I hope you don’t think I’m one of those people.
I don’t remeber who made a claim similar to this.
But what i am trying to say is that making a particular promise that may not come true due to the many factors of uncertainty in the future is NOT the same as a bank engaging in FRB that omits to tell its clients the very important fact that they promise all clients the same redeeming terms and simultaneously only hold 10% of reserves.
Right, I think we’re making the same point. 
Actually, it is Adrian who has made this rather odd claim.
good grief, what a long story.
basically, if banks disclose that “if all of you come together to take your money/gold, i can’t fulfil all of your obligations, but i can do so most of the time- that’s what we mean when i say on demand.”
while stating very clearly so and assuming that the depositor has full understanding of the statement- that he may not at any given point in time get his money back- then i suppose it’s not fraud since both parties knew exactly the risk they were getting into. just to be clear, if this is not made crystal clear to every single depositor and corroborated with signatures, then constitutes a fraud, pure and simple.
if this was done, it necessarily also means that the bank is liable for only 10% of the deposits and 10% of profits from the 100% loans, while the rest of the 90% they are not liable on depositor claims or subseaquent profits because they are not in ownership of it. if the depositors understand this, then it is still all very fair to me at this point. of course, im not exactly sure why any bank would make such a deal and surely one would wonder what the rest of the 90% is used for… but i’ll leave that aside.
the dastardly thing about it is that the banks then take the 90% and borrow it out into the economy, thereafter claiming the profits from the loans as their own. so it creates a weird situation where banks are not liable for 90% of their deposits, but yet can claim the full profits from those loans.
what if this was also made known to all depositors? does that constitute a fraud?
for me, the answer is no; if i am willing to accept the fact that i may not get my money back at any point in time, while at the same time allowing the bank to make profits using my money that i am not entitled to claim at any point in time in exchange for interest, then where’s the fraud?
the problem in the real world of course, is that none of this was made clear at all, if it was even possible.
consequently, it becomes incredulously difficult to assign blame and pass judgement on either the banks or the depositors; how long would it take to investigate each individual claim on whether either party did the necessary research? on what basis or standard? the task becomes impossible.
as another consequence, what about the borrowers? did they know that the money from the banks were made on such terms? the consequence of course is that if they did and if the depositors were not aware of the terms, the borrowers become accomplice to the fraud. once again, to investigate the intentions and action of every borrower, depositor and bank would be next to impossible.
eventually, regardless of whether one agrees there is a fraud or not, FRB will result in excessive credit and subsequently a bust. heck, maybe the bust is not caused by FRB… but in any case, there will be a situation where more than 10% of depositors come claiming their money at one period of time and the bank will fail, resulting in the above legal nightmare (payday if you’re a lawyer).
in the real world, since its a legal nightmare, what gets done is that nothing gets done and the judgement is delayed. in a crisis, where there is no time to worry about legal terms, the inclination is to further delay judgement and deal with the consequences. shoring up the banks, creating FDIC insurance, central banking and so on. all of which only serves to consolidate the financial industry’s powers and influence.
read the later portion of this thread, there’s a bit of stuff going on about “on demand”… i think what adrian is trying to say is that the banks never meant “on demand” to mean “everyone all the time” because the contract is made between 2 parties only (correct me if i’m wrong). yet, even if they never meant it, surely it must occur to them in the process of accepting deposits and making loans that they couldn’t meet “on demand” for everyone? ok, so they had no idea and they just rolled on and on… is there fraud?
once again, it boils back down to the investigation and this time its even tougher; in the presence of denial of fraudulent intent and because it is up to the prosecution to provide proof beyond a reasonable doubt that the defendant is guilty, the investigators must track each and every case made with each depositor- BEFORE and AFTER the loans were made… more pay for the lawyers.
i believe that up till today, the jury is still hung… investigation becomes even more difficult, if not impossible, due to the passage of time.
for most people, it just doesn’t matter as long as they get their money back, for the banks they won’t bother so long as they’re making money, for the govt it doesnt matter so long as both parties are happy and they get their taxes… so the FDIC is set up just to make sure that happens for the people, the govt goes for fiscal stimulus to keep everyone happy. how lovely… overtime, instead of a legal problem, it becomes a political problem.
jury’s still hung though.
the biggest test then, is whether or not in the modern day, someone can go out there, set up a bank and make such an offer to the people today… to my knowledge, this hasn’t been done. heck, even hedge funds offer a portion of their profit to accredited investors.
that’s my long 2 cents.
Whilst I did enjoin this discussion, I think that we have come to that point in time where I would just repeat the same thing - and the answer would also be the same thing. I think both sides of the argument are quite clear, so if that’s ok, I’m going to leave it at that.
yeah… we’ve processed a great bit of history in just 2 days and end up with a hung jury too.. lol
I’d appreciate a response to my last post addressed to you. Do my arguments make sense to you now?
Adrian, I would also appreciate confirmation that you feel there is no error of omission if a bank says to his client “you can redeem at any time, period” and then proceeds to promise ALL of its clients the same thing and hold <100% of reserves.
I’ll come back to both JH2011 and Autolykos their questions, but just as a final note.
I think you got exposed on praxeology and refused to define your terms. By refusing to define your terms, you guaranteed the argument couldn’t resolve itself.
It seems that you’re the only one that has troubles with it. Everybody else manages to understand the way I define my terms quite competently, or so it seems. I’m also not surprised you’ve managed to come up with the most arrogant and knee-jerk reaction in the entire thread. You’re really good at that.
I must also ask you politely to stop doing that. It’s really annoying and it doesn’t really help having a pleasant discussion on this forum. 2 things that in a general sense could be considered important. That is; if you care about this place.
So you agree: Fractional reserve banking is NOT inherently fraudulent. Like EVERY form of business, it could be either fraudulent or not.
Poof…we have a free market.
Now some people are setting up full reserve banks, some fractional reserve banks:
Full Reserve:
You pay interest on all money you deposit. That is, they DEDUCT money, in order to cover the expense of holding your money. They see no benefit, whatsoever, to holding MORE money for you, so it’s literally a percentage. The more you deposit, the more you are charged. You pay fees on top of this for each deposit, each electronic transaction, each withdrawal, including special fees for things like withdrawing from a different bank than where you deposited. The benefit is that your money is safe, and if you pay a hefty additional fee you can easily transact business via check card and paper checks.
Partial Reserve:
You are paid interest for depositing your money. You can get your money whenever you want, free of charge. The more money you deposit, the more enthusiastic the bank’s attentions and services. Checking, ATM, online payment, all is included free. If more gold gets withdrawn than a given branch’s reserve has stored, they cover it by borrowing from a Lender of Last Resort, in effect they have a private FDIC/Fed company to whom they subscribe. Therefore nobody ever actually runs out of gold. What’s more, almost nobody actually uses, sees, or touches the gold anyhow, because this is the 21st century, and even if you’re moving the gold to new bank you can do it electronically.
I’m sure a few people would shoot themselves in the foot, by using the former kind of bank. But not many. It would never be more than a niche market, which is good, considering how it wastes the investment power of any gold deposited in it.
Actually, the mentality that there are implied agreements that must be actively disclaimed is socialist nonsense, that advocates of liberty and free markets need to remember to avoid. Any good or service you buy ONLY promises what it explicitly promises. You can’t say “well, I’d generically expect coffee to not be hot enough to burn my lap”…if the restaurant did not offer that guarantee, then it was up to you to determine it for yourself.
There is no fraud, unless there is a false idea consciously communicated.
BUT:
I started this thread with the idea that the notes would contain the above warning, because then it DOES make the ridiculous “fraud” fallacy quite impossible to cling to.
And I’m willing to settle for that, like I’m willing to settle for bungee diving companies having to make you sign a waiver, instead of the free market condition where if they didn’t guarantee your safety, then it was your choice to dive without that guarantee.
Stuff and nonsense. That’s the same fallacy used to claim that workers own 100% of the products/profits coming from their factory, because they do 100% of the labor.
If the contract is that you deposit the gold/money, and they do what they please with it, but leave 10% in reserve, then that’s the deal.
There’s no objective “then you get 90% of the profits” nonsense.
That’s too socialist to even humor.
You mean in Rothbard’s twisted, dark ages scenario, fraudulently presented as if it were seamlessly integrated with how things work in the real, modern world.
Back here in the actual universe, people knew full well how banks used money, which was actually why runs did occasionally happen, before the Lender of Last Resort concept was perfected. In the entire history of the United States, no real bank ever pretended to keep all of your money/gold in a Scrooge McDuck vault, while secretly lending it out.
The whole “on demand means ALWAYS, no matter what” is beyond idiotic, and this is illustrated by the fact that no Rothbardian is going around saying that all Full Reserve banks must be open and handing out gold 24/7, otherwise they are committing fraud because you can’t get 100% of your gold at 3AM.
There is ZERO imperative that a service, including giving you gold for a note, must be absolutely, perfectly available at all times in order to be non-fraudulent.
Otherwise, all banks need to be 24 hour.
This does not tell the whole story. You can’t just call it “Fractional Reserve Banking” and not explain more about how it is being executed.
The issue that has come up on this thread more than any other is this:
FRB and a bank that says “you can redeem at any point, period”
vs.
FRB and a bank that says “you can redeem at any point, pending demand/supply, and FYI we promise all our clients this same promise, and we keep <100% of reserves on hand”
I know you, Kaz, explained in an earlier post that banks would have to disclosure the latter statement in order for it to avoid being fraudulent. So I know you agree with this.
But my point is that saying “FRB is not inherently fraudulent” is not telling the whole story. The issue is: FRB with which statement/promise from the bank???
How is “depositing” money in exchange for interest an example of FRB? In reality, your example is an example lending. This is why I asked you to define FRB.
And yet you refuse to define fraud, and you clearly don’t understand what praxeology is.
This personal stuff is a red herring. You still haven’t defined your terms. You continue to assert a position as logical, without making a logical proof.
What’s really annoying is when people argue dishonestly, and then get yellow bellied when called on their bad arguments, resorting to pointing fingers and arguing aesthetics of rhetoric or other trivial claims. Doing stuff like this undermines an intellectual community. If you want to assert positions, defend them. If not, don’t assert them in the first place. It’s really quite simple, and there is no need to play the victim, when you’ve clearly lost an argument cleanly.
Incidentally, I have. Multipull times, even. I’m sorry you’ve missed it, but I can hardly be held accountable for that.
“You still haven’t defined your terms. You continue to assert a position as logical, without making a logical proof.”
So you are claiming that I didn’t define ‘fraud’ and that I didn’t make any logical proof?
Is there anyone else that feels the same?
Based on your definition of “fractional-reserve banking”, as posted here, it’s fraudulent unless the bank makes the stipulations you outlined in the OP and it never made any advertisements about keeping its customers’ money safe. There may be other conditions that it must meet to not be fraudulent, but those are the only ones I can think of right now.
Given your implicit meaning of “inherently fraudulent” (i.e. “must be fraudulent under any/all circumstances”), then no, fractional-reserve banking is not inherently fraudulent. However, it is inherently a racket.
Please explain why full-reserve banking must be exactly this way. That means explaining why it must charge percentage-based fees for money storage (as opposed to flat fees or no fees at all); why it must charge fees for each bank transaction; and why fees for using check cards and/or paper checks (if not also the other fees mentioned) must be hefty, let alone be present at all.
Please explain why no one would ever run out of gold in a fractional-reserve banking system.
Saying “this is the 21st century” is no reasoning whatsoever. It’s something in place of reasoning.