Comments (3)

• Shane in Wyoming

  This guy is just now getting around to this? I listened to an audio biography of Mises, written and read by Mr. Butler 10 years ago. And it was damn good.

  I am puzzled.
  

  Published: May 11, 2009 9:43 AM

• Dennis

  Based on a quick reading of the linked comment by Mr. Butler, regarding the issue of fractional reserve banking, he needs to make the distinction between demand deposits and time deposits. As Rothbard in particular has emphasized, a demand deposit is a warehouse receipt for cash that the depositor has not relinquished ownership (control) of for any period of time. As a result, banks should not loan out demand deposits. In addition, those who favor a free banking framework that permits the lending out of demand deposits have not adequately addressed the fact that the newly created money is injected into the loanable funds market and will artificially lower the rate of interest, which according to ABCT, is the root cause of the business cycle.

  With time deposits, however, the depositor has relinquished control of the money for a specified period of time, and as a result, the bank can loan out the cash. In addition, this process does not artificially lower the rate of interest, and thus, does not set the business cycle in motion.
  

  Published: May 11, 2009 10:05 AM

• Clint Athey

  Here's my contribution to the effort as posted on the site:

  Dr. Butler,

  Thank you for your comments. I would like to comment on several points. You mentioned that you would prefer that your money be lent to enterprise to earn a return rather than idle in a bank vault. While I personally would agree with you on this, I think you are conflating two different economic issues. As a Austrian would point out, there exists two different margins that individuals value at the same time: (a) time preference and (b) demand to hold money. If you desire, in an "Austrian world", to lend your savings then by all means please do. Purchase time loans or bonds, or for that matter shares of stock. If you, conversely, value cash balances, then banks would offer safekeeping and check book services. However, combining the two creates multiple titles to the SAME good at the same time. This is a dillution of property rights and a logical impossibility. One cannot have two titles of ownership to the same good at the same time without state fiat. If you time preferences are so low that you prefer zero cash balance and, say, 100% of income allocated to capital goods rather that consumer, the future income stream from these capital goods MUST have been valued higher than the current satisfaction foregone from consumer goods. This is fine, but the interest rate MUST equate this valuation. Under fractional reserves it would NOT. Thank for this opportunity to respond.

  Published: May 11, 2009 10:08 AM