Grant says paper money has had its day.
Source link: http://blog.mises.org/11165/james-grant-on-the-dollar/
James Grant on the Dollar
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Mike Sproul, concerning the example of the 5% discount, what my thinking was, is, if people in the market know that there will be a discount of 5% by the government at the moment of taxes, they will surely discount the paper at 5% too, so the paper will not have the same value as the corresponding silver shilling. Therefore, the paper will have a value of 0.95 silver shilling for each paper shilling denominated at 1 shilling.
Thus the 1 shilling paper will *not* worth 1 silver shilling. Don’t you think so ?
Secondly, the issuer here being the government, and the paper shilling being back by its power to pay taxes, not by shillings neither by any asset owned by the government, that doesn’t fit with your last example. Moreover, even if the government has no asset at all, that will not change anything concerning the value of this particular paper shilling.
Mike Sproul, in the text about Fullarton, they don’t make any reference to the backing. They talk about competitivity between individuel banks of that times, saying that, according to their RBD theory, it is that competitivity which prevents them from depreciating their notes by issuing them to excess.
Thus ‘excess’ here is a question of quantity, whithout any reference to backing, thus implying that it is not a problem of backing but only of quantity issued.
It also implies that they admit that their notes can be devaluated even with good backing. But then they say that this could not happen in practice because of their supposed law of reflux, which will appears by magic just in time to prevent the depreciation !
Is this ‘law’ had really worked or not, this is another question.
Individual banks don’t create dollars as it, cash, but money. When they make a loan based on their reserve, not based on a term ‘deposit’, they increase the money supply. That they give money in cash to the borrower (which operation is not in use) or in money substitutes, money is created, money supply is increased, there is more money in circulation than before the loan, all other things being equal.
“Individual banks don’t create dollars as it, cash, but money….” a dollar isnt money?
when the borrower gets a check does it say for a certain amount of dollars? every check i see says dollars.
they increase the money supply. …?
so they increase the credi form of money supply?
i know that banks dont print dollars.
but i asked ”
“… economically, what difference would likely take place if, a farmer in need of cash, where farm-bucks wouldnt go very far, so the farmer goes to the bank to get a more popular medium of exchange — what is differerent when the farmer gets instant-notes loaned based on his land as backing or if he gets notes loaned (with his farm as collateral) that correspond to saved-silver (but notes are issued) from previous exchange?”
…. is this kind of what might happen when a bank loans rbs or check money?
is it just a matter of bank-money entering the economy much faster than somehow new silver or gold making its way in to circulation to back existing assets?
is there a significant difference when a bank will create dollars (in credit form) to loan…i guess using a framers far as collateral and when a bank loans, say a ‘portions of its reveneus’ (existing money) to a farmer using his farm as collateral??
” money is created, money supply is increased, there is more money in circulation than before the loan, all other things being equal.”
if other things werent equal this could happen well , right?
scott t, when you deposit a check in your bank account, what do you receive in exchange ?
When, instead of deposit your check, you ask to change it, what do you receive ?
if i deposit a check i get a receipt that i made a deposit.
if i ask to cash a check…the bank will give me cash.
you said “Individual banks don’t create dollars as it(?), cash, but money. ”
i know they dont print dollars.
they create dollars in the a credit form becuase they call it it dollars in my account. part cash and part credit i guess.
i consider the credit to not be money.as in cash. you can call it what you like.
my main question though was the effects of of a bank printing up notes in previous farm examples not whether banks currently print dollars or not
..ill repeat..”
what difference would likely take place if, a farmer in need of cash, where farm-bucks wouldnt go very far, so the farmer goes to the bank to get a more popular medium of exchange — what is differerent when the farmer gets instant-notes loaned based on his land as backing or if he gets notes loaned (with his farm as collateral) that correspond to saved-silver (but notes are issued) from previous exchange?”
secondly…even if some other things arent equal couldnt “That they give money in cash to the borrower (which operation is not in use) or in money substitutes, money is created, money supply is increased, there is more money in circulation than before the loan,” this still take place??
“The backing view holds that money created by lending is normally adequately backed, and hence will not affect prices.”
“But once you start monetizing land by issuing paper money based on loans with land as collateral, then the volume of land being traded for goods increases and the effect is exactly the same as you will find under an increase in the supply of gold.”
“A lender can either lend money that it has gotten from others or it can create its own money. Most of the money lent by banks is checking account dollars created on the spot by that bank. Banks seldom lend green paper dollars.”
“If the bank bought $100 of land then the notes are backed by the land.”
“Insta-noting sort of ‘coins’ the land into money, and yes, it’s faster. Better to think of the land as backing the new $200.”
farm examples relating to the above.
my understanding was that , in seeking a loan, a bank would lend instantly created notes/money/paper and as these circulates the backing for these items was a farm….what is different if when seeking a loan, the bank, instead of instantly creating notes exisiting savings from profits/revenues? are used?
what distinhguishes a real bills method mentioned earlier from a non-real bills method – a 100% reserve system i guess?
s wrote: “if i deposit a check i get a receipt that i made a deposit.”
Nothing else ?
If on the check it is writed ‘dollars’, as you said, why the bank gives you a receipt instead of dollars ? Or is it because that, for you, a receipt is dollars ?
«if i ask to cash a check…the bank will give me cash.»s
Would you say that, for you, cash is money, or cash is dollars ?
Do you give the bank a receipt in exchange for the cash you receive from the bank ?
Someone kick me if I ever again try to explain anything to Mike Sproul.
scott t, you wrote: «my main question though was …», but you also wrote this on December 9, 2009 8:02 PM:
«”Individual banks don’t create dollars as it, cash, but money….” a dollar isnt money?
when the borrower gets a check does it say for a certain amount of dollars? every check i see says dollars.».
It is to this question of dollars and money which I was addressing, not to your «main question»!
Also, concerning your: “you can call it what you like”, this is counter-productive: it is not at all a good idea.
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