specific point in time’. That’s the real crux, imo.
Just because it would be impossible (if there is a fractional reserve) for the bank to pay everyone when everyone shows up at the same time, it doesn’t follow that the bank is defrauding people when not everyone shows up at the same time - and is able to pay the few that do come at any given time. It’s only fraud when the bank can’t make due on their promise. No sooner, no later than that.
You refuse to define what fraud is, so this question and position continues to be ridiculous. You’re not arguing in good faith if you won’t define terms.
For the third time,
What is fraud?
I don’t care if you copy paste a dictionary definition, I just want to know what definition you are using to construct logically sound arguments. Is that too much to ask?
I didn’t mean for those two statements to seem contradictory with one another. In the context of contracts, I take “contradictory” to mean “cannot be enforced or satisfied per the terms stated”. A trivial example of a contradictory contract is a promise to pay $50 to someone on your 20th birthday when you are already 25 years old.
The phrase “on demand”, in common English usage, implies that the point in time that the demand actually occurs cannot be predicted. Therefore all points in time from the start of the contract to infinity must logically be taken into account together.
While I understand and agree with your analysis of that situation, it’s not along the lines of my argument. My argument is along the lines of a contract where you exchange money with me for a claim that you can redeem at any given time, except there’s a 50/50 chance that I’ve burned the money before you come to get it back.
Logically speaking, “at any given time” is not bound to the time at which I actually arrive to redeem my claim. I’m considering “on demand” to be equivalent to “at any given time”, since no one can know in advance exactly when the person will make demand.
No problem. Looking back, though, I should’ve said it makes a certain amount of sense. I think the semantics of “on demand” are at the heart of our issue. As I mentioned above, I’m taking it to be equivalent to “at any given time”. You seem to take it to mean “at the time demand is made and no other”. However, since no one is clairvoyant, the specific time at which the demand will be made cannot be known in advance. So I see no reason to consider the contract to be bound to a specific point in time. As long as it is not satisfied, it can only be considered bound to all future points in time.
There is a way for an outsider to check whether a bank can pay on demand in the absence of people showing up and returning their bank liabilities. And that way is to consider whether the bank can redeem all of the bank liabilities at any given time. Certainly the most straightforward way a bank can do that is if it keeps all of the gold deposited in its vaults. I’m not sure if there are any other ways, but there might be.
Your phrase “no sooner, no later than that” again points out that you’re considering the contract to be bound to an undetermined specific point in time. But again, since no one can know that point in advance, an on-demand contract must logically be considered bound to all future points in time until it is satisfied. It would be different if the contract stipulated a certain temporal distance (e.g. “one year from now”).
An analogy can be made with a contract that stipulates one party can take “as much as he likes” of something from the other party. Such a contract would also be inherently contradictory, as there is no logically necessary limit to the amount that one could like.
But how can you say that if a bank makes the statement “will pay the bearer on demand, period” is fully accurate? Don’t you think that there is an element of inaccuracy, or an element of omission in that statement?
Even the phrase “will try to pay bearer on demand” is more accurate than without the word “try.” I know this may seem like a small point, but it makes all the difference.
I know some people on this thread have argued that all promises about the future involve uncertainty, so we can’t say that anyone who makes a promise that could potentially go wrong should not be accused of fraud/deception/omission.
BUT, this is different than what banks do in FRB. In FRB, they make promises to people that, by definition, cannot all be fulfilled. Now, you may say “what if everyone asks for their money at a different time and nothing goes wrong. Everyone was able to redeem on demand and all promises were fulfilled.”
I say, fine, but there is still an error of omission on the bank’s behalf. How can the bank make the statement “will pay bearer on demand” and not disclosure that there is a chance that too many people will redeem at the same time and cause them to go bankrupt, BECAUSE they make this promise to EVERYONE, and also only hold 10% of reserves on hand.
I am not suggesting that every business disclose everything that could go wrong in regards to contracts/future promises. But in FRB, saying “will pay bearer on demand” and stopping there is clearly an error of omission, and in my mind is fraudulent (i dont know if it is ‘fraudulent’ in the legal sense).
I know some people on this thread have argued that all promises about the future involve uncertainty, so we can’t say that anyone who makes a promise that could potentially go wrong should be accused of fraud/deception/omission.