I must admit that I've never understood the clain that two individuals claim the same property under fractional-reserve banking. Will someone explain this to me? One is the debtor, right?
Esuric: What? No. How can you consider yourself and Austrian and be pro FRB? The creation of fiduciary media, and the suppression of the market rate of interest below the natural rate is what creates the boom-bust cycle. The only way to stop this cycle would be to stop FRB.
What? No. How can you consider yourself and Austrian and be pro FRB? The creation of fiduciary media, and the suppression of the market rate of interest below the natural rate is what creates the boom-bust cycle. The only way to stop this cycle would be to stop FRB.
I've read far more of the literature that argues against both the legitimacy and viability of FRB than I have of the literature that is in favour of FRB. That said, Steven Horwitz makes a very compelling argument for FRB. The problem with your argument is that you assume FRB does indeed push the market rate of interest below the natural rate. My problem with 100% reserve banking is that in reality demand deposits do represent goods that are foregone, in spite of this, these goods cannot be used in investment by entrepreneurs. This causes a host of problem, to begin with this puts a downward pressure on prices and an upward pressure on interest rates. Causing the structure of production to be artificially shortened and the relative price structure to be distorted due to the different rigidities of various prices.
I think what most people who argue against FRB miss is that the loan market is the market for time in the form of money. As long as demand for and supply of money are in equilbrium so will ex post saving and investment.
"You don't need a weatherman to know which way the wind blows"
Bob Dylan
GilesStratton: My problem with 100% reserve banking is that in reality demand deposits do represent goods that are foregone, in spite of this, these goods cannot be used in investment by entrepreneurs
GilesStratton:This causes a host of problem, to begin with this puts a downward pressure on prices and an upward pressure on interest rates
GilesStratton:Causing the structure of production to be artificially shortened and the relative price structure to be distorted due to the different rigidities of various prices.
GilesStratton:I think what most people who argue against FRB miss is that the loan market is the market for time in the form of money
frb is about confusing the loan 'market' with the hoarding/warehousing 'market'
Where there is no property there is no justice; a proposition as certain as any demonstration in Euclid
Fools! not to see that what they madly desire would be a calamity to them as no hands but their own could bring
scineram: Prove that demand deposits are bailments, go ahead!
Prove that demand deposits are bailments, go ahead!
A demand deposit is a bailment because the bank warehouses other people's money. If it was a loan, it couldn't be demanded.
jon you don't understand, its a bailmentloan! all the gamblebanks are doing it...
wooooooooooooot
throw out the law of non-contradiction and FRB can be your best friend.
nirgrahamUK:evidence? sources? argument?
Just about all people who argue against FRB maintain that hoarding cash is not a form of saving. Now, whilst in praxeological sense hoarding is not considered saving, it most certainly does represent goods foregone.
nirgrahamUK: legitimate practices cause credit to be its true cost rather than praxeologically unsound/illegitimate practices that are 'easy money' ? and this is bad?
Now, I'd argue that what you call "legitimate practises" entirely ignore the demand side in regards to the money market and focus exclusively on the supply side. Here's the thing, if there is a sudden increase in the demand for money without a consequent increase in the supply of money, this will cause the market rate of interest to rise as people take more loans. The problem with this is that it artificially shortens the structure of production and causes a number of distortions in the allocation of real resources as a result of monetary rigidities.
nirgrahamUK: think you are rather assuming that naturally credit should be easy and super low cost, and to help with legitimate bank practices that artifically scarcifies it. but thats nonsense. doing what is just, and making logically possible(i.e.non-contradictary) contracts is not making things artifical or scarce, any more than the institution of private property artificially scarceness the unbound artificial resources that the society of man could otherwise enjoy (and other socialist nonsense)
Stop moralizing. I'm not assuming anything, I don't come down firmly on either side of this debate. Before I read the Horwitz piece I was anti - FRB, now I'm probably in favour of fractional reserve banking. As for the notion of "just" and "logically possible" contracts, at the end of the day your argument boils down to the point that banks practising fractional reserves should call their bank notes lottery tickets instead of bank notes. Also, I don't see how those arguing against fractional reserves can accomodate callable loans and other such financial instruments that play a huge role in modern financial markerts.
GilesStratton: Now, whilst in praxeological sense hoarding is not considered saving, it most certainly does represent goods foregone.
how much attention would you like me to give to this? can I cut to the chase and ask you if you are wanting to say that savings->investments is a false and broken paradigm which should really be savings and other stuff that are not savings->investment
GilesStratton: it most certainly does represent goods foregone.
GilesStratton: Here's the thing, if there is a sudden increase in the demand for money without a consequent increase in the supply of money, this will cause the market rate of interest to rise as people take more loans.
GilesStratton:The problem with this is that it artificially shortens the structure of production and causes a number of distortions in the allocation of real resources as a result of monetary rigidities.
GilesStratton:I've read far more of the literature that argues against both the legitimacy and viability of FRB than I have of the literature that is in favour of FRB. That said, Steven Horwitz makes a very compelling argument for FRB. The problem with your argument is that you assume FRB does indeed push the market rate of interest below the natural rate. My problem with 100% reserve banking is that in reality demand deposits do represent goods that are foregone, in spite of this, these goods cannot be used in investment by entrepreneurs.
No, the two are not the same thing. Keynesian economics ignores the central economic issue of scarcity, what I'm arguing that is 100% reserves cause poor allocations of economy's scarce resources. Since demand deposits represent goods not bought, goods that could be bought if the money was lent out.
I wondering if there is a viable argumentative difference between loans lent using, for example, an (1) investment firm thus money that is the investment firms compared to loans lent using somebody else's money aka (2) bank?
1- using money already in circulation and money that is their money doesn't devalue purchasing power and secondly risk will be looked at more closely
2- making more money that is not circulation already is devaluing purchasing power and secondly risk is not looked at closely
"I used to see a mountain as a mountain.. Thereafter.. when I saw a mountain; lo! it was not a mountain.. yet now of final tranquillity: I see a mountain just as a mountain as I used to.." - Master Yuan; molon labe
nirgrahamUK:how much attention would you like me to give to this? can I cut to the chase and ask you if you are wanting to say that savings->investments is a false and broken paradigm which should really be savings and other stuff that are not savings->investment
I don't really understand what you're saying to be honest, it might help if you learned to construct a coherent sentence. What I'm saying is that the very act of holding money represents goods foregone, what isn't to understand? IOW, the goods that could have been bought with a particular amount of money represent the opportunity cost of holding the money.
nirgrahamUK:money is a good. when i dont spend money, i can enjoy having the money 'at hand', am i foregoing having money at hand? no i am not
What? I don't know what point you're trying to make. It seems as if you're attempted to say is that acquiring a good does not entail an opportunity cost of itself. In which case, I suppose, the only answer is "obviously". You're ignoring the obvious fact that in an advanced economy, money isn't simply "a good", it is a good that connects every single market and changes in the price will have effects felt throughout the economy.
nirgrahamUK:you havent even mentioned prices for other goods. prices could be bid down as people try to hold on to their cash and spend less, and the purchasing power of money would increase
Your assuming perfectly flexible prices and wages, which simply does not occur in the real world. It may well be that in the long run the economy will adjust to the new demand for money. In the meantime, however, the structure of relative prices will be altered and the cost of various goods will not represent their value. Moreover, it is entirely plausible that in the short run the increased demand for cash will translate into an increased price of loanable funds, which will cause the structure of production to be shortened, meaning, the intertemporal allocation of resources will not match the pattern of the intertemporal wants of consumers.
nirgrahamUK: i mentioned nature and i was accused of moralising, yet you mention artifical and you are not moralizing. theres our H word again
No, you were accused of moralizing because you used words such as "just", which are words that are not compatible with value freedom. The word "artificial" in this context is perfectly legitimate, since it merely means that the government has caused an allocatio of resources that is not the same as that which would have occured on an entirely free market.
GilesStratton:No, the two are not the same thing.
GilesStratton:Keynesian economics ignores the central economic issue of scarcity, what I'm arguing that is 100% reserves cause poor allocations of economy's scarce resources.
GilesStratton:Since demand deposits represent goods not bought, goods that could be bought if the money was lent out.
GilesStratton:My problem with 100% reserve banking is that in reality demand deposits do represent goods that are foregone, in spite of this, these goods cannot be used in investment by entrepreneurs.
February 17 - 1600 - Giordano Bruno is burnt alive by the catholic church. Aquinas : "much more reason is there for heretics, as soon as they are convicted of heresy, to be not only excommunicated but even put to death."
GilesStratton:I don't really understand what you're saying to be honest, it might help if you learned to construct a coherent sentence. What I'm saying is that the very act of holding money represents goods foregone, what isn't to understand? IOW, the goods that could have been bought with a particular amount of money represent the opportunity cost of holding the money.
ok. i thought you were familiar with the relationship that obtains between real savings and investment. Did I assume too much? perhaps you haven't noticed that you wish to explicitly include what you perceive to be as non-savings as permitting investment.
Need I remind you that any Human Action represents goods foregone, so why are you whining about money as a special case?. you say
GilesStratton:My problem with 100% reserve banking is that in reality demand deposits do represent goods that are foregone, in spite of this, these goods cannot be used in investment by entrepreneurs
GilesStratton:What? I don't know what point you're trying to make. It seems as if you're attempted to say is that acquiring a good does not entail an opportunity cost of itself. In which case, I suppose, the only answer is "obviously". You're ignoring the obvious fact that in an advanced economy, money isn't simply "a good", it is a good that connects every single market and changes in the price will have effects felt throughout the economy.
I don't ignore this. You have bought the keynesian line that money is best prized out of the hands of mere consumers and thrown at entrepreneurs.
GilesStratton:Your assuming perfectly flexible prices and wages, which simply does not occur in the real world. It may well be that in the long run the economy will adjust to the new demand for money. In the meantime, however, the structure of relative prices will be altered and the cost of various goods will not represent their value. Moreover, it is entirely plausible that in the short run the increased demand for cash will translate into an increased price of loanable funds, which will cause the structure of production to be shortened, meaning, the inter temporal allocation of resources will not match the pattern of the inter temporal wants of consumers.
no, no. the structure of production will be shorter than what? shorter than if there was an artificial credit boom that favours mal-investment. you are coming out like a newb that fetishes *economic growth statistics* and is favour of madcap government schemes to lengthen the structure of production... Perhaps your conservative streak has led you into thinking that lower time preference are *superior* to higher time preference, which is false. a monetary system that presents to entrepreneurs false information about the populations time preference will lead to mal-investment. by wishing to assume that someone that is making a bailment to have a cash balance, available on demand for any purchase that they might wish to make in the immediate future is not someone who wishes to set aside a portion of cash balance, denying themselves of access to funds in the immediate future and to have a monetary system that confuses the two is madness. You would make Hoppe cry. Feel free to ignore that last argument from authority, argument I set out does not depend on it, it is only for amusements sake.
GilesStratton:The word "artificial" in this context is perfectly legitimate, since it merely means that the government has caused an allocation of resources that is not the same as that which would have occurred on an entirely free market.
I decided to get some quotes to share as much for fellow readers as for Giles. This is to buttress my arguments. since Giles mocked my sentence structure.
JOHN P. COCHRAN, STEVEN T. CALL, AND FRED R. GLAHE
Money is the medium of exchange and is thus the present good par excellence. Theimplied household decision tree is: a. Present goods or future goods (save)? b. Ifpresent goods, specific consumption goods or money? Saving is the sacrifice ofpresent goods (a claim on present goods is temporarily foregone) for a claim on futuregoods. Since the holding of cash balances, whether in the form of deposits or currency,does not require the sacrifice of present utility, changes in cash balances financed fromcurrent income are not a part of saving, but represent part of the allocation of incometo provide present utility.6
Monetary changes are the loose joint in the saving-investment process. Theproblem, as initially explained by Mises (1971, p. 261) is that banks play twodistinct roles in the credit process. While banks do negotiate credit through the loan of other people’s money, they also grant credit through the issue of fiduciary media, i.e., notes and bank balances that are not covered by money.10 The first role is clearly financial intermediation. But according to Mises, the second role, credit issued by money creation, is not financial intermediation.11 It is not a conduit of savings into investment. The transaction is different in nature from a true credit transaction, in which the lender temporarily surrenders “money or goods, disposal over which is a source of satisfaction and renunciation of which is a source of dissatisfaction” (Mises 1971, p. 264). Credit issued in the money creation process involves no reduction of current satisfaction on the part of the depositor and hence may finance investment (or other spending financed by money creation) without any prior equal savings.
Knight_of_BAAWA:Which is like encouraging people to spend so that there won't be a recession.
Only, I'm not encouraging people to consume more as a means to make society more prosperous. My argument is that all money not spent represents goods that can be used and is therefore money with which loans can be made.
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