I recently spoke to a professor of mine who is in favor of fractional-reserve central banking. Below is a quote from an email he sent to me. If it is possible to receive some insight to the comments and questions posed below, I would be grateful.
There is a good case to be made that banking, like many social needs, is a federal not a local issue, and so should have a federal bank. Interstate commerce is regulated by the federal government, not state governments. This is constitutional. You make many claims that I do not agree with about how this is an unconstitutional invention (I know you base these on quotes, but you need to also consider the other interpretation with quotes), but I think it is rooted in interstate commerce, which is regulated by the federal government.
Marriage, citizenship, national security, are all regulated by the federal government, are these monopolies? Is the army a monopoly, or the police force, or firemen? Or is it necessary for some services to be supplies by the government to guarantee they work (they are necessary for our continues existence) and to guarantee they are given fairly to all.
Fractional reserve banking, allows for greater capital and therefore greater research and development of products humans need. Minimizing lending also minimizes research and development.
Is this guy a professor? He has not given a single real argument. Are they monopolies? Umm, yes, all the services he mentioned are coercively funded governmental monopolies. He will no doubt make recourse to a public goods argument to justify them. Right or wrong (it's the latter), it will not change the fact that these services are provided in a monopolistic fashion. He is sneaking in normative arguments.
The other argument only works if he equates increases in the money supply without relevant increases in productivity to be increases in capital. But it isn't. It is merely an increase in the amount of claims in the economy chasing after scarce goods. He needs to do more than just assert these things.
It was a conversation I had with a professor presenting (not necessarily arguing) the benefits of the other side. What I was thinking of saying was that money is a medium of exchange and therefore is not in the same category as national security, police force, etc. It takes the medium of exchange to establish these other so-called monopolies for the public good. I don't know if that is a sound response or if there are valid rebuttals.
In terms of capital, how would a 100% reserve or the gold standard hinder or not hinder further research and development in the private sector to help humanity? The health industry seems to be expanding significantly as baby boomers enter retirement and old age. If we went to an international gold standard, it seems that there would be less capital for research and development.
Inquisitive: Fractional reserve banking, allows for greater capital and therefore greater research and development of products humans need. Minimizing lending also minimizes research and development. Any insight in giving a well-reasoned response would be appreciated. I don't know how to respond to the assertion that a gold standard or abolishing fractional-reserve banking would limit research and development which is greatly beneficial to human flourishing.
Fractional reserve banking allows for inflationary pressure on money. Whoever gets the new money first gets the most value for the money, but the overall result is to devalue all money, and therefore reduce its power to fund greater research or buy more of anything at all. Inflated money is not increased capital.
The only way to increase capital is to increase productivity, and a gold standard provides no limits on increased productivity. In fact, a gold standard might help because it would provide a stable monetary supply, and simplify monetary calculation.
In short, money is not wealth; it merely represents wealth. Wealth is goods and services.
First of all, who cares about the Constitution?
Honestly.
I'm assuming you're some kind of Paulite trying to justify everything through the Constitution. Just admit and get over the fact that the Constitution is a very old contract written by wealthy landowners for the wealthy landowners and their own misconceptions.
Uhhh... Yes, they are obviously government enforced monopolies.
The institutions of marriage and citizenship shouldn't even exist, but that's an entirely different issue.
Fractional reserve banking is a remnant of failed Keynesian economics. It leads towards greater inflation, devaluating the savings of the average Joe. It also creates "boom-bust" cycles which we have seen historically in the panic of 1819 and the stock market crash of 1929 (those are the two more extreme examples). Also, inflation and unemployment are not inversely proportional, as we have seen recently with stagflation.
I find this last remark baffling. What about greater capital? If you inflate, there's more capital that's worth the less per unit than when there's less capital.
If you inflate the money supply, the value of the dollar will go down (supply and demand, duh). So having greater capital means nothing but having higher prices, devaluating the savings of people who have dollars, and reducing your nation's purchasing power. After the temporary boom of overproduction is up, you have to face a recession.
On the other hand, if we had a free market currency like the gold standard, we wouldn't have to worry about any of this. You'd have your currencies backed up by commodities, the way it was originally done with success.
"There is only one innate right, freedom (independence from being constrained by another's choice), insofar as it can coexist with the freedom of every other in accordance with a universal law." - Immanuel Kant
Inquisitive: Marriage, citizenship, national security, are all regulated by the federal government, are these monopolies? Is the army a monopoly, or the police force, or firemen? Or is it necessary for some services to be supplies by the government to guarantee they work (they are necessary for our continues existence) and to guarantee they are given fairly to all.
Haha yeah. What does he think if it is a task carried out by the state it cannot be a monopoly? Any task carried out by the state is a monopoly because there is no way to legally compete with it. The state has set up institutions where they are the sole firm producing the certain task/service and there is blocked entry. That is the exact definition of a monopoly. Not sure what this guy was thinking. I feel sorry for you if you have to listen to this crap every class session.
...And nobody has ever taught you how to live out on the street, But now you're gonna have to get used to it...
Just have to add on that using citizenship as a monopoly is basically a straw man fallacy on the part of your professor.
Citizenship is simply a status, not a business. So there cannot be any monopoly, oligopoly, or otherwise for citizenships.
However, the other functions he listed like the police and the army are monopolies.
If it is true wealth consists of goods and services that enhance and prolong the lives of humans, then good product ideas need capital to get them off the ground. According to proponents of fractional-reserve banking, the case for increasing capital brings to society the true wealth of goods and services with health and prolonged lives despite some inflationary results. Fractional-reserve banking has enhanced productivity for our own good. It almost seems like a necessary evil in some respects.
I'm still a bit confused since it appears that there could be some benefits of fractional-reserve banking.
Inquisitive:I'm still a bit confused since it appears that there could be some benefits of fractional-reserve banking
Read our comments again. Fractional reserve banking devalues money, meaning the same amount of money buys less goods and services. An increased money supply is NOT an increase in capital, but instead creates boom/bust cycles that cause malinvestment in the economy and leaves people with less wealth, not more wealth.
Capital can only be increased with increased productivity, not increased currency. Fractional reserve banking does nothing to help research, unless the researchers get the money first, thus screwing everyone else in the economy.
If somebody thinks research has the potential for profits, that is, if it has the potential for providing goods and services that people desire, such as enhancing and prolonging their lives, and if people are willing to pay for it, then researchers will find investors willing to provide the necessary capital, no fractional reserve banking necessary for it to happen.
There is no direct connection between fractional reserve banking and research.
macsnafu: Inquisitive:I'm still a bit confused since it appears that there could be some benefits of fractional-reserve banking Read our comments again. Fractional reserve banking devalues money, meaning the same amount of money buys less goods and services. An increased money supply is NOT an increase in capital, but instead creates boom/bust cycles that cause malinvestment in the economy and leaves people with less wealth, not more wealth. Capital can only be increased with increased productivity, not increased currency. Fractional reserve banking does nothing to help research, unless the researchers get the money first, thus screwing everyone else in the economy. If somebody thinks research has the potential for profits, that is, if it has the potential for providing goods and services that people desire, such as enhancing and prolonging their lives, and if people are willing to pay for it, then researchers will find investors willing to provide the necessary capital, no fractional reserve banking necessary for it to happen. There is no direct connection between fractional reserve banking and research.
While I do agree that researchers can find investors willing to provide the necessary capital, there are some wonderful products and services that are seen as useful and profitable and therefore these researchers and entrepreneurs do not receive adequate funding. That is why, in the view of the banking industry, lending institutions are necessary to pump in the needed capital because investors with the already available capital are not willing to lend. Lending, or fractional-reserve venture capital via big banks, is the next potential option if others fail.
I am trying to give the possible rebuttals from the other side. Thank you for taking time to respond.
Inquisitive:While I do agree that researchers can find investors willing to provide the necessary capital, there are some wonderful products and services that are seen as useful and profitable and therefore these researchers and entrepreneurs do not receive adequate funding. That is why, in the view of the banking industry, lending institutions are necessary to pump in the needed capital because investors with the already available capital are not willing to lend. Lending, or fractional-reserve venture capital via big banks, is the next potential option if others fail.
If they are seen as 'useful and profitable' and they can't find willing investors then how useful are they really?
You pretty much just described how inflation leads to malinvestment.
Banks could care less what you do with the money as long as you don't default on the loan and pay enough interest to make them a handy profit off of money that they created out of thin air. Do you seriously think that the betterment of humanity is the sole criteria in their loan selection process?
While I do agree that researchers can find investors willing to provide the necessary capital, there are some wonderful products and services that are seen as useful and profitable and therefore these researchers and entrepreneurs do not receive adequate funding. That is why, in the view of the banking industry, lending institutions are necessary to pump in the needed capital because investors with the already available capital are not willing to lend. Lending, or fractional-reserve venture capital via big banks, is the next potential option if others fail. I am trying to give the possible rebuttals from the other side. Thank you for taking time to respond.
Inquisitive - First you need to understand that money is not capital.