tag:blogger.com,1999:blog-6245381193993153721.post2745927660320483853..comments2024-03-28T17:08:15.784-07:00Comments on Social Democracy for the 21st Century: A Realist Alternative to the Modern Left: Why is the Fractional Reserve Account a Mutuum, not a Bailment?Lord Keyneshttp://www.blogger.com/profile/06556863604205200159noreply@blogger.comBlogger11125tag:blogger.com,1999:blog-6245381193993153721.post-2340577370454262402011-12-17T13:30:34.268-08:002011-12-17T13:30:34.268-08:00"The very low "interest" on FR acco...<i>"The very low "interest" on FR accounts was developed as a means to make it appear as if FR accounts are future goods, so that they can then appear as if they are loans in the economic sense. If no "interest" on such accounts was given, then are you saying the absence of such "interest" would turn these accounts into present goods and not loans?"</i><br /><br />No. Because the primary future good is the <i>repayment of money on demand</i> from your debt called in from the bank.<br /><br />You gave up property rights in the money you lent. You gave up a present good when you lent the original money. Even <i>without interest and banking services</i>, this would still be a loan contract that is the exchnage of a present for a future good.Lord Keyneshttps://www.blogger.com/profile/06556863604205200159noreply@blogger.comtag:blogger.com,1999:blog-6245381193993153721.post-65707124517435979932011-12-17T13:26:28.156-08:002011-12-17T13:26:28.156-08:00"(c) is again just begging the question, beca...<i>"(c) is again just begging the question, because the question of whether or not the deposit is a loan in the economic sense is the thing that is being argued over."</i><br /><br />So even if<br /><br />(1) one party hands over money to a banker and both explicitly agree that the ownership of their money passes to the banker;<br /><br />(2) the bank gives the client a credit/debt instrument or an IOU redeemable on demand to return to them money up to the amount in his/her account from (a) the bank’s reserves, (b) from sale of financial assets, or (3) loans.<br /><br />(3) it is understood by all parties that most of the original money has been loaned out (except for that portion held as reserves which is now the bank's property), and only a tantundem from the bank’s reserves, money from sale of financial assets, or loans is provided.<br />----<br /><br />Is this a loan in the sense that the property rights have passed to the bank or not?Lord Keyneshttps://www.blogger.com/profile/06556863604205200159noreply@blogger.comtag:blogger.com,1999:blog-6245381193993153721.post-59987081648326782042011-12-17T13:17:28.439-08:002011-12-17T13:17:28.439-08:00"it doesn't change the economic nature of..."it doesn't change the economic nature of the context of determining whether the car is a present good or a future good. It remains a present good because I can take possession of it any time I want."<br /><br />So the issue of the FR account as a future good comes down to whether ownership is actually transferred and whether (because of that) it is a loan - the empirical and legal evidence shows overwhelming that it is trasnferred and it is a loan.Lord Keyneshttps://www.blogger.com/profile/06556863604205200159noreply@blogger.comtag:blogger.com,1999:blog-6245381193993153721.post-91315917945063118652011-12-17T13:14:01.336-08:002011-12-17T13:14:01.336-08:00"Historically, "mutuum" accounts di...<i>"Historically, "mutuum" accounts didn't always accrue interest"</i><br /><br />Nosense. Interest was regularly paid on mutuum loans payable on demand in ancient Rome, and historically, FR accounts were paying interest from the 1600s in the UK.<br /><br />Selgin, G. “Those Dishonest Goldsmiths,” revised January 20, 2011, p. 7<br />http://papers.ssrn.com/sol3/papers.cfm?abstract_id=1589709Lord Keyneshttps://www.blogger.com/profile/06556863604205200159noreply@blogger.comtag:blogger.com,1999:blog-6245381193993153721.post-63550437566834083112011-12-17T13:04:15.900-08:002011-12-17T13:04:15.900-08:00"The very low "interest" on FR acco...<i>"The very low "interest" on FR accounts was developed as a means to make it appear as if FR accounts are future goods, so that they can then appear as if they are loans in the economic sense. "</i><br /><br />Oh, really! The conspiracy theory view of history!Lord Keyneshttps://www.blogger.com/profile/06556863604205200159noreply@blogger.comtag:blogger.com,1999:blog-6245381193993153721.post-22608458779822676732011-12-17T12:13:22.916-08:002011-12-17T12:13:22.916-08:00Lord Keynes:
"The FR reserve account is an e...Lord Keynes:<br /><br />"The FR reserve account is an exchange of present for future goods (or exchange of present units of account/medium of exchange for future goods and units of account/medium of exchange), for the following reasons:"<br /><br />"(1) you give up the ownership and possession of your money (the present good) in exchange for"<br /><br />"(2) the future goods that are (a) interest (which will be paid at a certain future date) and/or (b) banking services (e.g., the use of cheques, debit cards, electronic funds transfer, etc.), and (c) repayment of your loan as recorded in the debt instrument you receive, your FR account."<br /><br />(a) is not a proper justification for the claim that FR accounts are economically future goods. The very low "interest" on FR accounts was developed as a means to make it appear as if FR accounts are future goods, so that they can then appear as if they are loans in the economic sense. If no "interest" on such accounts was given, then are you saying the absence of such "interest" would turn these accounts into present goods and not loans? Of course not. <br /><br />Historically, "mutuum" accounts didn't always accrue interest, and even today, not all demand deposit accounts at all banks accrue interest.<br /><br />(b) "banking services" are economically identical to "interest". They are not a proper justification for the claim that FR accounts are future goods. They are only to attract clients into depositing their money with that bank, as opposed to some other bank. The bank can afford these additional services because they charge a rate of interest on the demand deposit money that was given to them, which they loan out. As with "interest", historically it is also the case that additional banking services weren't always offered to demand depositors. Moreover, the introduction of "perks" for demand deposit clients also does not change the economic nature of the demand deposit in the context of arguing over present versus future goods.<br /><br />If my friend allowed me to keep my car in his garage while my house is renovated, and my car is so nice that he positively values my car just being there, such that he collects my mail while I am away, or gives me $20 just because, then no matter what he does for me, it doesn't change the economic nature of the context of determining whether the car is a present good or a future good. It remains a present good because I can take possession of it any time I want. What he does in addition to providing his garage to store my car, whether he offered it to me in return for keeping my car in his garage, or offered it to me after we already agreed, is actually completely irrelevant.<br /><br />(c) is again just begging the question, because the question of whether or not the deposit is a loan in the economic sense is the thing that is being argued over. By merely defining it as a loan, as a premise for your conclusion that it is a loan, that is begging the question. It would be like me arguing that the FR account is not a loan, but a present good for the client, by using the premise that satisfying a demand withdrawal request is just a payment of what is economically a non-loan and a present good in control of the client. I would also be begging the question because that premise is the conclusion that is being debated.Christofnoreply@blogger.comtag:blogger.com,1999:blog-6245381193993153721.post-39786629260894777072011-12-17T11:54:50.369-08:002011-12-17T11:54:50.369-08:00Legally speaking, it is a debt. Economically speak...Legally speaking, it is a debt. Economically speaking, they act as if they still have access to the funds. Its a "credit transaction", but at the same time the public doesn't perceive it as that. Not saying that this is a contractual violation, but economically/socially thats just how it is. <br /><br />(We can just continue this in other thread)Patchnoreply@blogger.comtag:blogger.com,1999:blog-6245381193993153721.post-51743184763530831842011-12-17T11:39:56.476-08:002011-12-17T11:39:56.476-08:00"What matters is that with a callable loan ch...<i>"What matters is that with a callable loan checking account, they perceive that they still have access to funds, and present money."</i><br /><br />The mistaken perception does not refute the fact that, economically speaking, it is recalling a debt, the future good is the money repaid. <br /><br />Anyway, the whole point of the Mises quote and the Austrian objection to FRB is that, <i>economically speaking</i>, they think it is not an exchange of a present for future good, even if people were to think so. That argument, however, is unsound.<br /><br />If some percentage of the public (say, 40%-60%) mistakenly sees it as a bailment that does not change is real economic nature as a credit transaction.Lord Keyneshttps://www.blogger.com/profile/06556863604205200159noreply@blogger.comtag:blogger.com,1999:blog-6245381193993153721.post-64439426151040078252011-12-17T11:32:23.227-08:002011-12-17T11:32:23.227-08:00"Everyday transactions are based on this assu...<i>"Everyday transactions are based on this assumption. When I buy a pack of cigarettes, the price is $X dollars. So when I hand the cashier my debit card he assumes that he will have a claim of some sort of "present money" on the "money" that goes into his bank account. "</i><br /><br />He does: when the bank settles/clears its accounts with other banks money in the sense of the final unit of account is transferred.Lord Keyneshttps://www.blogger.com/profile/06556863604205200159noreply@blogger.comtag:blogger.com,1999:blog-6245381193993153721.post-73448628805046076252011-12-17T11:30:43.152-08:002011-12-17T11:30:43.152-08:00Ask anyone on the street and ask them whether or n...<i>Ask anyone on the street and ask them whether or not they have loaned out the money in their banking accounts or keep it on demand. Despite what they have signed off on the contract, they will 99% tell you that they either 1)Think the bank has the money in the vault or 2)know that the bank has "loaned out" so of their "money", but they still have some sort of "claim" to this money. </i><br /><br />That is a quite separate issue:<br /><br /><a href="http://socialdemocracy21stcentury.blogspot.com/2011/12/are-public-ignorant-of-nature-of.html" rel="nofollow">http://socialdemocracy21stcentury.blogspot.com/2011/12/are-public-ignorant-of-nature-of.html</a>Lord Keyneshttps://www.blogger.com/profile/06556863604205200159noreply@blogger.comtag:blogger.com,1999:blog-6245381193993153721.post-33752302724018864642011-12-17T10:53:14.363-08:002011-12-17T10:53:14.363-08:00I don't deny at ALL that contracts can be made...I don't deny at ALL that contracts can be made legally where people give up ownership of their present money for future money (+ interest)/services. But, the crucial point is that the public and the economy perceives and treats the money that they have "loaned out" but still have a claim that the bank may or may not contractually have to honor as present money. To deny this is ridiculous. Legal historians and economists can debate this stuff day and night, but what matters is the everyday public. <br /><br /><br />Ask anyone on the street and ask them whether or not they have loaned out the money in their banking accounts or keep it on demand. Despite what they have signed off on the contract, they will 99% tell you that they either 1)Think the bank has the money in the vault or 2)know that the bank has "loaned out" so of their "money", but they still have some sort of "claim" to this money. So, in essence, they perceive that they have claims to present money, whether or not this is legally the case. (THIS IS NOT SAYING FRB IS FRAUD OR ISSUES MULTIPLE "MONEY TITLES", BUT THAT THE PUBLIC JUST PERCEIVES (crucial!!) THEM AS MONEY TITLES)<br /><br />Everyday transactions are based on this assumption. When I buy a pack of cigarettes, the price is $X dollars. So when I hand the cashier my debit card he assumes that he will have a claim of some sort of "present money" on the "money" that goes into his bank account. <br /><br />Whether or not they contractually give up money is besides the point, which can be perfectly fine in legal settings. What matters is that with a callable loan checking account, they perceive that they still have access to funds, and present money. <br /><br />(I'm a little disappointed that you didn't post my other response, btw).Patchnoreply@blogger.com