I asked this question in one thread and I don't think it was ever answered.
So I'm going to ask it again. For all the complaints about fractional reserve banking and how it lends out from checking accounts and savings accounts, I have to ask how is this not implicit in the contract when there is already a "warehouse" type system in place for people - safety deposit boxes. Is their a gold-bug argument against this?
For more, I'd consult the podcast at FEE by Jeffrey Rogers Hummel.
existence is elsewhere
you have missed the point. its quite subtle though so I will be patient with you whilst you think over
(in present reality) consumers dont have a choice between checking accounts that are bailments, and those that are (somehow if its possible) explicit loans to banks.
vs.
(in the hyopthetical)consumers dont have a choice between movie watching for a money price, and movie watching with mandatory violence.
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
Wilmot of Rochester:How do you know that for every person or even for one person?
Frac-reserve banking "works" the same way ponzi schemes "work".
Wilmot of Rochester,
Have you ever opened a bank account? The banks NEVER say as you open an account that your money is going to Tom's farm or Betty's new deck. The bank runs are because people want their money. They get upset and very angry when they can't get their money.
Understand I'm not necessarily arguing against FRB, but maybe I should. I'm arguing against not being able to get "my" (insert any person's name here) money back that the bank was holding. I think in the free market FRB can go up against 100% backed gold banks and play it out, but without government backing it is clear that most if not all FRB would have gone extinct by now. Not by now only due to current economic crisis, but over time in the 1900's year after year FRB's are getting bailed out by the government and devaluing dollar schemes (Federal Reserve actions). The U.S. is experiencing the 48 or 49 bank that is dissolving for the year and it's only July. Many, many more banks would have gone under without the FDIC and other government interventionist programs that are devaluing the dollar.
So I say let the free market decide, and if I had a choice to put my money anywhere I would put it in a bank that I knew for sure that I'll get my money back which can only happen at a 100% good backed bank (such as gold, silver, and if there is another commodity out there that has marketable value, then I'm for that too).
As I said before too, a bank doesn't only offer a place to put your money in safe keeping. I think one huge safe keeping is the use of checks. To mail bills with a check is really the only way to go. Mailing direct money is highly risky. I think it's a norm of society to mail bills with checks and not to pay bills with money by mail. I think thievery would sky-rocket if the norm was to mail bills with dollars inside the envelope. And this is the most common activity that banks provide. The advent of paying bills on-line still involves a fee usually, so, I try not to do that a lot. To use a credit card to pay bills is another option, but personally I think using credit cards to pay for anything in this economy that inclines to hurt savings is a dangerous activity. Look at California now. Paying it's creditors with IOU's. The U.S. is not a savings economy and thus a huge part of the problem in the economy right now. It's anti-capital. So California is paying off it's IOU's with IOU's starting next Wednesday, at least according to California. Other states are trying to combat this problem in various ways currently. Such as PA not paying it's state employees for the third straight day. Consumers in the U.S. are in the same boat for the most part.
"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
I also thought this was an excellent post on savings and credit in general. Provides a bit of insight, imo, in this discussion Wilmot. What do you think?
Wilmot of Rochester:Why? Because fractional reserve banking works! I think the gold-bugs need to deal with that.
Why worry? Let them live forever in Rothbardian Neverland, reality will take care of itself just fine.
As Wilmot said consumers obviously have a choice in using safety deposit boxes.
wilderness:Have you ever opened a bank account? The banks NEVER say as you open an account that your money is going to Tom's farm or Betty's new deck.
Bank never hide they are loaning deposits out. If you ask them they will say just that.
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."
Mises:It is a fable that governments interfered with banking in order to restrict the issue of fiduciary media and to prevent credit expansion. The idea that guided governments was, on the contrary, the lust for inflation and credit expansion. They privileged banks because they wanted to widen the limits that the unhampered market draws to credit expansion or because they were eager to open to the treasury a source of revenue. For the most part both of these considerations motivated the authorities. They were convinced that the fiduciary media are an efficient means of lowering the rate of interest, and asked the banks to expand credit for the benefit of both business and the treasury. Only when the undesired effects of credit expansion became visible, were laws enacted to restrict the issue of banknotes--and sometimes also of deposits--not covered by specie. The establishment of free banking was never seriously considered precisely because it would have been too efficient in restricting credit expansion. For rulers, writers, and the public were unanimous in the belief that business [p. 442] has a fair claim to a "normal" and "necessary" amount of circulation credit and that this amount could not be attained under free banking.[17]
scineram:As Wilmot said consumers obviously have a choice in using safety deposit boxes.
nirgrahamUK: you have missed the point. its quite subtle though so I will be patient with you whilst you think over (in present reality) consumers dont have a choice between checking accounts that are bailments, and those that are (somehow if its possible) explicit loans to banks. vs. (in the hyopthetical)consumers dont have a choice between movie watching for a money price, and movie watching with mandatory violence.
I think they do, however. Credit cards are an example. As are money orders. Western Union. Pay pal. etc. If the point is merely that the fractional reserve bank is killing middle Americans because they can't honestly use checking accounts... I'm sorry, it just doesn't ring too important an argument to most people. At least not to me and most other people interested in economics I know.
wilderness: Wilmot of Rochester, Have you ever opened a bank account? The banks NEVER say as you open an account that your money is going to Tom's farm or Betty's new deck. The bank runs are because people want their money. They get upset and very angry when they can't get their money. Understand I'm not necessarily arguing against FRB, but maybe I should. I'm arguing against not being able to get "my" (insert any person's name here) money back that the bank was holding. I think in the free market FRB can go up against 100% backed gold banks and play it out, but without government backing it is clear that most if not all FRB would have gone extinct by now. Not by now only due to current economic crisis, but over time in the 1900's year after year FRB's are getting bailed out by the government and devaluing dollar schemes (Federal Reserve actions). The U.S. is experiencing the 48 or 49 bank that is dissolving for the year and it's only July. Many, many more banks would have gone under without the FDIC and other government interventionist programs that are devaluing the dollar. So I say let the free market decide, and if I had a choice to put my money anywhere I would put it in a bank that I knew for sure that I'll get my money back which can only happen at a 100% good backed bank (such as gold, silver, and if there is another commodity out there that has marketable value, then I'm for that too). As I said before too, a bank doesn't only offer a place to put your money in safe keeping. I think one huge safe keeping is the use of checks. To mail bills with a check is really the only way to go. Mailing direct money is highly risky. I think it's a norm of society to mail bills with checks and not to pay bills with money by mail. I think thievery would sky-rocket if the norm was to mail bills with dollars inside the envelope. And this is the most common activity that banks provide. The advent of paying bills on-line still involves a fee usually, so, I try not to do that a lot. To use a credit card to pay bills is another option, but personally I think using credit cards to pay for anything in this economy that inclines to hurt savings is a dangerous activity. Look at California now. Paying it's creditors with IOU's. The U.S. is not a savings economy and thus a huge part of the problem in the economy right now. It's anti-capital. So California is paying off it's IOU's with IOU's starting next Wednesday, at least according to California. Other states are trying to combat this problem in various ways currently. Such as PA not paying it's state employees for the third straight day. Consumers in the U.S. are in the same boat for the most part.
Well, I agree with you that we should let the market decide and not assume one way or the other. I think it's a point willing to be made that it is possible that many FRBs would go out of business if they didn't understand proper risk modelling like many of the banks of today have not. That said, I think without the moral hazard of the government bailing out anyone that gets into a problem, banks would be much more wary and anchored. I don't commonly believe that people will run on the banks absent really bad recessions, since I think panics are a cause of government I'm not as worried about that particular aspect, though I'm more worried about the stability of currency ratios in them.
Personally, I'm more of a risk taker than most - I've been described as having a "gambling problem" - so I'd be fine with using an FRB, it doesn't mean, however, that others couldn't use full reserve banks. Your point on checking accounts is spot on, though. It is an importanting ploy to getting people to bank with you, but you still need to pay a fee for letting them house your cash/gold/whatever and I think that's a disincentive to use them enough for me to not want to bank with them.
As for your following question, I think krazy kaju answered pretty well that Japan is a savings economy and this is what makes monetary policy relatively ineffective.
scineram: As Wilmot said consumers obviously have a choice in using safety deposit boxes. wilderness:Have you ever opened a bank account? The banks NEVER say as you open an account that your money is going to Tom's farm or Betty's new deck. Bank never hide they are loaning deposits out. If you ask them they will say just that.
Well, I think wilderness's point might have been more of transparency of where your investment is going, but I'd argue that it's not that uncommon for your investments to be opaque for you - either contractually or realistically. All you really care about in this contract, that is, would probably be about a ratio between safety and yield.
Wilmot of Rochester:I think they do, however.
well you are wrong seeing as it is illegal to have checking account that is a bailment and not involved in frb. the things you list are exmaples of things that arent checking accounts which are bailments. Yes, you are trivially correct that if people do not want to have anything directly to do with with frb they can go without any kind of checking account, just like in the hypothetical if people wanted to do without being punched in the face they can do without ever going to the movies.
nirgrahamUK: Wilmot of Rochester:I think they do, however. well you are wrong seeing as it is illegal to have checking account that is a bailment and not involved in frb. the things you list are exmaples of things that arent checking accounts which are bailments. Yes, you are trivially correct that if people do not want to have anything directly to do with with frb they can go without any kind of checking account, just like in the hypothetical if people wanted to do without being punched in the face they can do without ever going to the movies.
Again, I think you miss my point.
The point is about the possibility of alternatives. There is no legal alternative to the movie theatre. There are tons of legal alternatives to checking accounts. I really honestly think that you guys put too much effort into trying to show why the economy is doomed because it's not based on 100% gold. Most people just think it's cooky and they're less inclined to listen because of it. A better argument, I think, would be that the current system has extreme inefficiencies that cause a great deal of pain and lengthen the reach between consumer and banker.
Wilmot of Rochester:Again, I think you miss my point.
Ludwig von Mises Institute | 518 West Magnolia Avenue | Auburn, Alabama 36832-4528
Phone: 334.321.2100 · Fax: 334.321.2119
contact@Mises.org | webmaster | AOL-IM MainMises
Mises.org sitemap