With all due respect, I also don’t recall you ever defining “fraud” in this thread. You certainly didn’t do it when Liberty Student asked… three times.
It’s true: I’ve never answered Liberty Student directly.
" It’s fraud when you can’t deliver what you contracted for at the moment stipulated in the contract"
“The only thing that matters is that it’s enforceable on that moment in time which is stipulated.”
"As soon, however, that the bank is unable to perform her duty - when someone shows up, but the bank can’t give him the required stuff - than we have a problem. "
" So for the 7th time or so: fraud (imo) is when you don’t manage to perform the contractual obligations you’ve gone into."
I think the third one of these examples is the clearest of all 4. But I’m sure liberty student won’t be satisfied. I’m sure this is not a definition in his book. But could you accept that this counts as a definition? At least in my book it counts as a clear statement what I consider to be fraud and what not. Or, at least, what I consider to be ‘wrong’. (You could argue that this also includes negligence, which I would agree with.)
I think the terms I was using where quite clear. But, apparently, they were not to some people.
Do you, by the way, agree with LS his assertions that I didn’t made any kind of logical proof (and so on and so forth)? If so, than I don’t think I’m worth your time and I will stop wasting it, because I don’t think the quality of my arguments will get any better. You can win this discussion than.
in a complete free market with commodity money:
Ful Reserve Banks:
- minimal insurance needed. only need insurance to cover accident or theft
- fees charged to hold your money
- all notes redeemable in specie to all depositors at all times
- investment accounts would still be available to those that did not want to pay fees that would be redeemable at a specified date in the future, not demand deposits. (or to offset the fees paid on your DD accounts)
Fractional Reserve Banks:
- no fees charged to hold your money,
- stipulation must be made that money you are depositing is not necessarily redeemable whenver you want
- hefty insurance needed to cover not only accidents and theft, but the risk of bank runs. The lower the reserve percentage, the heftier the insurance premiums would be.
- no lender of last resort. the only way a LOLR is possible is with the ability to couterfeit to cover bank runs
Leaving the question aside of whether or not FRB is fraud (I believe it is, how it is currently implemented), I do not think it is unrealistic, given the above scenarios, to think that Full reserve banks would outcompete fractional reserve banks.
Not to put too fine a point on it… But these appear to be examples. Unfortunately, examples are not substitutions for definitions. One is left to divine what these examples might have in common in order to infer what possible definition you “might” be using. The problem with this is that it leaves one wide open for misunderstanding. I’m sure that Liberty Student and Autolykos only want to be sure that they understand, explicitly, the whole of your argument.
This definition suggests that I am guilty of “fraud” for taking out a mortgage I can afford while I’m making great money and through no fault of my own find myself unemployed and am not able to keep making mortgage payments. Would you agree that is an accurate representation?
I’m not sure I understand why you feel the need to address “some people” here as though they are unintelligent for trying to make sure they understand what you’re talking about. It’s less than clear to me, even now.
quote user=“AdrianHealey”] The only thing that matters is that it’s enforceable on that moment in time which is stipulated.
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“This definition suggests that I am guilty of “fraud” for taking out a mortgage I can afford while I’m making great money and through no fault of my own find myself unemployed and am not able to keep making mortgage payments. Would you agree that is an accurate representation?” <= Yes, and as stipulated in the part you didn’t quote, I acknowledged that this definition of ‘fraud’ would also entail things that probably would be better called ‘negligence’. In any case; I would consider that person in the wrong - negligence or fraud.
Feel free to reread my arguments in the light of the fact that I don’t consider the bank doing anything wrong until the point they don’t manage to pay up what was promised. (Either ‘fraud’ or ‘negligence’. I don’t see how this matters really. I’ve used the word ‘fraud’ so far, but you can use the general word ‘wrong’ more accurately probably.)
In any case; I think the bank is not doing anything wrong until the point they don’t manage to make due on legitimate claims. I think I’ve explained this a couple of times and I don’t think I’m able to explain it any better than that. I think I’ve deduced it from a logical non-inconsistent position (‘when you are abel to pay when you have to = you’re not doing anything wrong’, ‘when you are not able to pay = you are doing something wrong’.) and from this I deduced that as long as the bank is able to make due, they aren’t doing anything wrong.
What it means when a bank performs fractional reserve banking? It means that the bank issues (for the sake of simplicity) two property titles for one property only. There are two individuals who receive one title each. One of the individuals is the one who in the first place deposited the property in the bank, and the other individual is a person different from the depositor and picked up by the bank(why exactly this guy is not important; why the bank gives a second title to whomever is not important, what is important both from economical and ethical perspective is that the act of giving away a second property title actually did occur). There is a fraud when the the depositor can demand his property anytime(which means that he can redeem his property anytime or he can engage in exchange using the title and the guy who receives it can redeem the property) and also the bank can issue a second title and give it away and the guy who receives it can claim the property anytime, too.What is more relevant to the author of the thread is the following: it does not matter whether the depositor agreed or not to deposit his property in the bank knowing that in some tome in the future if he demands it the bank may not be able to meet his claim. Yes, the depositor is not frauded. The one who is frauded is the one that received the other issed titles.
For example, Joe sales trucks. John, who received the second title(and did not know that there are other on-demand titles to the same property), gave it to Joe to buy himself a truck. Joe is not in possesion of the title. He wants to redeem it. Yes, but, two minutes earlier the depositer demanded the property. Was Joe frauded by John or not? Was John frauded by the bank or not(he is not frauded if he knew that there are other on-demand titles)? Was the depositor frauded by the bank, by John or by Joe?
I’d say you actually provided a systematic definition for “fraud” in the last example. However, my own definition of “fraud” requires intent. Contractual fraud, then, is entering into a contract of which you don’t intend to uphold your side, and thus intentionally deceiving the other party or parties to the contract.
Either way, however, I stand corrected on the issue of whether you ever provided a definition for “fraud”.
Well, I do think my counter-arguments are more logical. That’s what I’ve been trying to convince you of. 
The only way I can “win” this debate, in my opinion, is if the validity of my position is proven to you, or if my position is proven to me to be invalid.
"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."
I don’t see why it follows from ‘the point in time cannot be predicted precisely’ to ‘therefore all points in time should be taken into account together’ in order for the contract to be valid. Again: I acknowledge the fact that any given period in time might be that moment in time the person can go to the bank and demand their money. I just don’t see why it follows that at all times all claims should be able to be met with the gold the banks has in the vault.
The reason why, I think, is because of this: you accept the fact that it says ‘on demand’. So the moment in time when the contract stipulates that the person should (be able to) pay is ‘on demand’. In absence of this ‘on demand’, the contract doesn’t demand anything. It only demands the ability to pay up when the person shows up and demands it’s gold. Yes, the bank should be prepared on any given moment for all people that come to the bank and demand their money. That’s why they keep some reserve ratios. (And when a lot of people come, the bank should be able to accomodate. And when everyone comes, the bank should have ceased to be an FRB before it. Because everybody demands their gold, so the bank should have ‘gold in vault = bank liabilities’.)
Someone is wronging someone when he isn’t able to make due on a legitimate contract. (Some might call this fraud, others might call this negligence.) The time stipulated in the contract is uncertain - it could be tomorrow or next year - but not in-precise (‘when the bearer demands it’). So at a precise, but uncertain, moment in time, the bank should be able to pay up. They are taking upon themselves a certain risk (in order to have the ability to make a profit, and pay interest for people’s checking accounts.) The contract ‘only’ stipulates to pay on demand. Nothing else. Nothing more. It doesn’t stipulate ‘we will have all the money in the vault matching all liabilities all time’. It only stipulates that it will pay the bearer on demand. These are, in my book, two different promises.
What if, by the way, the bank explicitly said on their contract/bank notes: ‘We will promise to pay everyone on demand. But just to be sure: we do not promise to have gold in store = bank liabilities’.
Implicitly; the bank is promising something, though. However, it’s not that ‘bank liabilities = gold in vault’ but that the combination of ‘money in vault’ + ‘outstanding loans’ = ‘bank liabilities’. (That is why - in the long run - they will be able to pay back all bank liabilities, if everyone shows up.) When loans end, money is paid back to the bank, which assures them they can pay back bank liabilities, if traded in. Again: they have to be prudent and have to estimate how much loans they can have in order to make sure they can pay back all bank liabilities that people are demanding to be paid. But saying that this is fraud per se - even in the absence of defaulting - just seems weird.
You explicitly said something along the lines of - correct me if I’m wrong: ‘I don’t care that all their obligations are met. It’s still fraud!’ Than I’m asking: what kind of definition of fraud are you using, if fraud can still happen in light of the fact that all obligations are met.
Maybe you can argue - I’m not sure if you do, but it could be, imo - that the bank is implicitly promising to act as a warehouse. (When I have my car in a certain parking lot, where the contract says ‘You can pick up your car any given time’, it doesn’t really mean I expect them to use it for joyrides, ‘just as long as they give it back to me when I demand it’.) I’ll acknowledge that this is true. If customers have a reasonable expectations that it functions as a warehouse - and just stores your money - than it should function as a warehouse.
What I’m arguing is that ‘on demand’ doesn’t necessarily implies ‘warehouse’ and that, in addition to that, with a few simple contractual references - leaving praxeology here: contractual references which are in your contract now a days and historically where part of the banking community - it can be quite clear that the bank doesn’t function as a warehouse.
Could you accept that there is a kind of contract possible that is not fraudulent, but does work on fractional reserve basis, in a way describe in here? Because if you say it’s possible, than there isn’t really any kind of discussion. (As far as I’ve understood De Soto and argued over it with Walter Block: both deny that this is possible, period. I could be wrong though.)
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.
And when I come back, and you’re not able to pay up, you’re in the wrong. I can fully acknowledge that.
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..
Yes and you may consider it like that. However, what I’m saying is that ‘you can come back to pick your (part of) the gold up at any given time’ only implies that the bank should have enough to pay up all the gold that is in fact demanded (‘demonstrated preferences’) at any given time. It does not follow, as far as I can see, that the bank is promising to pay up all the liabilities on any given time. Only that it’s able to pay up the demanded bank liabilities on any given time. This is not the same and as long as the bank is good on what they are promising - ‘paying back the liabilities that people want to return’ - they are good in general. They do not have to be able to fullfil the condition ‘be able to pay back all liabilities on all time’ because that’s not what they are promising. There is a (praxeological) difference between a bank liability that someone wants to return and a bank liability that someone doesn’t want to return yet. The difference, obviously, being an actor is using them differently, so they are not homogeneous units.
There is a difference between ‘being able to pay up on demand’ and ‘being able to pay up every liability on all times’. But I think I’ve explained this quite clear before. So if I haven’t convinced you by this moment in time, than I’m afraid I won’t be able to.
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.
Well; the contract is bound to all future points in time. The bank should be able to pay up every bank liability that someone wants to turn in, on any given time. You can obviously see what I did there: I added the clause ‘that someone wants to turn in’, because that’s the crux of the contractual obligation. Every single one of those contracts do not have a specific period in time - yes. And every single moment someone wants to trade in their bank liability, the bank should be able to pay up - yes. But they shouldn’t be able - and they are not promising to do so - to ‘pay up’ on bank liabilities that no one wants to return. That’s not what they are promising. So it’s completely irrelevant. They are not saying ‘we are a warehouse’. They are only saying: everyone that shows up, no matter when, will get their gold! And it’s their job to be able to do so. But why should they be able to give someone gold if no one is present to demand it? That makes no sense (imo) and that’s not what they are saying.
If everyone shows up, of course, they cease to have the possibility to be an FRB. But I see no reason to assign obligations in the absence of peoples demonstrated preferences - ‘when they are actually showing up’.
Maybe look at it this way: all contracts are bound to all future moments in time, but the totality of all the contracts are not (necessarily) bound to all future moments in time, because you can make an estimate that not everyone will show up at the same time. Just something is true for all of them, doesn’t mean it’s true for all of them at the same time. (I’m not sure if this paragraph is really clear, nor am I certain it really explains quite clear what I’m trying to say. Please read this paragraph while keeping this caveat in mind.)
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.
That is true. However, I’m not saying that this isn’t true, I’m denying that the reverse means that it’s fraud. When you are in a warehouse kind of situation; it’s really easy to check for an outsider. We both can agree on that.
But in the FRB system it’s only possible for an outsider to check wether it’s certain that they’ll be able to pay up all liabilities on demand - that is when everything is in the vault and liabilities match the quantity in the vault. That is true. But it doesn’t follow that if the outsider can’t check - e.g. when there isn’t an exact match between vault and liabilities - wether or not the bank is doing something wrong. Because the bank is not promising anything in the absence of people showing up and claiming some gold. They are only making a promise that when people show up, they will get the gold. And because it’s logically possible that not everyone shows up at the same time, it’s also not logically impossible to have a lesser amount in the vault, based on the bank estimates. (And if those are wrong, the bank will have a problem, because they’ll breach a contract.)
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”)
But again; I’m not convinced by the fact that from ‘it’s uncertain when each individual contract will be redeemed’ it would follow ‘therefore it’s implied that all contracts should be able to be redeemed on all moments in the absence of people actually wanting them to be redeemed’. That would only follow if you are extremely prudent and risk averse. Again: it’s the banks job to be able to redeem all contracts on that point in time when people want them to be redeemed. That’s the only job they have. How they do that - ‘keeping full reserve’, ‘keeping a fractional reserve’ - is, imo, not important, as long as they manage to redeem it.
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.
I don’t think this analogy really works. Saying ‘you can return it on any given moment’ means that there is, in fact, only one moment. Just uncertain. This is not the same as ‘take all you want’, which is both uncertain and un precise.
I do appreciate your kind words, but I don’t think this post of mine really added to the discussion as such. (I’m just rephrasing previous arguments.) So, if it’s ok with you, I shall leave it at that. Unless you really have something new you want me to respond too. Than, of course, I will. But just keep repeating the same arguments is not really doing anyone any good, imo.
to Kaz:
i apologize for my poor answer, i guess i went a little overboard into the details, especially about the 90% thing; can’t believe i actually wrote that socialist nonsense lol… i was actually trying to draw a comparison with investment in a hedge fund vs depositing in a bank; whether or not the depositor actually knew that his funds was getting loaned out to other people without him being able to withdraw it at anytime.
but there are a few things i stand by though;
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that there is no fraud in your example in the very first post of this thread, since it is advertised clearly as so and the depositor is expected to know what it means
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that a depositor deposited with the understanding that he would be able to withdraw his money at any point in time, but did not state whether he knew that his money was being loaned out
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that by “at any point in anytime” probably meant “during office hours”, though that would have to be stated
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that the definition of “on demand” might differ between the depositors and the banks, thus causing great confusion; in such cases, i’m not sure who is more responsible.. the banks for not stating so clearly or the depositors for not checking things out. either way, it’s just bad practice to me.
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that investigation is needed on whether the bank actually had intent not to fulfill this obligation and whether depositors actually knew about FRB
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that investigation is needed on whether or not by the action of loaning out 90% of the deposits is sufficient to accuse the banks of fraud
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that the bank can go on making loans in this way without knowing that they might not be able to fulfill all the demands at a point in time amounts to at the very least, negligence and at the very top, fraud. as such, i also think such practice should be stopped legally. if it is too socialist, then at least in the future all banks must advertise so.
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that regardless of whether there is fraud or not, there will be a substantial legal minefield that no politician would want to navigate, which results in a legal/economic issue turning into a political problem and banks will exploit this to their full advantage
i agree with some of the later posts;
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that fraud is only present if there is substantial evidence of intent by one party to deceive the other
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that if there is double claim to a single property, if there is no intent to defraud someone then at least there is some negligence going on
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that the subsequent contractual obligations, successful or not as promised, has nothing to do with proving whether there is fraud or not
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that we might be focusing too much on the legal aspect of things (the way we are arguing now is how lawyers make money lol) instead of the increase in money supply that FRB causes, which is an economic problem and… this is more of a economic website right? lol
hopefully i make myself a little clearer.
and don’t take this too seriously fellows, it’s just economics =)
Thank you.
Based on this, going broke is fraud. If I start a business and get a loan, and my business fails, I have committed fraud against the lender. Is this correct?
But they are not clear. That’s no ones conventional definition of fraud, and would include all sorts of behavior that has never been described as fraudulent before.
That’s why I asked you to clearly and unambiguously define your terms.
I believe that fraud is when one enters into a contract they do not intend to fulfill. Not when they cannot fulfill the contract. Big difference.
Given that definition - which I can fully accept for the rest of the argument - than the bank is definitely not fraudulent. (1) there is a chance they manage to pay up and (2) there is a good reason that they have every intend of respecting all contracts.
Obviously, though, ‘intend’ is not something we can know in the absence of concrete human action. But there is no a priori reason to think that a bank that practices FRB has ‘no intend’ to not be able to pay up.
I really don’t see how this helps your argument, though.
How does FRB - in the situation I’ve described - increase the money supply in a economic problematic way? Could you describe the mechanism?
You are aware that FRB allows both ‘increases’ and ‘decreases’ of the money supply, right? (There is no constant increase in the money supply - absent gold digging of course - because there is no money creation as such. Bank liabilities have to be equal to bank assets.)
since you mentioned “in the situation i’ve described”, which situation are you talking about?
because you know i’m just going to repeat what rothbard wrote lol… if you could describe your perspective on FRB, then i think all of us here might have a better discussion =)
I think nearly all my posts describe the system.
But it’s not that important.
I’ve decided to respond to select portions of your post, since it seems that you repeat a lot of things in it, and also repeat things from earlier posts which I feel I’ve already addressed.
I see now where my wording was inaccurate or mistaken. My reasoning has implied the following definition for “on demand” – “whenever one could demand it”. Note that this is different from your definition, which is “whenever one does demand it”. Since no one knows in advance when one does demand something (until he demands it :P), one must logically treat “on demand”, at least in a contractual setting, as having the definition I’m using. Of course, one could demand something at any future time whatsoever.
I think one person also wrongs another when he knows the contract is illegitimate. Certainly we agree that invalid contracts are illegitimate contracts.
I think that, when it comes to time, “uncertain” and “imprecise” mean the same thing.
If the bank takes ownership of depositors’ gold in exchange for (presumably) redeemable bank notes, then the gold is an asset and the bank notes are liabilities. Loans outstanding constitute further liabilities. And if those loans don’t involve physical transfer of gold, but merely printing out more bank notes, then we’re left with two possibilities. One is that the bank notes of loan-holders and the bank notes of depositors aren’t actually the same. The former represent certificates of ownership over the gold, while the latter can merely be exchanged for gold. Hence the two cannot be considered equivalent media of exchange. The other possibility is that loan-holders and depositors now (in essence) have claims to the same gold, which is contradictory.
See this post for the definition I’m using.
Yes, namely the kind that Kaz has outlined from the beginning. However, while the contracts per se aren’t fraudulent there, other things may be, such as advertising to keep money safe and perhaps even calling itself a bank. Such an arrangement has nothing to do with monetary safekeeping and everything to do with running a lottery or a racket.
If each of the contracts is bound to all future moments in time, why wouldn’t all of them treated together be bound in that way?
Estimates are probabilistic judgements and cannot be used as logical proofs. Something isn’t true because someone estimated that it or something else is true “most of the time”.
I think this is another important difference in our thinking. Whereas you seem to believe the promise doesn’t imply the promise to be able to fulfill it, I believe it does. If someone isn’t able to carry out a promise, how will it be carried out? The only way around this is to specify a time limit and/or schedule for carrying out the promise. “On-demand” contracts don’t specify this, so they must be treated as immediately binding and as binding from one moment to the next.
Now I agree that not carrying out a promise, and thus not being able to do so, doesn’t necessarily mean fraud, since fraud (to me) requires intent. Otherwise, it would be negligence.
I do appreciate you taking the time to write back to me. Your responses have definitely helped to sharpen my reasoning on this issue. Hopefully my position has become clearer to you each time I’ve written about it.
Are the banks legally obligated to redeem their customers’ claims for their property at any given time?
You think you can ‘dance’ around this question by arguing semantics, ambiguity of figurative speech, etc…
If you want to redefine “at any given time” as something else, like “any time I have money in the vault…” or whatever, then do so, and we’ll have to find something else for “at any given time”. But you’ll have to leave some possible combination of words in English that can distinguish the former from the latter. Otherwise, you’re just being dishonest with yourself and everybody else you are arguing with.
You guys are missing the main point and making this far more complicated than it needs to be.
The issue that has come up on this thread more than any other is the dynamic between these two examples:
FRB with a bank that says “you can redeem at any point, period”
vs.
FRB with 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”
My point is that asking the question “Is FRB is inherently fraudulent?” is not telling the whole story. No one should answer that question without knowing more.
The issue is: FRB with which statement/promise from the bank???