Are there any works by these economists that explain why fractional-reserve free banking wouldn't cause business cycles? I recall Hayek accepting that it would cause business cycles, but that this was a price worth paying for the economic benefits; is this the general view?
George Selgin, Steve Horwitz, Roger Garrison, Lawrence White, Larry Sechrest are perhaps the most important ones for you to look at. Fellow travelers such as Leland Yeager, Kevin Dowd are also worth checking out.
To answer your question, most free bankers would deny that FRB causes the ABCT.
"You don't need a weatherman to know which way the wind blows"
Bob Dylan
GilesStratton: George Selgin, Steve Horwitz, Roger Garrison, Lawrence White, Larry Sechrest are perhaps the most important ones for you to look at. Fellow travelers such as Leland Yeager, Kevin Dowd are also worth checking out. To answer your question, most free bankers would deny that FRB causes the ABCT.
Nonesense!
If we are talking about "Austrian" free bankers, then the above assertion about most free bankers is not true. All Austrians are by definition for free banking and I don't believe that most of them would deny that FRB causes a boom/bust cycle. I have yet to see how Garrison fits in the above list. Perhaps Giles can provide some proof of why he thinks Garrison fits with that group.
FRB is inherently inflationary (new money is created out of thin air) and will always cause interest rates to be distorted from their natural free market rate.
I would agree that you should look into some of what George Selgin and Lawrence White are saying. But then you should also look into books like Money, Bank Credit, and Economic Cycles by Jesus Huerta de Soto.
DD5: Nonesense! If we are talking about "Austrian" free bankers, then the above assertion about most free bankers is not true. All Austrians are by definition for free banking and I don't believe that most of them would deny that FRB causes a boom/bust cycle. I have yet to see how Garrison fits in the above list. Perhaps Giles can provide some proof of why he thinks Garrison fits with that group. FRB is inherently inflationary (new money is created out of thin air) and will always cause interest rates to be distorted from their natural free market rate.
All Austrian economists are by definition for free banking!?! I don't really know what to make of that statement, although, I can guess we can rule Bohm Bawerk, Menger, Hutt are other early Austrians off of the list for good then. It seems to me that "opposes central banks" is a bit of an odd way to define the Austrian school (especially since one of its methodological tenets is value freedom!).
DD5, the thing is that when you step into debates without an understanding of the terms used, you're not going to make yourself look particularly smart. Free banking is the term used to describe the group of economists who favour, or do work elaborating upon, a free market in money and finance without any legal restrictions (meaning, they support FRB). Economists in this tradition who identify themselves as belonging to it would be Garrison (he has an essay on his site concerning this very topic), Dowd, Yeager, Horwitz, Selgin, White and others.
As for FRB being inherently inflationary, only if you use the kooky Rothbardian definition that nobody else does (in which case you're just defining anything that isn't 100% reserve banking as inflationary and then equivocating). Statements such as "will always cause interest rates to be distorted from their natural free market rate" don't carry much weight with me, since it's assertion. If you wish to argue in favour of it, go for it.
GilesStratton: All Austrian economists are by definition for free banking!?! I don't really know what to make of that statement, although, I can guess we can rule Bohm Bawerk, Menger, Hutt are other early Austrians off of the list for good then. It seems to me that "opposes central banks" is a bit of an odd way to define the Austrian school (especially since one of its methodological tenets is value freedom!). DD5, the thing is that when you step into debates without an understanding of the terms used, you're not going to make yourself look particularly smart. Free banking is the term used to describe the group of economists who favour, or do work elaborating upon, a free market in money and finance without any legal restrictions (meaning, they support FRB). Economists in this tradition who identify themselves as belonging to it would be Garrison (he has an essay on his site concerning this very topic), Dowd, Yeager, Horwitz, Selgin, White and others.
I'm tired of your habbit to always resort to authority when justifiying your positions.
The question had to do with FRB and the Business Cycle. You gave what I believe is a misguided answer, and I had to correct that.
GilesStratton: As for FRB being inherently inflationary, only if you use the kooky Rothbardian definition that nobody else does (in which case you're just defining anything that isn't 100% reserve banking as inflationary and then equivocating).
As for FRB being inherently inflationary, only if you use the kooky Rothbardian definition that nobody else does (in which case you're just defining anything that isn't 100% reserve banking as inflationary and then equivocating).
You do follow the White/Selgin tradition very well of automatically attacking Rothbard whenever somebody criticizes their crank monetary theories.
The fact remain that you must now start to use mainstream tactics to discredit your opposition like "definition that nobody else does". let's see now, what definition do most economist use? A rise in prices!
How many people use your equilbrium inflation defintiion? I think less then the number of people who use the money supply definition.
How do you measure inflation according to your definition? Oh you have to estimate using MV=PQ. Well, are we going to have another debate about this mystical equation? because I'm not interested.
GilesStratton: Statements such as "will always cause interest rates to be distorted from their natural free market rate" don't carry much weight with me, since it's assertion. If you wish to argue in favour of it, go for it.
Statements such as "will always cause interest rates to be distorted from their natural free market rate" don't carry much weight with me, since it's assertion. If you wish to argue in favour of it, go for it.
Investments must equal Real savings! Supply of credit in excess of real savings must lower interest rates. If you want to now argue around this point using MV=PQ, then forget it!
DD5: I'm tired of your habbit to always resort to authority when justifiying your positions. The question had to do with FRB and the Business Cycle. You gave what I believe is a misguided answer, and I had to correct that.
OK, there's no resort to authority here, you made an empirical claim about Garrison not being part of the free banking tradition. My answer was relatively simple, he identifies himself as a free banker. If there was an appeal to authority, it was appropriate. I don't know how else you wish to assess which economists are free bankers.
You also gave a very strange "definition" of what Austrian economics was, one that would have ruled out not only the founder of the school but his most important disciple and other important contributors to the school. No, this probably doesn't constitute an argument against your odd claim that central banking is inherently opposed to Austrian economics, but it does shed some light on how strange such a claim really is.
Like it or not, there's no simply litmus test to decide what is, and what is not, Austrian.
DD5: You do follow the White/Selgin tradition very well of automatically attacking Rothbard whenever somebody criticizes their crank monetary theories. The fact remain that you must now start to use mainstream tactics to discredit your opposition like "definition that nobody else does". let's see now, what definition do most economist use? A rise in prices! How many people use your equilbrium inflation defintiion? I think less then the number of people who use the money supply definition. How do you measure inflation according to your definition? Oh you have to estimate using MV=PQ. Well, are we going to have another debate about this mystical equation? because I'm not interested.
To tell you the truth, there's not much of a difference between the monetary equilibrium definition and the standard mainstream definition in practise. The only time that there is a difference is when changes in "the price level" are caused by changes in productivity. This is relatively unimportant, but it does makes the life of the monetary equilibrium theorist easier since he doesn't need to qualify use of the term "inflation" or "deflation".
As for the relative usages of the definition, the monetary equilibrium usage is that adopted by Mises. To be honest, I think we should always use the definition that most other people do in order to avoid confusion, you seem to think that there is some reason to use the Rothbardian definition, I just think it's confusing and particularly useless.
You see when you define inflation as a rise in M, every other arrangment besides 100% reserve banking is inflationary. The problem is that it's hard to be nuanced when talking about the differences between free banking, central banking and other arrangements when they're all "inflationary".
DD5:Supply of credit in excess of real savings must lower interest rates.
Of course, but you've yet to prove that FRB causes a supply of credit in excess of real savings.
GilesStratton: DD5:Supply of credit in excess of real savings must lower interest rates. Of course, but you've yet to prove that FRB causes a supply of credit in excess of real savings.
Isn't that what FRB is? It's a fractioning of real savings (reserves) into fiat credit? ratios of 25 to 1, etc... Hence the name: fractional reserve banking
"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
GilesStratton: OK, there's no resort to authority here, you made an empirical claim about Garrison not being part of the free banking tradition. My answer was relatively simple, he identifies himself as a free banker. If there was an appeal to authority, it was appropriate. I don't know how else you wish to assess which economists are free bankers.
I don't want to argue about the definition of "free banking". Free banking and FRB are not compatible because FRB is not productive. Even if allowed and not recognized by the free society as fraud, it would be outcompeted by 100% reserve banks. Why? becasue there would be nobody to bailout the banks when the bust occurs. Why will there be a bust? Because if you save 10 apples for investment but loan out a claim ticket for 100 apples, there is bound to be a problem of misallocation down the road.
GilesStratton: As for the relative usages of the definition, the monetary equilibrium usage is that adopted by Mises. To be honest, I think we should always use the definition that most other people do in order to avoid confusion, you seem to think that there is some reason to use the Rothbardian definition, I just think it's confusing and particularly useless.
Here we go again with the authority. Show me where Mises defines inflation according to the equilibrium definition!
GilesStratton: To be honest, I think we should always use the definition that most other people do in order to avoid confusion, you seem to think that there is some reason to use the Rothbardian definition, I just think it's confusing and particularly useless.
To be honest, I think we should always use the definition that most other people do in order to avoid confusion, you seem to think that there is some reason to use the Rothbardian definition, I just think it's confusing and particularly useless.
Rothbardphobia!
Actually, the definition is consistent with the accepted view of the neo-classical and later subjective economists of the 19th and early 20th century.
Again, show me where Mises defines inflation according to Equlibrium theory.
GilesStratton: Of course, but you've yet to prove that FRB causes a supply of credit in excess of real savings.
There is a multiplier factor. $100 of savings turns into $1000 of credit (for a 10% reserve ratio). I refrain from $100 worth of consumption but investors are somehow demanding $1000 worth of goods to be allocated to them?
The fact that the value of money is changing doesn’t alter the above truth. There is no way you can loan out anything but time deposits without deception. That is, credit that does not reflect the time preference of consumers. There is no magical formula. MV=PQ is a worthless accounting truism.
The Burden of proof is on you to show how loaning out claims for 100 apples despite the fact that only 10 apples were saved, does not cause misallocations.
DD5:I don't want to argue about the definition of "free banking". Free banking and FRB are not compatible because FRB is not productive. Even if allowed and not recognized by the free society as fraud, it would be outcompeted by 100% reserve banks. Why? becasue there would be nobody to bailout the banks when the bust occurs. Why will there be a bust? Because if you save 10 apples for investment but loan out a claim ticket for 100 apples, there is bound to be a problem of misallocation down the road.
I'm sorry to get in the middle of this but...
Free banking by definition allows FRB, it being productive is irrelevant. FRB isn't necessarily fraud at all. There is evidence on both sides of the debate as to which form would dominate... The bank run argument is quite valid, but contracts that stipulate general availability solve that problem.
Laissez faire et laissez passer, le monde va de lui même
Angurse: DD5:I don't want to argue about the definition of "free banking". Free banking and FRB are not compatible because FRB is not productive. Even if allowed and not recognized by the free society as fraud, it would be outcompeted by 100% reserve banks. Why? becasue there would be nobody to bailout the banks when the bust occurs. Why will there be a bust? Because if you save 10 apples for investment but loan out a claim ticket for 100 apples, there is bound to be a problem of misallocation down the road. I'm sorry to get in the middle of this but... Free banking by definition allows FRB, it being productive is irrelevant. FRB isn't necessarily fraud at all. There is evidence on both sides of the debate as to which form would dominate... The bank run argument is quite valid, but contracts that stipulate general availability solve that problem.
It being productive or not is extremly relevant. It is at the heart of the debate of whether FRB practice would exist or be eliminated by the market. Your focus on contracts to resolve any claims for fraud I think misses the greater economic debate here. Will FRB cause an artificial boom due to artificial low interest rates that result from credit expansion?
I argue that the answer is clearly yes! Therefore, the bust is inevitable. The depositors will loose their money regardless if there is a bank run or not as soon as credit tightens. I don't think it will even have to come to this. Banks will never be able to efficiently compete with 100% reserve banks that will not go along with the coordinated credit expansion process.
I think focusing on contracts completely mises this crucial point. You can claim that FRB should be allowed based on “free banking” principles. I won’t agree with you. But claiming that it can thrive in a free market is another issue, as is claimed by the “free banking FRB” crowd, which is simply flat out wrong.
DD5: You can claim that FRB should be allowed based on “free banking” principles. I won’t agree with you.
You can claim that FRB should be allowed based on “free banking” principles. I won’t agree with you.
did you mean here that you "won't disagree with you (Ang.)."?
wilderness: DD5: You can claim that FRB should be allowed based on “free banking” principles. I won’t agree with you. did you mean here that you "won't disagree with you (Ang.)."?
No wilderness. I don't agree with him. I think their arguments are weak in this respect also, but I don't want to divert the debate to the fraud issue, which is what they always do. FRB would not thrive in a free market even if it were legal.
DD5: wilderness: DD5: You can claim that FRB should be allowed based on “free banking” principles. I won’t agree with you. did you mean here that you "won't disagree with you (Ang.)."? No wilderness. I don't agree with him. I think their arguments are weak in this respect also, but I don't want to divert the debate to the fraud issue, which is what they always do. FRB would not thrive in a free market even if it were legal.
ok. I was making sure I read that correctly cause the next sentence you say, "But claiming that it can thrive in a free market is another issue..."
So I thought "the claim FRB should be allowed..." was issue one and then your next sentence was "another issue" (issue two).
thanks for clarifying, I'm merely lurking.
DD5:It being productive or not is extremly relevant.
Relevant to which will win out, not relevant to a libertarian and its permissibility.
DD5:It is at the heart of the debate of whether FRB practice would exist or be eliminated by the market. Your focus on contracts to resolve any claims for fraud I think misses the greater economic debate here. Will FRB cause an artificial boom due to artificial low interest rates that result from credit expansion?
Perhaps it would serve you well to read Lawrence White, as FRB itself doesn't cause the booms, central banks and government involvement do. As banks have held extremely low reserve rates (even by modern standards) and been quite successful. The low interest rates aren't artificial, as artificial interest rates are a concoction of government, the interest rates would be the (natural) market rate of interest.
DD5: I argue that the answer is clearly yes! Therefore, the bust is inevitable. The depositors will loose their money regardless if there is a bank run or not as soon as credit tightens. I think focusing on contracts completely mises this crucial point. You can claim that FRB should be allowed based on “free banking” principles. I won’t agree with you. But claiming that it can thrive in a free market is another issue as is claimed by the “free banking FRB” crowd.
You haven't argued a thing, you've gone from yes to therefore to regardless. Why is credit tightening at all? Are the banks not able to account for such an occurence? Shouldn't they? Contracts solve the bank run problem. My claim that FRB should be allowed is independent of the economic viability of them, as I'm a libertarian. But history shows FRB banks thriving in free(er) markets.
DD5: I don't think it will even have to come to this. Banks will never be able to efficiently compete with 100% reserve banks that will not go along with the coordinated credit expansion process.
Why would there be a coordinated credit expansion process without a central bank? Different banks would lend at different reserve rates, with differing interest rates, competition creates stability.
In a free banking system, banks would compete to provide checks/depostits that costumers consider the soundest (i.e, fully redeemable in whatever currency(ies) is selected by the market. Without a FDIC or any banking regulatory powers, costumers would have all incentive to be on the lookout for their respective banks; banks would therefore take this into account in their operation. In respect to fractional-reserve banking, both the demand for sound checks/deposits and the demand for redemption in real currency by other competing banks would serve as a check on the rate of expansion against reserves of any one bank. In other words, with out any central-coordinating banking power or a 'lender of last resort,' banks would be forced to conduct conservative banking practices in a competitive environment.
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