Region Focus interviewed me. It’s a publication of the Fed of Richmond.
“The way I envision free banking, it does not rely on a particular base regime. It’s true, as a matter of history, that if you had free banking from the get-go, you wouldn’t have central banks and you would almost certainly have a commodity money standard, probably gold…. The fiat money we currently have is purely the product of central banks. I think it’s pretty clear that if we never had central banks, we wouldn’t have fiat money. Instead, we’d still have commodity money.”
{ 202 comments }
← Previous Comments
well, i think the semantics itself are revealing, and this is again something that de soto deals with at length. “depositors” are not depositors in a frb regime, they’re creditors, and are treated as such in banks’ accounts. that seems willful misrepresentation for starters.
until i see frb contracts marketed as hedge fund accounts, or similar, i’m not happy to dispense with the fraud accusation.
i’m sticking with my conviction (and carlos novais’) that professor selgin’s equating frb inflation with specie-currency inflation is completely wrong-headed. the former gives rise to systemic errors, subject to mass correction, the latter does not.
the mere existence of banks runs would satisfy me that the abct is occurring (the run must necessarily have deflationary effects in proportion to the size of its loan-book). in a competitive market, amongst frb banks there will exist a variety of risk profiles, so there must therefore be collapses. (the absence of bank-run would tempt the free-banker to be ever more adventurous until even a minor run would signify closure).
the other thing i find unsatisfying with the free-banking model is that no mention is made of the unique cartelization pressures that are created. no other business model is more intrinsically fragile than frb. when other cartels collapse, only oligopoly profits are lost, insolvency doesn’t result.
Fundamentalist: “Do libertarians want to be Pharisees and determine the morality of trimming one’s finger nails, or do they want to be like the early church by insisting on the fundamentals while allowing disagreement on minor issues?”
The groups you mention though were very fond of telling other what to do. That is not our concern here. We are not talking about ordering consenting adults around. We are talking about the nature of how they give or withhold consent, and about the nature of property.
We are talking about the issues that put dividing lines between people. There is no getting away from these. You can’t be “non-prescriptive” except by being a nihilist.
Fundamentalist: “PS, the Reformation movement had an interesting slogan: Unity on fundamentals, diversity on non-essentials, charity in all.”
We are talking about the fundamentals.
George Selgin: “I never treated “popularity” of frb as proof of its “morality,” or even of its being “sensible.” I’ve explained the context for my appeals to frb’s survival, and that I’ve not misrepresented myself can be affirmed by perusal of my earlier posts.”
But you said above “Yet those silly morons wouldn’t listen, and so continued to allow themselves be duped.”
I could quote other occurrences. Whether you rely on the argument or not you have used the popularity of fractional reserve banking to help your case.
Selgin: “But that doesn’t mean I’ve evaded the fraud issue. I have dealt with it several times in print.”
I look forward to reading that.
Selgin: “I deny that this is what fractional reserve banks do. In fact I assert that the reality of fractional reserves has been quite transparent all along. Just consider (a mere tidbit from giant mountains of such): all those historical minimum statutory reserve ratios, typically 25 percent or lower. How could anyone aware of them believe that banks were holding 100-percent reserves? If so, how did they understand those laws? Or consider those occasional runs that anti-fr types like to point to as proof of its fraudulent nature. Why did runs occur, if not because the depositors were aware that their banks held fractional reserves? It’s easy to explain runs as responses to fear of bank insolvency in a setting where it’s understood that banks are illiquid. But runs are an enigma otherwise.
No: the “duped depositor” version of the fraud argument is really impossible to take seriously. And in my opinion the other versions of the fraud argument are just as bad.”
Are you serious?
I have talked to my friends, my family and many other ordinary people about banking. None of them understood how the fractional reserve system worked until I explained it to them. None of them knew what the required reserve (or its ratio) was until I told them.
The man in the street doesn’t necessarily think that the bank is keeping his money for him. But, from my experience the man in the street doesn’t seem so sure what the bank *is* doing.
When the Bradford and Bingley bank in the UK collapsed recently my father only learnt that he could lose money by watching a TV program on the subject. He then very quickly learnt about the UK’s consumer deposit insurance. Thankfully for him the UK government nationalized the bank.
I’m not saying that every depositor doesn’t know that banks keep a fractional reserve. I think though that many do not, or are unclear on the situation.
The people who arrive at the door of the bank first when there is a bank run are the better informed ones.
Were not talking about something like McDonald’s being force to put “Caution: Hot” on their Coffee. We’re talking about something much more difficult for the normal person to understand. Perhaps it would be socialist to require banks to have to put warnings in capital letters on things. But I think they should be at least required to mention in the terms and conditions the fractional reserve nature of the bank accounts they operate.
The question I would put back to the Pro-FRB side is this…. If they actually know that a bank uses a fractional reserve then why do they not prepare for a run? Why do they no set up agreements with the banks for how the reserve should be shared out. Why do they not set up agreements about when they will be paid in the advent that the reserve is exhausted?
Selgin: “Finally, if you think that the mere fact that an contractual obligation may not be satisfied in some states of the world makes the contract in question fraudulent, then you don’t believe in risk-taking, and might as well argue for abolishing capitalism altogether.”
Certainly. But let’s look carefully at what the pro-FRB side are arguing. You are advising that in this case it that a state *should* permit a contractual obligation to go unsatisfied.
I may agree that people should be free to move to China or invest there. But that doesn’t mean I agree with China’s legal system or want to see it implemented in the UK.
A further comment on depositor knowledge and rationality…
We agree I think that fractional reserve banks are prone to runs from time to time.
When the Northern Rock bank failed in the UK in 2007 it was not in terrible financial shape. It could probably have found another bank to buy it.
Due to the run in September though it was nationalized by the government. Had it not being nationalized it would have gone into liquidation or administration. The depositors, debtors and creditors would have been dealt with slowly by those processes.
If the depositors knew about the nature of their accounts why didn’t they remove this problem. The bank could have put in clauses like those you mention applied to Scottish banknotes. They could have included clauses that say things like “in case of run we will consider your note debt and pay it back in 90 days”.
Had they done that the run would have been neutralized. Northern Rock would not have needed government rescue.
Why is it actually rational for the depositors to agree to deal with this issue using a race to the nearest bank branch?
Current:
Welcome to the real world, where people lie, cheat, and steal. But in that world, people with varying degrees of honesty and reliability will sometimes write “IOU 1 oz. of silver” on a piece of paper, and that IOU can be used to buy groceries and will trade a various values depending on the reliability and honesty of the people involved. When I say that there is no such thing as fiat money, I mean that when anyone, governments included, writes such an IOU, people will value it according to its backing, and they will take risk into account. Mainstream economists made the mistake of looking at the physically inconvertible pound of 1797-1821 and suddenly throwing that rule out the window. They said the pound was unbacked fiat money. Never mind that the Bank of England’s assets hadn’t changed, or that convertibility was restored after 24 years, or that the Bank of England maintained financial convertibility the whole time. The bad guys (David Ricardo and other quantity theorists) won the argument 200 years ago, and we are still living with the results. You might want to read about this in my paper “Three False Critiques of the Real bills Doctrine”, which you can find by clicking my name above.
Current: “You are advising that in this case it that a state *should* permit a contractual obligation to go unsatisfied.”
What does “permit” mean here? Of course, if a bank fails, then there are negative repercussions for its owners: their capital must first be wiped out; perhaps they are subject to extended liability as well. You make it sound like I think it a positively wonderful thing if contracts are unfulfilled! Of course I don’t. But it is an aspect of business enterprise generally that not all contracts can always be fulfilled. When they aren’t there’s a failure, and owners suffer from it, with creditors sometimes suffering as well. That’s just capitalism as usual. Why should banking be any different?
As for the number of naive bank depositors who think their money is absolutely safe, I think it is you who are now relying on evidence from a post-government guarantee world. Yes: many people now think “deposits” are in some sense fully backed, but these days the belief isn’t so naive, as governments have in fact given them the impression that this is so, if not thanks to bankers’ own efforts, then thanks to government guarantee funds and treasuries. I doubt that the same belief was so widespread in the days before insurance. If it were, it would be hard to explain the high capital ratios many banks kept back then–which were meant to quel depositors concerns regarding the underlying riskiness of their banks (non-reserve) assets. A 100-percent reserve banker wouldn’t have to flaunt his capital, would he?
I should have added to my last statement: “and neither would a banker relying on his depositors’ false perception that he held 100-percent reserves.”
Current: “We are talking about the issues that put dividing lines between people….We are talking about the fundamentals.”
Yeah, that’s what the Pharisees claimed, too. Jesus couldn’t convince them, either.
Mike Sproul, I hardly know why I am arguing with you. Anyway, I shall continue a little while longer.
I agree that in the real world people lie, cheat and steal. This though is hardly a beneficial situation. I agree that IOUs will trade at a price that depends on the honesty of those involves. However, IOUs are not warehouse notes.
You are making a mistake similar to that of naive quantity theorists. I remember once a nice description of the problem with that theory. We consider one particular time with a quantity of money M. A time when “the dust has settled”. We consider a second particular time with a quantity of money 2 * M. Again this is a time when “the dust has settled”. Does this tell us that the dust isn’t a problem? Absolutely not.
I agree that the market can mark into the value of a banknote or bond the creditworthiness of those who lend it. But they should not have to do that for agreed upon clauses of the contract.
For what is “outside the contract” the agent is on their own. What is within the contract though is completely different.
By your argument the Bank of England could have, after they ended convertibility in 1797 simply declared all the gold in their vault the property of the crown.
I live in Limerick in Ireland, a town filled with Gangsters. It could so happen that tomorrow the Irish government decide to remove the police. In this case the situation with property will become very different to the present. Political power will in Lenin’s words “flow from the barrel of a gun”. All property contracts will be void and those with weapons will take what they like.
This does not mean that all property contracts were void before the end of the rule of law. Nor does it mean that those who own property could predict the end of law and reprice their property accordingly. Nor does it mean that they should have to do so.
George Selgin is providing a serious argument here. All you are doing is providing excuses for outright crime.
Current: “We are talking about the issues that put dividing lines between people….We are talking about the fundamentals.”
fundamentalist: “Yeah, that’s what the Pharisees claimed, too. Jesus couldn’t convince them, either.”
Well, what argument would you give that this is non-fundamental?
Do you agree that property is fundamental or not?
Folks, I’m leaving town and think it a good time to sign off. I’ve enjoyed the vigorous exchange of views, and apologize for any occasional signs of bitchiness, impatience, or whatever. I certainly feel I have a better grasp of where the “anti’s” are coming from, and hope they better understand the “fractional’s” perspective. The debate will go on, of course, perhaps forever. But what fun would economics be if everyone agreed on everything?
Since the subject of free banking in Scotland has been raised, Rothbard wrote an article for the “Review of Austrian Economics,” on the subject entitled “The Myth of Free Banking in Scotland”:
http://mises.org/journals/rae/pdf/RAE2_1_15.pdf
Rothbard is obviously a strong supporter of 100% reserves for demand deposits. The reader can compare his analysis of the Scottish situation to that of the fractional reserve free bankers and make his/her own decision regarding which is more accurate.
See you George, it’s been fun and interesting. Have a think about how your last post interplays with this one I made earlier
http://blog.mises.org/archives/009873.asp#comment-540575
i agree with current, very few people understand fully the economics of frb. i would warrant that the majority of bank employees don’t connect the mechanism with the business cycle (the ones i’ve met all are convinced that keynesian “animal spirits” are behind the bust).
anyway, even if every participant in the frb game knew what was going on, the collapse of a bank and the subsequent deflation affects the larger society. “collateral damage”, so to speak.
Current:
We are talking at cross purposes. I am trying to make the point that there is no such thing as fiat money. You are trying to make the point that suspension of convertibility amounts to breaking a promise.
Yes; of course it is breaking a promise, unless, of course, customers agreed to it in advance, which they often do.
Now let’s talk about whether there is such a thing as fiat money. If there were, there ought to be an example of a central bank somewhere that held no assets against its money. There is no such example. All financial instruments, money included, are valued according to their backing. If they weren’t, arbitragers could profit from the excess of money’s value over its backing.
Newson,
“Now let’s talk about whether there is such a thing as fiat money. If there were, there ought to be an example of a central bank somewhere that held no assets against its money.”
Are you kidding me? Next you be telling us there is no such thing as fake boobs since there has to be something inside propping them up.
I’m sure the Zimbabwe government has assets of some kind.
Fiat money includes the idea that the money has both “backing” and “convertability”. They had fiat money in France around the time of the revolution and were “backing” it with … confiscated church land. Problem was they were printing more and more money backed by this land.
As I told you before but you didn’t comprehend, prices are ratios. When you start “backing” money with the goods that it is suppose to trade against along with the ability to change the ratio at will there is no limit on the quantity of money.
If the US treasury had no way to detect counterfeit notes then they would be as well backed as the real ones. When considering the overall value of money there would be no practical difference between the government printing up a million new notes or the counterfeiters. The only other kind of difference being who got the purchasing power of the new notes. That’s how fiat is like counterfeiting.
Mike, you are not persuading me.
George Selgin said:
“The fact that FRS $ are “backed” by assets of some kind isn’t at all inconsistent with their being fiat money, according to all conventional meanings of the term. “Backing” should not be confused with redeemability or convertibility at a fixed price in some real asset.”
I agree with him about this.
You went on to talk about how “fiat money causes a free lunch for the issuer” and therefore cannot exist. This is not true. As I said above, you can’t take two points at which the dust has settled and use them to argue that the dust isn’t a problem.
Brian Macker – you are quite right. It is Mike Sproul who you should be addressing your comments to though, not Newson.
what? hit by friendly fire?
Brian:
I’ll have to take your word about the fake boobs thing.
Zimbabwe probably has about $1 US for every million zimbabwe dollars it has issued. Thus 1 zimbabwe dollar is worth 1-millionth of a US dollar, as the real bills doctrine implies.
Every macro text says that fiat money is money that has no backing. The claim is that it has value only because the government limits its supply, and people demand it for liquidity purposes. As the French printed more and more money, backed by diminishing amounts of land, the money depreciated, just as the RBD implies. The assignats were not fiat money. They were backed, mostly by the land.
The RBD is all about ratios. As the ratio of money to assets rises, the value of the money falls–especially when the backing is denominated in the currency itself. I explained this in my “No Fiat Money” paper, though I suppose you were too exhausted to read it, after wearing yourself out trying to explain ratios to me.
If counterfeit dollars were issued, then there would be more dollars but no new backing, so the value of the dollar would fall. If the fed issued new dollars, there would be more dollars and more backing, so the dollar would hold its value. That’s why the fed is not a counterfeiter.
Current:
Since fiat money is unbacked, I would think that the presence of backing would make one doubt that the money in question is fiat money.
There are many kinds of convertibility: instant, delayed, physical, financial, certain, uncertain, at the bank’s option, or at the customer’s option, to name a few. Let a bank suspend only one kind of convertibility–instant physical convertibility at the customer’s option, and you and George decide that the money is now unbacked.
If some institution can issue a piece of paper in exchange for goods worth one ounce, and if that institution can subsequently hold assets worth only .99 oz against that paper without the paper losing its value, then the institution has earned a free lunch of .01 oz. If the institution can actually hold zero oz., and the paper still holds its value, then the free lunch is 1.0 oz.
Mike Sproul wrote “All property is held by force. Backing can exist as gold bars held in a vault, or as an armed tax collector, but it is backing just the same. The value of money is determined by the ratio of backing to quantity of money, and not by the ratio of goods produced in the economy to money in circulation.”
But it is not equivalent; force does not create the value gold (say) has.
George Selgin asks “If, on the other hand, you insist that fractional-reserve banking has always been artificially supported by guarantees, then tell me what the guarantees consisted of in Scotland ca. 1830 or in Canada ca. 1880 or in Australia ca. 1870. Just one actual statute is all you have to find. Go on: I dare ya!”
In James Buchan’s book “Frozen Desire” he recounts an incident from his own family history in early 19th century Scotland. An ancestor of his was caught out when a bank failed, because banks had unlimited liability and shareholders (in this case, one of their agents) had to make good all claims – 100%.
Mike Sproul wrote “Now let’s talk about whether there is such a thing as fiat money. If there were, there ought to be an example of a central bank somewhere that held no assets against its money. There is no such example. All financial instruments, money included, are valued according to their backing. If they weren’t, arbitragers could profit from the excess of money’s value over its backing.”
There are plenty of examples, only Mike Sproul is in denial, supposing that the bonds that (say) the USA issues as “backing” are assets in any other than an artefact sense. They are fictions. The fiat thing is the making of fictions like that, not any claim that the fictions have no function in the system.
P.M.Laurence is essentially correct here. Mike Sproul is wrong.
Mike Sproul: “Since fiat money is unbacked, I would think that the presence of backing would make one doubt that the money in question is fiat money.”
Neither I, nor P.M.Laurence nor George Selgin have said that Fiat money is “unbacked”. Of course it may be backed.
Mike Sproul: “There are many kinds of convertibility: instant, delayed, physical, financial, certain, uncertain, at the bank’s option, or at the customer’s option, to name a few. Let a bank suspend only one kind of convertibility–instant physical convertibility at the customer’s option, and you and George decide that the money is now unbacked.”
What we’re saying is that it is fiat money. It may, of course continue to be backed, or it may not. Or the backing may change.
Mike Sproul: “Now let’s talk about whether there is such a thing as fiat money. If there were, there ought to be an example of a central bank somewhere that held no assets against its money. There is no such example. All financial instruments, money included, are valued according to their backing. If they weren’t, arbitragers could profit from the excess of money’s value over its backing.”
The assets that the US Federal reserve holds against it’s money are US treasury bonds. These bonds are denominated in dollars. Their value depends upon fiat money.
What makes a fiat currency work is that the supply of the currency is made scarce by the central bank. It is not necessary that the central bank hold any real assets since the fiat notes are not convertible at the central bank.
In a fiat money system central banks hold bonds as a means to change the money supply.
Once physical convertibility is suspended the central bank can do what they like. The amount of gold in their vaults becomes irrelevant. It is rather like the idea of “state control” of an enterprise.
The state pass a law that says they control business X. It state that the owners of business X still “own” the business. However, ownership means control over control, which is something the old owners have lost. In practice the state is the new owner. Just as in practice when a central bank suspends physical convertibility it steals the gold in its vaults from it’s customers. (It may of course repay them later, as the BoE did in you 19th century example).
What makes a fiat currency work is that the supply of “the currency is made scarce by the central bank. It is not necessary that the central bank hold any real assets since the fiat notes are not convertible at the central bank.”
Well, that and the legal enforcement of the central bank money.
The legal enforcement helps. But asymmetric information and inertia can do the job for a long time.
The notes issued by some of the early central banks were not legal tender.
To demonstrate what I mean.
Imagine I travel back to 19th century Britain and live there. While there I have dinner with the chairman of the Bank of England.
He is very depressed. He tells me that thieves have raided the Bank of England. All the gold has been taken. The thieves got away on a boat to mainland Europe. But, they were shipwrecked in a storm. So the gold lies in an unknown location below the sea, probably lost forever.
Only he and a couple of other staff know, and they are sworn to secrecy. He swears me to secrecy too. He tells me though that his predecessor suspended convertibility. He also tells me that during his future time in the Bank he will not issue any more new notes except to replace old ones.
Does this change my behaviour? Absolutely not. I can continue to use money even knowing that it has no gold backing. I am presented with no arbitirage opportunity relating to money by this occurence.
When the Governor retires though, that would be an interesting time.
If I remember my banking history correctly, there never has been a historical example of 100% reserve banking. Banks everywhere have always operated with fractional reserves. Case closed, historically speaking.
Lawrence: “In James Buchan’s book “Frozen Desire” he recounts an incident from his own family history in early 19th century Scotland. An ancestor of his was caught out when a bank failed, because banks had unlimited liability and shareholders (in this case, one of their agents) had to make good all claims – 100%.”
I referred to “artificial” (that is, gov’t) guarantees! This is entirely besides the point, which is to show that the system was propped up by the state! Besides, Scotland had both limited and unlimited liability banks.
Lawrence: “In James Buchan’s book “Frozen Desire” he recounts an incident from his own family history in early 19th century Scotland. An ancestor of his was caught out when a bank failed, because banks had unlimited liability and shareholders (in this case, one of their agents) had to make good all claims – 100%.”
I referred to “artificial” (that is, gov’t) guarantees! This is entirely besides the point, which is to show that the system was propped up by the state! Besides, Scotland had both limited and unlimited liability banks.
‘I referred to “artificial” (that is, gov’t) guarantees! This is entirely besides the point, which is to show that the system was propped up by the state!’
I thought someone would try that line. The state imposed that obligation, though, making it fall on the beneficial owners. In the case in point the earlier Buchan (a lawyer) tried unsuccessfully to litigate his way out of the obligation. Had there been no state imposing it on him, he could simply have walked away.
“Besides, Scotland had both limited and unlimited liability banks”. As I read the Buchan book, that was not the case in the period in question. You’re welcome to read it for yourself.
To George Selgin :
Is this History of Scottish Banks and Bank Notes in accordance with your own findings on the subject ?
Current:
Suppose the General Electric factory were destroyed, but nobody knew it for a few hours. GE stock would continue to trade at its old value. But when traders got the news, GE stock would fall. Otherwise there would be arbitrage opportunities.
Similarly, if the Bank of England lost assets and nobody knew it, the pound would hold value. But if word got out, and the pound held its value anyway, arbitrage profits could be earned by issuing rival moneys. This would reduce the demand for the pound and drive its value down to zero.
mike sproul says:
“But if word got out, and the pound held its value anyway, arbitrage profits could be earned by issuing rival moneys.
…except that the rival monies would have to be convertible to some real good, unless mises’ regression theory of money is flawed.
My point was that all currencies must be convertible (and backed) in some way, or they will have no value. But convertibility doesn’t have to be instant, certain, physical, at the customer’s option, etc.
The pound could not have value without backing and convertibility, and neither could the rival moneys. Otherwise there would be arbitrage opportunities, just like with any mispriced financial instrument.
FRB are able to use 100%RB as reserves, but the contrary is not true…so..
When someone is paying something with direct debit from its demand deposit, a seller will ask, “from what bank”, because the seller maust have an account in that particular bank in order for his account to be credit.
But the problem arises again: is a demand deposit in a FRB valued same as a demand deposit in a 100%RB?
Think in terms of current ETF Gold (with more than 1000 Tons of physical gold) traded in NY with GLD ticker?
Would that be possible that a partial reserve ETF note (i think it would be forbidden in present funds rules) would trade at the same par value as GLD?
Could a “promisse of payment” of 10 gold coins trade or be accepted in the long run at the same par value value of 10 gold coins itself (or a notes of 100% RB)?
For Gary Flaychy: The site you give draws on Charles Munn’s book, which is very good, so far as it goes. But White draws on Munn as well as on other works, and brings an economists’ perspective to understanding the Scottish system. So his book is the source upon which my own understanding of Scottish banking is based. It is also available online. The URL, once again, is:
http://www.iea.org.uk/record.jsp?ID=115&type=book
Mr. Lawrence writes: “”Besides, Scotland had both limited and unlimited liability banks”. As
I read the Buchan book, that was not the case in the period in question. You’re welcome to read it for yourself.”
I don’t have to read Buchan because I’m quite certain you must have misread him. Between 1700 and 1845 (a period that encompases the entire free banking era) there were three limited-liability banks in Scotland, as well as a larger number of unlimited liability banks. The limited-liability (“chartered”) banks were: the Bank of Scotland, the Royal Bank of Scotland, and the British Linen Company.
I give you White, Munn, and Checkland, among scores of authorities, all of whom will confirm this well-known fact.
James Buchan’s precise wording (page 209 of the Picador paperback edition) is “In those days [1878 and I presume for many decades earlier], a shareholder in almost all the British joint-stock banks, even if he were merely trustee of the shares, was exposed to unlimited liability…” [emphasis added].
So, yes, there were exceptions, but I took that as meaning that they were not material for this purpose – particularly since the bank crash in question “…destroyed more than a tenth of Scotland’s banking capital”. To me, that indicates that the exceptions were atypical and immaterial for present purposes, i.e. the character of the banking sector and its practices and ramifications. Clearly I should have been more precise in my wording.
I have responded to the debate over at athousandnations.com, suggesting that we focus on a framework for experimenting with different banking systems, rather than arguing a priori about which systems will work best.
If I may ask the kindergarten question? FRB means:
1) Banks may hold x assets and provide x+ in loans. Assets = $1 billion but loans and reserves = $1.5 billion.
or
2) Banks may hold x assets and provide x in loans. Assets = $1 billion and loans and reserves = $ 1 billion.
I’m starting at a more novice level than the rest of you. Appreciate any assistance.
It’s assets=loans and reserves=$1 billion, and checking account dollars=$1 billion.
Ex: A bank has issued 300 checking account dollars (bank’s liability), and the bank holds 100 paper dollars (reserves) plus bonds or other IOU’s worth $200. Total assets=$300=total liabilities
“it’s assets=loans and reserves=$1 billion, and checking account dollars=$1 billion.”
why is lent out money (loan) an asset??? is the stuff that was lent the same type of thing as reserves??? and the checking account dollar different???
OK, that is what I suspected. Reading some of the posts I thought the non-free banking (100% reserves) responses indicated that the free banking FRB position was to support creating money without the equivalent asset (savings) as the fed does now.
I do not understand the 100% reserve position against FRB if there is no “creation” of money. It appears that the 100% reserve supporters only want warehouses for savings.
To ?.
The 100% reserves supporters say that bankers do not have the right to take the money deposited in demand bank account and use it to make loans or other investments, and the FRB supporters say that the bankers have the right to do it. That is the essence of the problem.
was that a problem?? is that what occurs now??? and is it a problem if it is contracted??? noone has to accept a bank note from someone who contracted with a bank. right??
> The 100% reserves supporters say that bankers do not have the right to take
> the money deposited in demand bank account and use it to make loans or
> other investments, and the FRB supporters say that the bankers have the
> right to do it. That is the essence of the problem.
In other words, the anti-FRB people are socialists.
They advocate the prohibition of consensual, free market activities, on the vapid claim that, even though nobody is lying or keeping secrets, there is some magical form of “fraud” involved.
That is, in essence, akin to the socialist rationale for banning insider trading, or smoking, or anything else they consider one-sided or foolish.
But the cold, hard fact is that it’s not fraud in any real sense of the word, ergo they are advocating the prohibition of consensual activity.
The ugly part is that I see this as largely coming out of Rothbard’s distortions…he twisted libertarian philosophy a number of times in order to cover up a violation of its principles…and fractional reserve banking is the most unforgivable of them. Well, no, the parents having a right to kill children thing was worse.
i thought this had been covered well enough. if the previous discussions were even about true occurrences.
the free banking that some claim should exist was done via contract. if you contracted to deposit one form of money in a bank to get it loaned out only to get a note-form to spend….if it was contracted then there was no problem. but someone else would have to be willing to accept a bank ceftificate that may or may not be redeemable for the money to really circulate to any degree. some clown calling itself selgin said that something near to this took place centuries ago. maybe it did maybe it didnt. i wasnt there.
if there was a govt around i dont know how they collected taxes whith widespread sometime backed bank-notes unless the govt was actively involved in the bank-note business somehow…unless the govt would just seize rabbit skins and other property for tax debts over sometimes-backed bank notes.
but i dont know that there is anything keeping anyone currently from contracting in any type of money they wish…but if you fail to meet the contract and it goes to a govt court you have to pay in usdollars??? is that the case now???
I think it’s pretty clear that if we never had central banks, we wouldn’t have fiat money. Instead, we’d still have commodity money.”
and this is pathetic.
if a monarch decreed a commodity as money it wouldnt be free and it would be fiat money.
“Instead, we’d still have commodity money.”i dont know that the commodity issue ever really meant much when gold and silver were used as money.maybe someone else does.
i asked here before if commodity money had some advantage or was better in some way…i never got an answer.
Welcome to the real world, where people lie, cheat, and steal.
lets hope they get it up the a$$ in an painful way when they do it to often.
support creating money without the equivalent asset (savings) as the fed does now.”"
what is the equivalent asset to a dollar?? dollar definition….what ever you happen to get for a dollar at a given moment??
← Previous Comments
Comments on this entry are closed.