tag:blogger.com,1999:blog-6245381193993153721.post4971098862477542309..comments2024-03-28T17:08:15.784-07:00Comments on Social Democracy for the 21st Century: A Realist Alternative to the Modern Left: A Simple Question for Opponents of Fractional Reserve BankingLord Keyneshttp://www.blogger.com/profile/06556863604205200159noreply@blogger.comBlogger64125tag:blogger.com,1999:blog-6245381193993153721.post-13117595614643024652012-11-27T04:27:08.421-08:002012-11-27T04:27:08.421-08:00I have not seen this comment. Apologies if it was ...I have not seen this comment. Apologies if it was not posted.<br /><br />I glad my explanation is at least clearer now.<br /><br />thanks<br /><br />Lord Keyneshttps://www.blogger.com/profile/06556863604205200159noreply@blogger.comtag:blogger.com,1999:blog-6245381193993153721.post-42961054081049325442012-11-26T10:57:28.593-08:002012-11-26T10:57:28.593-08:00LK,
Did you get my reply to your last post? I su...LK,<br /><br />Did you get my reply to your last post? I submitted it several days ago, but it didn't get published. In any case, I appreciate your discussion and your explanation of the distinction between the actual money deposited and the demand deposit, which makes more sense to me now.<br /><br />Regards,<br /><br />WilliamWilliam Dwyernoreply@blogger.comtag:blogger.com,1999:blog-6245381193993153721.post-70244699599517755252012-11-19T21:26:32.323-08:002012-11-19T21:26:32.323-08:00There is no contradiction in anything I have said....There is no contradiction in anything I have said.<br /><br />You have failed to distinguish between <br /><br />(1) the actual money "deposited", which becomes the property of the bank, and also becomes its vault cash or reserves, and<br /><br />(2) the debt instrument (demand deposit) itself - this is a claim on the bank held by the depositor. The demand deposit is indeed a financial asset for the depositor, just like a bond. That is why you have money "credited" (owed to you by the bank) to your account.<br /><br /><br /><br /><br /><br /><br /><br /><br />Lord Keyneshttps://www.blogger.com/profile/06556863604205200159noreply@blogger.comtag:blogger.com,1999:blog-6245381193993153721.post-45048565884268647692012-11-19T12:56:27.387-08:002012-11-19T12:56:27.387-08:00LK, in your last reply, you wrote, "If you pu...LK, in your last reply, you wrote, "If you put money into a checking deposit account, you have lent the bank that money, and transferred ownership of the money to the bank. There is not any problem of 2 ownership claims to the same money, for this is a debtor/creditor relationship: the bank is owner of the money and you now have a debt instrument, a obligation owed to you by the bank."<br /><br />However, in an earlier reply to another poster (on August 25th), you wrote: <br /><br />"I have never argued that the bank "owns" the demand deposit. You are simply mistaken.<br /><br />"The demand deposit is a debt owed by the bank.<br /><br />"The depositor holds the demand deposit as a debt instrument, a kind of financial asset."<br /><br />So which is it? Is the demand deposit owned by the bank or by the depositor?<br />William Dwyernoreply@blogger.comtag:blogger.com,1999:blog-6245381193993153721.post-83764489347033382942012-11-19T01:19:58.202-08:002012-11-19T01:19:58.202-08:00You're entitled to write cheques on a current ...You're entitled to write cheques on a current account whether you have money in there or not.<br /><br />The bank will then decide whether to pay that cheque, and if it does then it will create the necessary money to do so.<br />NeilWhttps://www.blogger.com/profile/11565959939525324309noreply@blogger.comtag:blogger.com,1999:blog-6245381193993153721.post-13465553011764876802012-11-18T22:04:10.760-08:002012-11-18T22:04:10.760-08:00"If I put money into a checking deposit, I...<i>"If I put money into a checking deposit, I'm entitled to write checks on it. I'm entitled to pay my bills with that money."</i><br /><br />If you put money into a checking deposit account, you have lent the bank that money, and transferred ownership of the money to the bank. There is not any problem of 2 ownership claims to the same money, for this is a debtor/creditor relationship: the bank is owner of the money and you now have a debt instrument, a obligation owed to you by the bank.<br /><br />And that is clearly reflected in the debit/credit entries in your demand deposit statement/checking account statement.<br /><br />You have the right to call back your debt on demand: that is what happens when you write a check. You're asking the bank to repay its loan to you.<br /><br />http://socialdemocracy21stcentury.blogspot.com/2011/12/why-is-fractional-reserve-account.html<br /><br />http://socialdemocracy21stcentury.blogspot.com/2011/12/hoppe-on-fractional-reserve-banking.html<br /><br />http://socialdemocracy21stcentury.blogspot.com/2011/09/mutuum-contract-in-american-law.html<br /><br />http://socialdemocracy21stcentury.blogspot.com/2011/10/if-fractional-reserve-banking-is.html<br /><br />Lord Keyneshttps://www.blogger.com/profile/06556863604205200159noreply@blogger.comtag:blogger.com,1999:blog-6245381193993153721.post-37555426419408925032012-11-18T11:41:26.026-08:002012-11-18T11:41:26.026-08:00LK, If you're sincere about debating this issu...LK, If you're sincere about debating this issue "in good faith," may I suggest that you abstain from condescending insult and ridicule. The manner in which you're discussing this is not that of a person who's interested in reaching an understanding. It's rather that of someone who enjoys bullying and intimidating those he disagrees with. <br /><br />If I put money into a checking deposit, I'm entitled to write checks on it. I'm entitled to pay my bills with that money. If, however, the money is considered a loan, which the bank is entitled to use for other purposes such as making loans to its customers, then there are two mutually exclusive entitlements to that money. I'm entitled to use it for one purpose (to pay my bills) and the bank is entitled to use it for an altogether different purpose (to make loans to its customers). How can it be that I'm loaning money to the bank if at the same time that money is supposed to be available for me to pay my bills?<br />William Dwyernoreply@blogger.comtag:blogger.com,1999:blog-6245381193993153721.post-4540406525499078702012-11-17T22:49:04.644-08:002012-11-17T22:49:04.644-08:00(1) "Not if the depositor is entitled to his ...(1) <i>"Not if the depositor is entitled to his deposit on demand."</i><br /><br />In banking you're never entitled to get your same dollars bills back: only a tantundem. As I said, come back when you have understood this crucial concept.<br /><br /><i>(2) "If he can demand it back at any time, then it is the equivalent of a bailment. The fact that what he is entitled to on demand is not the particular paper dollars that he deposited but their monetary equivalent does not alter that fact. It is still tantamount to a bailment."</i><br /><br />You have just contradicted yourself here compared with what you said in (1).<br /><br />There is no serious legal, economic, or moral problem or objection to a callable loan. In fact, this whole post above totally refutes your argument here.<br /><br /><i>(3)" If the contract says that the depositor is entitled to the deposit on demand, then he retains ownership of it. "</i><br /><br />No, he doesn't retain ownership. He has a debt claim, an obligation. These are two distinct things: (1) property rights to something and (2) a debt claim owed to you (debt instrument).<br /><br />Your sentence is a feeble and ridiculous trick employed by Austrians and Rothbardians.<br /><br />(4) <i>"I understand that, but then, contrary to the implication of your analogy, what Bill is giving to Steve is not a particular chicken but a chicken of that quality and type. If I deposit $100 in the bank, what I'm depositing is not the particular $100 bill that I give the bank, but its monetary equivalent, so that what I'm entitled to on demand is not that particular $100 bill, but its monetary equivalent. ... "</i><br /><br />When you "deposit" money in a bank you're lending money to the bank. When you say "what I'm entitled to on demand is not that particular $100 bill, but its monetary equivalent", you're describing what does go in banking: it's called a tantundem.Lord Keyneshttps://www.blogger.com/profile/06556863604205200159noreply@blogger.comtag:blogger.com,1999:blog-6245381193993153721.post-66270172417190227642012-11-17T22:48:00.333-08:002012-11-17T22:48:00.333-08:00If you want to make a good faith attempt to debate...If you want to make a good faith attempt to debate this subject again, I suggest you actually read some of post on FR banking:<br /><br />http://socialdemocracy21stcentury.blogspot.com/2012/06/debunking-austrian-economics-101.html<br /><br />Scroll to the end and you'll find a complete list.Lord Keyneshttps://www.blogger.com/profile/06556863604205200159noreply@blogger.comtag:blogger.com,1999:blog-6245381193993153721.post-5629796834273743472012-11-17T15:14:46.113-08:002012-11-17T15:14:46.113-08:00"Bill, the depositor, does NOT loan Steve, th..."Bill, the depositor, does NOT loan Steve, the banker, the chicken. Bill gives Steve the chicken for safe keeping, much as I might give my pet cat to a kennel to take care of while I go on vacation. The chicken in this case is indeed a bailment. Steve, the banker, does not 'own' the chicken"<br /><br />LK: "And that is where your comment is revealed as completely ignorant.<br /><br />"Modern banking - deposit banking - is not bailment, pure and simple. It is mutuum, a loan for consumption."<br /><br />Not if the depositor is entitled to his deposit on demand. If he can demand it back at any time, then it is the equivalent of a bailment. The fact that what he is entitled to on demand is not the particular paper dollars that he deposited but their monetary equivalent does not alter that fact. It is still tantamount to a bailment. And this speaks to the equivocal distinction that you've made between the particular chicken that Bill turns over to Steve and a "chicken of the same quality and type" that Bill is entitled to on demand. To make your analogy fully accurate and precise, what Bill is turning over to Steve is not that particular chicken but a chicken of that quality and type. If Bill can demand it back at any time, then he is not making a loan for Steve's consumption but is simply giving Steve a chicken of a certain quality and type (for storage or whatever).<br /><br />LK: That is what is stated in the contract you sign. Just because many people do not understand the nature of the contract or don't properly read it, it does not follow that the contract was fraudulent."<br /><br />Then the contract doesn't make any sense. If the contract says that the depositor is entitled to the deposit on demand, then he retains ownership of it. The bank does not become the owner of his deposit and does not, therefore, have the right to consume it. What, after all, is the bank doing "borrowing" the money, if what it needs the money for can be satisfied by its existing monetary reserves? And if what it needs the money for cannot be satisfied by those reserves, then to consume it is to forgo the means of returning it on demand. <br /><br />In terms of your analogy, if Steve already has enough chickens to satisfy his consumption needs, then what is he doing borrowing the chicken from Bill? And if he does not have enough chickens to satisfy his consumption needs, then his consuming the chicken to satisfy those needs precludes his returning it to Bill on demand. <br /><br />I wrote, "If Bill can demand the chicken back at any time, then it makes no sense to say that he's loaning it to Steve. If Bill has a right to take possession and dispose of the chicken whenever he wants, then what sense does it make to say that Steve 'owns' the chicken? "<br /><br />LK: "You've misunderstood the discussion and even the sentences you quote.<br /><br />"Bill is not calling back the same chicken he lent Steve, merely a "chicken debt": repayment of a debt with a chicken of the same quality and type as the one he originally lent."<br /><br />I understand that, but then, contrary to the implication of your analogy, what Bill is giving to Steve is not a particular chicken but a chicken of that quality and type. If I deposit $100 in the bank, what I'm depositing is not the particular $100 bill that I give the bank, but its monetary equivalent, so that what I'm entitled to on demand is not that particular $100 bill, but its monetary equivalent. What Bill is giving Steve is not a particular chicken, but its poultry equivalent, which is what he is entitled to on demand. <br /><br />William Dwyernoreply@blogger.comtag:blogger.com,1999:blog-6245381193993153721.post-70378174626195709212012-11-17T00:43:38.603-08:002012-11-17T00:43:38.603-08:00"Bill, the depositor, does NOT loan Steve, th...<i>"Bill, the depositor, does NOT loan Steve, the banker, the chicken. Bill gives Steve the chicken for safe keeping, much as I might give my pet cat to a kennel to take care of while I go on vacation. The chicken in this case is indeed a bailment. Steve, the banker, does not 'own' the chicken"</i><br /><br />And that is where your comment is revealed as completely ignorant.<br /><br />Modern banking - deposit banking - is not bailment, pure and simple. It is <i>mutuum</i>, a loan for consumption.<br /><br />That is what is stated in the contract you sign. Just because many people do not understand the nature of the contract or don't properly read it, it does not follow that the contract was fraudulent. <br /><br />Certainly when both parties do understand the contract, there is no issue of fraud, and nothing illegitimate about the transaction.<br /><br /><i>"If Bill can demand the chicken back at any time, then it makes no sense to say that he's loaning it to Steve. If Bill has a right to take possession and dispose of the chicken whenever he wants, then what sense does it make to say that Steve "owns" the chicken? "</i><br /><br />You've misunderstood the discussion and even the sentences you quote.<br /><br />Bill is not calling back the <i>same chicken</i> he lent Steve, merely a "chicken debt": repayment of a debt with a chicken of the same quality and type as the one he originally lent.<br /><br />Come back when you can understand the meaning of the legal term "tantundem".<br /><br />Lord Keyneshttps://www.blogger.com/profile/06556863604205200159noreply@blogger.comtag:blogger.com,1999:blog-6245381193993153721.post-88598124638731981612012-11-16T23:51:01.441-08:002012-11-16T23:51:01.441-08:00Lord Keynes (spare me!) writes: "(1) Bill len...Lord Keynes (spare me!) writes: "(1) Bill lends Steve a chicken as a loan for consumption (or, in legal language, a mutuum loan)."<br /><br />So Bill in this example is supposed to be the depositor, correct? And Steve is supposed to be the banker. Right away, the example goes awry. Bill, the depositor, does NOT loan Steve, the banker, the chicken. Bill gives Steve the chicken for safe keeping, much as I might give my pet cat to a kennel to take care of while I go on vacation. The chicken in this case is indeed a bailment. Steve, the banker, does not 'own' the chicken. Bill retains ownership. Now if the chicken is truly fungible, as this example says, then all Steve is obligated to return to Bill is another chicken of the same quality. But he is obligated to return it on demand, because Bill still retains ownership of a chicken of that quality. Steve never does acquire ownership of the chicken. <br /><br />"(2) Bill says to Steve: 'Steve, I know you keep a reserve stock of chickens – since you are a farmer – so I want to call back this "chicken debt" (that is, make you repay the debt by another chicken, a tantundem chicken of the same quality and age) on demand at some time this year, but I don't know precisely when. Is that alright?'”<br /><br />If Bill can demand the chicken back at any time, then it makes no sense to say that he's loaning it to Steve. If Bill has a right to take possession and dispose of the chicken whenever he wants, then what sense does it make to say that Steve "owns" the chicken? What could ownership possibly mean under these circumstances? Absolutely nothing! Ownership is the right to the use and disposal of the property. If Bill has that right but Steve doesn't, then Bill is the owner of the chicken, not Steve! <br /><br />Moreover, Bill's right to demand the chicken back at any time negates the purpose of the loan, which is why a loan is always made for a specified period of time. What would be the point of Steve's borrowing a chicken from Bill if Bill could recall the loan at any time after he's made it?! Steve is obviously borrowing the chicken for a particular purpose, in this case to consume it. If he can be obligated to return the chicken (or an equivalent chicken) before he gets a chance to consume it, then there's no point in his borrowing the chicken to begin with. <br />William Dwyernoreply@blogger.comtag:blogger.com,1999:blog-6245381193993153721.post-40351435045941264732012-09-13T12:37:37.610-07:002012-09-13T12:37:37.610-07:00Neil, “And what about the hidden rules - that a ba...Neil, “And what about the hidden rules - that a bank has to be closed down if it runs into cash flow difficulties..”<br /><br />Answer: bar blatant criminality, it’s almost impossible for a bank to go bust under fractional reserve. The reasons are similar to the reason why virtually none of the money market funds or unit trusts / mutual funds have ever gone bust.<br /><br />Next: “and that the central bank has to have the Wisdom of Solomon to work out how much credit is required in the system..”<br /><br />Answer: the central bank and government are in no different position there as compared to their position under the existing system. That is, CBs and govts under the existing system just have to take a decision on whether stimulus is needed, and if so, how much. To get that decision right, obviously they need the “wisdom of soloman” – which they obviously don’t have. But they just have to make a stab at getting the decision as near right as they can.<br /><br />“So the rules are not simplified”: the Basle regulations in their current form run to about 800 pages as I understand it. I could write out the rules governing banks under fractional reserve in much less than a tenth that number of pages.<br /><br />Re your last para, I agree. That is if banks under fractional reserve behaved in a responsible manner, they would in effect be behaving in a “full reserve” manner. But given the way that banks are currently spending millions lobbying and bribing regulators and politicians so as to enable banks to get back to their irresponsible ways, we are clearly dealing here with a bunch of crooks, fraudsters and spivs. Such people need strict regulation.<br /><br />Neroden@gmail:<br /><br />When I said that depositors with 100% safe accounts get no interest, I haven’t decided myself whether that should be “no interest” in nominal terms or in real terms. So you might have a point. I’ll have to think about that.<br /><br /><br />Ralph Musgravehttps://www.blogger.com/profile/09443857766263185665noreply@blogger.comtag:blogger.com,1999:blog-6245381193993153721.post-17287803737682490432012-08-26T04:31:26.559-07:002012-08-26T04:31:26.559-07:00yes, we are in agreement.yes, we are in agreement.Lord Keyneshttps://www.blogger.com/profile/06556863604205200159noreply@blogger.comtag:blogger.com,1999:blog-6245381193993153721.post-14070866585432466882012-08-26T04:27:47.086-07:002012-08-26T04:27:47.086-07:00Sorry LK,
I did get the terms confused, reading t...Sorry LK,<br /><br />I did get the terms confused, reading to fast. So we are in agreement then that the bank does not owned the demand deposit but instead is owned by the customer, given they are the only two options?. Hoodnickhttps://www.blogger.com/profile/04632837703787299848noreply@blogger.comtag:blogger.com,1999:blog-6245381193993153721.post-27409963310409112892012-08-26T01:47:37.841-07:002012-08-26T01:47:37.841-07:00(1) But legal systems already do: you sue for the ...(1) But legal systems already do: you sue for the repayment of debt, if the debtor does not pay. Or if you have asked for security, you can take the security.<br /><br />(2) for banks, most nations have deposit insurance or an implicit government guarantee to protect depositors.Lord Keyneshttps://www.blogger.com/profile/06556863604205200159noreply@blogger.comtag:blogger.com,1999:blog-6245381193993153721.post-78262630067818833402012-08-25T21:35:56.799-07:002012-08-25T21:35:56.799-07:00Here's the problem: when people do decide that...Here's the problem: when people do decide that the risk of putting money in the bank is too great, we get a national depression. Unless the government prints money.<br /><br />So the alternatives are fully government-regulated banking, fully government CONTROLLED AND OWNED banking (everyone has accounts direct with the Bank of England), or permanent depression. Which do YOU choose? (Well, I'd pick #2.)neroden@gmailhttps://www.blogger.com/profile/07475686367097445497noreply@blogger.comtag:blogger.com,1999:blog-6245381193993153721.post-5209238342619270412012-08-25T21:33:33.049-07:002012-08-25T21:33:33.049-07:00Ralph, there's an argument for 100% safe bank ...Ralph, there's an argument for 100% safe bank accounts to be available direct from the government (from the post office) with above-zero interest rates. This is a scheme which allows the government to guarantee savers some (not complete) inflation protection; and people like that sort of thing. Since inflation has to be continually present in a stable economy, this is valuable.<br /><br />Obviously there should be a *maximum* amount which can be present in such an account, with larger amounts being required to be withdrawn. This is protection for the little guy, not the rich.neroden@gmailhttps://www.blogger.com/profile/07475686367097445497noreply@blogger.comtag:blogger.com,1999:blog-6245381193993153721.post-72320080298170815962012-08-25T21:29:20.599-07:002012-08-25T21:29:20.599-07:00"Kaldor was always particularly good at showi..."Kaldor was always particularly good at showing that a dynamic economy requires a perfectly elastic supply of money in order to function in any reasonably stable manner."<br /><br />This is the interesting point. Thanks for it. <br /><br />It is quite clear that what happens is that the "need" for circulating money to lubricate exchanges varies. <br /><br />It varies partly due to different industrial needs as infrastructure requires replacement or construction (or doesn't require it). There are probably other reasons.<br /><br />Meanwhile, the amount of money circulating -- I include both "quantity" and "velocity" here as they are interchangeable really -- varies partly due to fluctuations in people's desire to hoard money (savings), and generally due to 'animal spirits', how often people choose to make transactions.<br /><br />The result is that we will frequently have either "too much" money (or equally, "too fast moving") -- which will create bubbles as people engage in ill-thought-out spending and "investment" -- or "too little" money, which will create disastrous unemployment and non-deployment of resources, factories sitting idle, crops not harvested, etc.<br /><br />For a happy society, a stable economy, someone has to be compensating for the endogenous changes in money supply/velocity -- sucking money out when there's too much, pushing it in when there's too little.<br /><br />I do not see a distinction between what is usually called "monetary policy" and "fiscal policy" from this point of view, except one: "monetary policy" insists on pumping the money into the hands of rich people and banks, which is particularly ineffective due to their propensity to spend. Especially if *they* are the ones who are panicked and want to hoard money!<br /><br />"Monetary policy" works better when sucking money out of the economy, as this will generally work for slowing down bubbles, regardless of whose hands the money is taken out of. Fiscal policy would work just as well for this purpose, though.neroden@gmailhttps://www.blogger.com/profile/07475686367097445497noreply@blogger.comtag:blogger.com,1999:blog-6245381193993153721.post-125505836162786862012-08-25T21:20:26.393-07:002012-08-25T21:20:26.393-07:00The real problem arises because the contract does ...The real problem arises because the contract does not specify what happens if Steve's entire reserve stock of chickens dies or if Steve otherwise gets rid of them. The legal system has to specify rules for this. <br /><br />It is actually the question of "what happens if Steve defaults?" which is at the heart of the fights over banking.neroden@gmailhttps://www.blogger.com/profile/07475686367097445497noreply@blogger.comtag:blogger.com,1999:blog-6245381193993153721.post-26575422186017317402012-08-25T20:11:50.767-07:002012-08-25T20:11:50.767-07:00Do you understand the difference between "owe...Do you understand the difference between "owed" and "owned"?Lord Keyneshttps://www.blogger.com/profile/06556863604205200159noreply@blogger.comtag:blogger.com,1999:blog-6245381193993153721.post-15094020744613380722012-08-25T20:11:04.171-07:002012-08-25T20:11:04.171-07:00lol.. Did you not read what I said above?: my view...lol.. Did you not read what I said above?: my view is <i>also</i> that the debt (demand deposit) is <i>not</i> owned by the bank.<br /><br />I can only conclude you are incredibly confused and incapable of reading English properly.Lord Keyneshttps://www.blogger.com/profile/06556863604205200159noreply@blogger.comtag:blogger.com,1999:blog-6245381193993153721.post-9504685577831894552012-08-25T18:36:47.392-07:002012-08-25T18:36:47.392-07:00OK LK,
We will have to agree to disagree on this....OK LK,<br /><br />We will have to agree to disagree on this. My point again is ownership is a asset not a liability, therfore the debt is not owned by the bank, if it was it would be recorded as a asset instead of a liability.Hoodnickhttps://www.blogger.com/profile/04632837703787299848noreply@blogger.comtag:blogger.com,1999:blog-6245381193993153721.post-15362434825229219232012-08-25T15:06:49.393-07:002012-08-25T15:06:49.393-07:00The debt is OWED by the bank to the depositor. Per...The debt is OWED by the bank to the depositor. Perhaps English is not your first language.<br /><br />The bank's debt claim/obligation is not "owned" by the bank, but a debt due to a client, an obligation.<br /><br />Therefore the debt occurs on the liability side of the balance sheet.<br /><br />Loans that the bank makes are assets for the bank.Lord Keyneshttps://www.blogger.com/profile/06556863604205200159noreply@blogger.comtag:blogger.com,1999:blog-6245381193993153721.post-60012661384141094492012-08-25T15:03:29.014-07:002012-08-25T15:03:29.014-07:00Lets try again
1) A demand deposit is a debt
2) D...Lets try again<br /><br />1) A demand deposit is a debt<br />2) Debt is owned by the bank<br /><br />Therefore: A demand deposit is own by the bank.<br /><br />Please point out the error in the above statement.Hoodnickhttps://www.blogger.com/profile/04632837703787299848noreply@blogger.com