So long as its customers understand that their bank does not keep full reserves this is obviously not fraud. Whether or not it has ‘bad’ economic effects is irrelevant. If it’s not workable, then people won’t use these banks. Since no libertarian supports banking regulation or government-generated credit money I don’t see what the point of this debate is. The same goes for paralel private fiat currencies.
This is not to criticize people who are arguing about the economics of this or that monetary system on the market, but from a libertarian point of view I can not see the relevance at all. Even today most people understand the bank doesn’t keep all their money; the issue is regulations the prevent competition in banking and credit houses, and nationalization of money; fractional reserve banking is at most a symptom of this.
Yes I wanted to write a similar statement already.. I agree a 100% with the first paragraph. But I doubt that most people know that their money isn’t in the bank. This is at least what my experience tells me.
People will decide on their own anyway where they want to deposit or invest their savings, and most of them will only learn through getting burned.
I think where a large part of the argument stands up is in the realm of just how ignorant are people…how many actually aren’t aware of how the system actually works? They operate under the impression that there isn’t any risk involved in using a fractional reserve bank. (Of course this is exacerbated with FDI)
Even today most people understand the bank doesn’t keep all their money
You would be surprised. Most people dont care and have never given it one thought. All they know is that their money is being held by the bank and all they care about is that the bank gives them access to thier money when they want to buy something. Thats it.
Most people dont have a clue as to how our banking system works and really they dont care. Its like most things in this world. Do you care exactly how you car or computer works, how the groceries you buy get on the stores shelf?
The people who claim it is fraud, do have a valid point.
See I think that’s were those in the “fraud” camp have a point. The best argument I’ve ever heard against it boils down to what was said in the original post…that simply “most people understand.” How the hell do you know? And does that even matter if it is not explicitly stated and made clear? I think it’s kind of interesting how libertarians spend so much time talking about how ignorant the general public is, even to simple concepts like property rights or basic economics, and yet when it comes to FRB, everyone just somehow “knows” and understands how our banking system works.
Is it not true that there is an implicit agreement that an individual can withdraw their funds at any time? And is it explicitly stated anywhere (and does the customer completely understand) that that is not true…that they can only withdraw funds as long as there are funds there?
I mean, I’m not one of these people who has to believe that FRB is inherently fraud and there’s no way around it, but I’m just not convinced that in the way which our FRB system currently operates that people aren’t being defrauded. I’m not so sure that people really know and understand what they’re getting into. Otherwise you wouldn’t have cases like the one I linked to above.
There was recently an entire thread (6-7 pages long) that discussed whether fractional-reserve banking is fraudulent. Are you trying to raise that issue again here? Or are we supposed to just accept your assertions in the OP as given?
I work in a bank, and can verify that this is NOT true. It’s fully disclosed that for various reasons we can require up to 10 days before we provide cash. The reasons for this have nothing to do with fractional banking though. Even if the bank (as a whole) held 100% cash reserves on its balance sheet, it would never be able to maintain cash on hand matching the accounts housed at the different branches. In order for this to work, it would have to abolish monetary instruments (checks, money orders) except for customers housed at the same branch. For example, if you deposit a check for $100 from Bank A into your account at Bank B, the respective account balances have changed, but the cash on hand has not.
Also, the cost of holding cash at any given location is expensive which is why a bank (whether fractional or full) would hold cash primarily at “money rooms” that service huge areas. Besides the cost of security, you have to realize that cash must be counted regularly which requires people and time. Then there is the issue of branches holding a reasonable mix of denominations; if a branch is aiming to hold $200,000 it obviously can’t do it in hundreds alone, it needs pennies too.
To return to the OP, I think people have this idea that 100% reserves means that every customer could show up at a given branch, withdraw all of their cash, and no problems would arise. This is simply not true. However, full reserve banks would certainly be able to come up with the cash much faster than fractional ones.
Mikachusetts, I don’t think advocates of full-reserve banking think that it would be a monetary utopia, only that there would be far fewer monetary issues.
The argument against fractional reserve banking doesn’t just rely on the notion of fraud. In fact, I would say that the fraud argument is relatively recent. The “strongest” anti-fractional reserve banking argument has always been in questioning its macroeconomic stability.
You would be surprised. Most people dont care and have never given it one thought.
I don’t know anyone who doesn’t realise this, but I tend not to talk to too many dimwits. Since every bank in the world, pretty much, does this and has for decades then this is their own fault. They’re failing to do due dilligence, just like when they’re morons and sign up for loans they can never repay with ARMs. Anyone who knows this little about the banking industry has no business doing business with them.
@Autoylkos
There was recently an entire thread (6-7 pages long) that discussed whether fractional-reserve banking is fraudulent. Are you trying to raise that issue again here?
I know, but I am not reading that whole archive for one, and the search functionsucks on the forum, and I consider it inane anyways.
@Mikachussets
I work in a bank, and can verify that this is NOT true. It’s fully disclosed that for various reasons we can require up to 10 days before we provide cash.
Also true. I suppose a lot of people don’t read those contracts you sign when you get an account. Well, that’s their own damn fault, too.
The blanket statement “it’s a self-solving problem” doesn’t really matter. All participants in the debate would like to see free banking, whatever free banking might look like. The debate is purely theoretical, academic, and intellectual. The debate is between those who think banks would practice fractional reserve banking (theory paraphrased here) and those who think banks would hold 100 percent reserves. So, the debate on whether or not fractional reserve banking is stable does matter within the context of the intentions of those debating.
So basically because you’re too lazy to read all the responses to your question that have already been written, you’d rather just rehash the whole thing?
Uh…I think you miss the most important point: Full reserve banks would be able to come up with the cash without having to print new money. It has nothing to do with speed.
The strongest argument is that you can’t make money from images on paper in a world with photocopiers.
I don’t think this is an argument at all. There are methods by which to protect a note from counterfeit. Or, are you trying to say that paper money will inherently lead to unlimited printing by the institutions which control its circulation?
So? They don’t have to be able to. Not everyone can use their internet at full bandwidth, either. If they happen to be unable to make it for some customers then they lack appropriate capital; they might owe some compensation to their customers but it isn’t ‘fraud’.
The whole ethical aspect that Rothbardians tend to stress never really interested me. At first, I opposed FRB because I thought it caused macroeconomic instability, and now I support because I believe that it’s absolutely essential for macroeconomic stability (monetary equilibrium). But yes, I agree with your general point, though Rothbard did support banking regulations (mandatory 100% reserve rate). FRB, if it’s truly an inefficient institution, will be eliminated by natural free market competition.
That guy basically said “it isn’t fraud because we tell everyone we have 10 days to give them the money, so they shouldn’t expect to be able to get it right away.” Then limitgov stated that no bank could give everyone all their cash in 10 days…so stating that that’s all the time the bank needed, and that people could get their money back in 10 days would be fraud, would it not? That was his question.
Then my statement took it further, to make sure the original commentor understood that it’s not just a matter of time in FRB…it’s a matter of the quantity of money. He made it sound like the only difference between fractional and full reserve was simply how long it took for you to get your money. And my point was that that is not the case. The more important difference is that in a full reserve situation all the money actually exists…i.e. it is actually possible to give everyone back their deposits. In a fractional reserve system that is impossible without printing new money. He didn’t seem to understand this.