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
Wilmot of Rochester:Basically, you have to take two things into account here. Money supply must increase at the rate of increase in money demand so that prices remain stable and unaffected by currency alone. How do you do that without a fractional reserve banking system? Do you really trust mines to be able to increase production at that rate? I don't.
Why should I have to trust mines any more than other businesses? Do I trust that Walmart will be able to churn out cheap goods from China as fast as demand requires? Do I trust that McDonald's will have the kind of burger I want when I get there? Also, with respect to an increasing money supply, please comment on this chapter:
http://mises.org/money/2s8.asp
I could try to summarise it, but Rothbard writes much more clearly on the subject than I could.
Bradipo: Wilmot of Rochester:Anyways, you see now why it's so attractive to just use normal banks when the two options are between one of general insurance that pays you to use it, and a lesser quality insurance that you must pay to use - just so your money doesn't get lent out to reasonable entrepreneurs who will pay the bank back with little difficulty. What's the point of offering differentiated accounts like a deposit/checking account, a savings account and a money market account if they all do the same thing under the hood? How do I know that the entrepreneurs that they loan the money out to are reasonable? Why should I have to trust mines any more than other businesses? Do I trust that Walmart will be able to churn out cheap goods from China as fast as demand requires? Do I trust that McDonald's will have the kind of burger I want when I get there? Also, with respect to an increasing money supply, please comment on this chapter: http://mises.org/money/2s8.asp I could try to summarise it, but Rothbard writes much more clearly on the subject than I could.
Wilmot of Rochester:Anyways, you see now why it's so attractive to just use normal banks when the two options are between one of general insurance that pays you to use it, and a lesser quality insurance that you must pay to use - just so your money doesn't get lent out to reasonable entrepreneurs who will pay the bank back with little difficulty.
What's the point of offering differentiated accounts like a deposit/checking account, a savings account and a money market account if they all do the same thing under the hood? How do I know that the entrepreneurs that they loan the money out to are reasonable?
First, I never said they did the same thing, at least I hope I didn't!
Second, you know it because rational expectations kind of dictate that, absent some exogenous force, businesses will tend to function rationally and make the correct choices - based on the law of large numbers.
Third, the point about mines wasn't about their efficiency. It's simple time lags. It costs A LOT more to mine than it does to print, that's a net loss for the economy - or at least a net potential loss.
Fourth, Rothbard is simply wrong about money - and many other things. He would be right, if prices weren't sticky - especially wages. He assumes that prices adjust instantly, but they don't and not without a lot of negative psychological factors that can send shockwaves into the economy. It's much easier, more effective, and more efficient to print money at the rate of change in demand.
Bradipo:http://mises.org/money/2s8.asp
Well, this was terribly inconsistent.
rochester:Fourth, Rothbard is simply wrong about money - and many other things
He would be right, if prices weren't sticky
It's much easier, more effective, and more efficient to print money at the rate of change in demand.
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."
Wilmot of Rochester:Third, the point about mines wasn't about their efficiency. It's simple time lags. It costs A LOT more to mine than it does to print, that's a net loss for the economy - or at least a net potential loss.
And wouldn't the rising price of money send a signal to those with non-money gold/silver to start converting it to money?
Bradipo: Wilmot of Rochester:Third, the point about mines wasn't about their efficiency. It's simple time lags. It costs A LOT more to mine than it does to print, that's a net loss for the economy - or at least a net potential loss. And wouldn't the rising price of money send a signal to those with non-money gold/silver to start converting it to money?
It might, after an extremely long and costly procedure of physical conversion. That's a dead-weight loss.
printing up fruadulent warehouse receipts will not causes loss?
anyhow what you describe is not any 'deadweight loss' under the accepted definition of that term.
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
nirgrahamUK: printing up fruadulent warehouse receipts will not causes loss? anyhow what you describe is not any 'deadweight loss' under the accepted definition of that term.
I don't think what banks do today is fraud. I'm not certain what would be fraud in Rothbardia, however. I imagine it would include concepts like printing out warehouse certificates, but I don't think many people would use warehouses for gold anyways, so it doesn't seem to matter.
Anyways, no, I don't think that FRB has to cause any loss. If MS increases at the rate of MD, then it doesn't effect real prices at all - all things remaining equal. Furthermore, I think the efficiencies and increases in access to wealth more than off-set the slight loss in purchasing power that occurs.
As far as deadweight loss, well, I thought it was just about allocative inefficiencies - which would be the situation if an inefficient source of money were used over a more efficient type of money - but I'm not interested in debating terms. So you win that point.
Wilmot of Rochester:If MS increases at the rate of MD, then it doesn't effect real prices at all
if money supply is artifically/fruadulently increased then the observed price stability is unnatural and destructive. it is inflation. without the artifical increase in MS there would have been natural healthy deflation. peoples terror for natural deflation is absurd. using the FRB inflation to counteract healthy deflation they set off the boom bust cycle. all things are therefore not equal. despite your claim.
nirgrahamUK: if money supply is artifically/fruadulently increased then the observed price stability is unnatural and destructive. it is inflation. without the artifical increase in MS there would have been natural healthy deflation. peoples terror for natural deflation is absurd. using the FRB inflation to counteract healthy deflation they set off the boom bust cycle. all things are therefore not equal. despite your claim.
No, no. You're misunderstanding. The price stability exists only in so far as money should not impact it. Any other deflation or inflation in prices is healthy and should not be counteracted - in this regard, using the CPI to measure inflation and determine when MS or decrease is wrong.
Here we aren't talking about natural deflation, as you call it, as seen in the computer industry - a favorite example for people here. Rather, we're talking about spiraling deflation as a result of an increase in MD as MS remains the same or falls.
Certainly we see that supply and demand work in the rest of the economy, why doesn't it work for money?
it does work for money. on a commodity standard two mechanisms come into play to adjust MS and MD. production of the commodity can be increased or decreased (this can include transitioning the commodity to and from other uses non-money uses it plays as well as mining or 'fresh' production so to speak.) and through the mechanism of rising or falling prices for things that are paid for and bought by units of the commodity money .
the real question is why make money a special case? if there is an increase in demand for the books of Mises, we dont countenace printing up empty book covers with only empty pages (blank white paper insides) to soak up excess demand and then claim that this is more efficient than diverting production to real books, as it is cheaper to counterfeit them than actually producing real books full of authored text. if there is a change in the demand for housing we dont countenance printing up phony deeds ... etc etc.
nirgrahamUK: it does work for money. on a commodity standard two mechanisms come into play to adjust MS and MD. production of the commodity can be increased or decreased (this can include transitioning the commodity to and from other uses non-money uses it plays as well as mining or 'fresh' production so to speak.) and through the mechanism of rising or falling prices for things that are paid for and bought by units of the commodity money . the real question is why make money a special case? if there is an increase in demand for the books of Mises, we dont countenace printing up empty book covers with only empty pages (blank white paper insides) to soak up excess demand and then claim that this is more efficient than diverting production to real books, as it is cheaper to counterfeit them than actually producing real books full of authored text. if there is a change in the demand for housing we dont countenance printing up phony deeds ... etc etc.
First, yes it could technically work for commodities, but it's costly and allocatively inefficient. As for prices, they're rigid, so that won't work without a lot of unnecessary unemployment of resources and labour.
Second point is a bad one. The money is identical. The books are not.
Wilmot of Rochester:costly and allocatively inefficient.
Wilmot of Rochester: As for prices, they're rigid
Wilmot of Rochester:Second point is a bad one. The money is identical. The books are not
what are you telling me?
nirgrahamUK: Wilmot of Rochester:costly and allocatively inefficient. how are you judging this, with STV in mind? i doubt it. Wilmot of Rochester: As for prices, they're rigid says you and the keynesians. Wilmot of Rochester:Second point is a bad one. The money is identical. The books are notmoney that is sound is the same as money that is unsound? fiduciary media is the same as non-fiduciary media? what are you telling me?
First, what are you saying about STD's?
Second, no... Says the data.
Third, high valued pigs in T1 are different from lower valued pigs in T2?
Wilmot of Rochester:First, what are you saying about STD's?
Wilmot of Rochester:Second, no... Says the data.
In particular, prices are not rigid down-ward.
Wilmot of Rochester:Third, high valued pigs in T1 are different from lower valued pigs in T2?
try pigs and not-pigs. come on.
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