tag:blogger.com,1999:blog-6245381193993153721.post5805979195594222352..comments2024-03-28T17:08:15.784-07:00Comments on Social Democracy for the 21st Century: A Realist Alternative to the Modern Left: Are the Public Ignorant of the Nature of Fractional Reserve Banking?Lord Keyneshttp://www.blogger.com/profile/06556863604205200159noreply@blogger.comBlogger13125tag:blogger.com,1999:blog-6245381193993153721.post-53195295798707227562011-12-18T13:59:39.109-08:002011-12-18T13:59:39.109-08:00I'm a little confused by your post, I'm no...I'm a little confused by your post, I'm not sure what you're criticizing.<br /><br />I adhere to Rothbard's definition of the money supply: Something is money if the public perceives it as redeemable for the money proper at a fixed rate (the par value of money). <br /><br />A Bill of exchange is not money in the sense that it is always redeemable for a fixed amount of cash (you have to wait until the maturity), or a fixed amount (entrepreneurial risk of me paying you back). Stocks and bonds all have fluctuating prices and the public does not perceive them as redeemable for a fixed amount. Some bonds, like U.S savings bonds, are always pledged to be redeemable at some fixed (but penalty rate) until maturity. <br /><br />"So here you're saying that only something that always buys X amount or can always be used to obtain x amount (the same as its face value) is money. A $10 bill always buys $10 worth of goods or can be exchanged for another $10 bill or two $5 (and so on).<br /><br />Therefore "money proper" is only this. In this case even the demand deposit (a debt instrument) will have to count as money. "<br /><br />Yes. Goods that the public always perceives as redeemable for money proper at a fixed rate is money.Patchnoreply@blogger.comtag:blogger.com,1999:blog-6245381193993153721.post-53153629130026762212011-12-18T12:00:52.546-08:002011-12-18T12:00:52.546-08:00"Bills of Exchange and Promissory Notes can b...<i>"Bills of Exchange and Promissory Notes can be used, but they have to be certified and are not widespread (if they are widespread, then they become money). Stocks and bonds are not necessarily money, mainly because they do not have a fixed price .... I think the strongest definition of money is that which uses instruments that "in themselves" are exchanged for a fixed value of money"</i><br /><br />A negotiable bill of exchange is a promise to pay x amount of dollars, so it is redeemable for the final means of payment by the last holder of it for a fixed price. Government bonds also can be redeemed at their maturity for a fixed price, although the prices on the secondary markets for them might flucuate as they are exchanged, just as the bill of exchange's price can be discounted.<br /><br />So here you're saying that only something that always buys X amount or can always be used to obtain x amount (the same as its face value) is money. A $10 bill always buys $10 worth of goods or can be exchanged for another $10 bill or two $5 (and so on).<br /><br />Therefore "money proper" is only this. In this case even the demand deposit (a debt instrument) will have to count as money.Lord Keyneshttps://www.blogger.com/profile/06556863604205200159noreply@blogger.comtag:blogger.com,1999:blog-6245381193993153721.post-72033040993189523012011-12-18T11:43:40.522-08:002011-12-18T11:43:40.522-08:00Yeah, Bills of Exchange and Promissory Notes can b...Yeah, Bills of Exchange and Promissory Notes can be used, but they have to be certified and are not widespread (if they are widespread, then they become money). Stocks and bonds are not necessarily money, mainly because they do not have a fixed price. If apple "froze" the price of its stock at $25 and said it always stood ready to exchange it for cash, then if there was enough confidence in apple the stock would become money. If the government today was to issue an edict stating "All loans will be insured by the government at par value", then people would start exchanging all sorts of securities as part of money and the money supply would rapidly inflate. (aside from all the other risk problems)<br /><br />I think the strongest definition of money is that which uses instruments that "in themselves" are exchanged for a fixed value of money, not necessarily liquidity (and the public always perceives is money proper or can be exchanged for it). The problem with liquidity, in my view, is that the definition really has no end and it becomes too broad, especially since plenty of goods that are liquid do not have a fixed value.Patchnoreply@blogger.comtag:blogger.com,1999:blog-6245381193993153721.post-27611611357738165242011-12-18T11:41:31.758-08:002011-12-18T11:41:31.758-08:00"No, they have an insured debt."
Curren..."No, they have an insured debt."<br /><br />Currency is an insured debt. If the state fails the money in your wallet becomes worthless.<br /><br />The insured debt means that individuals don't have to understand what FRB means. It is the same as holding the currency.NeilWhttps://www.blogger.com/profile/11565959939525324309noreply@blogger.comtag:blogger.com,1999:blog-6245381193993153721.post-23318706905575225112011-12-18T11:17:47.054-08:002011-12-18T11:17:47.054-08:00You have a descending list of things that are or c...You have a descending list of things that are or could be used as money in the sense of a means of payments/medium or exchange or store of value. By the time you get to the bottom of the list it is rare for the thing in question to be used as money (especially if it not negotiable). E.g., in a commodity money world,<br /><br />gold<br />silver<br />so-called money certificates<br />demand deposits/FR current accounts<br />savings accounts<br />shares/deposits in S&Ls<br />Promissory notes (private bank notes, other notes payable)<br />Bills of exchange (sometimes includes the cheque)<br />cheques (particularly negotiable cheques)<br />some time/term CDs (e.g., Negotiable CDs)<br />securities (stocks, shares, bonds)<br /><br />The property of being able to demand repayment of a debt instrument on demand is by no means confined to FR demand deposits: it can also be a property of Promissory notes and Bills of exchange.Lord Keyneshttps://www.blogger.com/profile/06556863604205200159noreply@blogger.comtag:blogger.com,1999:blog-6245381193993153721.post-8571407080488521172011-12-18T09:56:54.744-08:002011-12-18T09:56:54.744-08:00While the CODS aren't money, the shares of sto...While the CODS aren't money, the shares of stock that people receive in exchange for depositing money in a S&L the public treats as money. The legal technicality that they weren't exactly banks (defined by regulatory agencies) is what drove Friedman and Schwartz to not include them in their money supply in their treatise.Patchnoreply@blogger.comtag:blogger.com,1999:blog-6245381193993153721.post-37192300623108478912011-12-18T04:22:25.840-08:002011-12-18T04:22:25.840-08:00"As the deposit is insured by the state isn&#...<i>"As the deposit is insured by the state isn't it true that 'de facto' the individual does always remain the owner of the money. Regardless of what happens, and the legal niceties, they will always get their money back."</i><br /><br />No, they have an insured debt.Lord Keyneshttps://www.blogger.com/profile/06556863604205200159noreply@blogger.comtag:blogger.com,1999:blog-6245381193993153721.post-6464119795943867472011-12-18T04:18:10.345-08:002011-12-18T04:18:10.345-08:00"That place was a housing fund in which peopl...<i>"That place was a housing fund in which people purchased shares and the proceeds of which were used to lend for housing loans. Like a mutual fund, but for housing loans only."</i><br /><br />Yes, it wasn't technically a bank. The institution was indeed a thrift, or savings and loan association (or S&L). To the extent that the accounts were savings accounts and term certificates of deposit with contractal time periods, of course it is inaccurate.<br /><br />But this is splitting hairs - it still illustrates the point. When James Stewart (as the charater George Bailey) says "you're thinking of this place all wrong, as if I had the money back in a safe," that is a perfect illustration of the public misconception about FR banking.<br /><br />http://www.youtube.com/watch?v=qu2uJWSZkck&feature=player_embedded#t=232sLord Keyneshttps://www.blogger.com/profile/06556863604205200159noreply@blogger.comtag:blogger.com,1999:blog-6245381193993153721.post-40920833294604946272011-12-18T01:06:59.910-08:002011-12-18T01:06:59.910-08:00As the deposit is insured by the state isn't i...As the deposit is insured by the state isn't it true that 'de facto' the individual does always remain the owner of the money. Regardless of what happens, and the legal niceties, they will always get their money back.<br /><br />I would suggest that pragmatically the money is bailed below the deposit limit, and only 'at risk' in any sense above that limit.<br /><br />The insurance system just means, de facto, that the money is bailed in a 'dematerialised' form. <br /><br />Most people are also ignorant of 'caveat emptor' - and what that means. That's why we have consumer protection legislation.NeilWhttps://www.blogger.com/profile/11565959939525324309noreply@blogger.comtag:blogger.com,1999:blog-6245381193993153721.post-34911818711525714632011-12-17T22:13:00.377-08:002011-12-17T22:13:00.377-08:00That clip from the movie wasn't a bank run. Th...That clip from the movie wasn't a bank run. That place was a housing fund in which people purchased shares and the proceeds of which were used to lend for housing loans. Like a mutual fund, but for housing loans only.<br /><br />Shares in a company are not the same thing as deposits. No?Prateek Sanjaynoreply@blogger.comtag:blogger.com,1999:blog-6245381193993153721.post-25087062273443940412011-12-17T15:06:26.724-08:002011-12-17T15:06:26.724-08:00LK,
Unrelated, but you may find this interesting:...LK,<br /><br />Unrelated, but you may find this interesting: the Mises Institute is publishing <a href="http://mises.org/books/PTPTI.pdf" rel="nofollow">a collection of essays</a> on the pure time preference theory of interest.<br /><br />Authors in order are Rothbard, Mises, Garrison, Kirzner, Fetter and Garrison.Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-6245381193993153721.post-2284418955089332992011-12-17T12:35:30.272-08:002011-12-17T12:35:30.272-08:00""www.cobdencentre.org/?dl_id=67"&q...<i>""www.cobdencentre.org/?dl_id=67""</i><br /><br />The survey there is highly useful. I have updated the post after reading it.<br /><br />Thanks.Lord Keyneshttps://www.blogger.com/profile/06556863604205200159noreply@blogger.comtag:blogger.com,1999:blog-6245381193993153721.post-3405382847143942112011-12-17T11:52:15.948-08:002011-12-17T11:52:15.948-08:00I'll just continue the discussion here
1)A Ba...I'll just continue the discussion here<br /><br />1)A Bank run could have easily occurred when people said 'Oh, so the banks DON'T have the money in the vault? Oh shit!' or at least with some people. Not saying this is the entire reason. <br /><br />2)Yes, it is the person's fault. Again the misconception can boil down to what people consider a bailment. Remember the discussion about grain warehousing? A check that says $100 dollars or a bank note that says Will Pay on Demand $100 the public can easily perceive as a money substitute/warehouse receipt. Whether or not they have legally/"peacefully" developed that way is open to interpretation of what is a bailment (most bailment/bank debt law is grounded on the assumption that if it isn't sealed in a bag, then that means its not a bailment ipso facto-not saying this is right or wrong, but thats just how it is). Economists and legal historians can argue over whether "Will Pay to Bearer on Demand X dollars" or bank contracts/bailments etc, but the common everyday man does not (and cannot, out of opportunity cost) concern himself with such things. <br /><br /><br />3)I agree. Although I wouldn't consider it "legislation", but mainly elaboration/enhancement of private law. However, given the explicit "choice", almost everyone in todays world with deposit insurance and a central bank will choose FRB, because if the bank fails, they will get bailed out, and people will want some inflation hedge (interest) to combat against secular central bank inflation. <br /><br />As for surveys, see:<br /><br />"www.cobdencentre.org/?dl_id=67"<br /><br />And I more or less agree with Kinsella on this issue:<br /><br />"The economic arguments in favor of FRB and its usefulness seem flawed to me, but in my view it is not necessarily fraudulent, so long as full disclosure is made. (See my post Fractional-Reserve Banking, Contracts of Deposit, and the Title-Transfer Theory of Contract.) But is full disclosure actually made? Are customers aware? Proponents of FRB often say that FRB “depositors” “are” aware of what is done with their money since interest is paid on it. In actuality what they are saying is that such customers are “deemed” to have constructive knowledge of the fact that their money is lent out, since they “ought to” know that this is implied by the earning of interest. But this is assuming too much economic sophistication on the part of the typical bank customer and substituting the legal fiction of constructive knowledge for actual disclosure. It is obvious that most banking customers are not aware of the nature of modern centralized FRB, or of the legal status of “their” “deposits.” One reason for this is modern deposit insurance, which reduces the need for “depositors” to consider the question in the first place. Another is the complexity and subterfuge of the current state-regulated and controlled banking system. As for actual evidence, a recent survey conducted in the UK concludes that most people (74%) think they own the money they deposit in a bank. Which, of course, they do not"<br /><br />http://blog.mises.org/13868/british-proposal-for-banking-reform-fractional-reserve-banking-versus-deposits-and-loans-2/Patchnoreply@blogger.com