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Author Topic: A question for Free Banking advocates  (Read 8775 times)
Syock
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« Reply #15 on: January 20, 2012, 08:45:46 PM »

The ability to opt out matters to me. In a free market, you can opt out of a bank that doesn't hold 100% reserves. You can choose to not accept notes from that bank, since you know they're worth less. If the customers are pissed enough, they can all pull their money and topple the bank.

Opting out of the FRN scheme is not a realistic choice (must pay taxes with it).

And those left holding the bag will have a note saying it is worth X amount of value, when in reality it isn't.  Theft and fraud all around.  If you agree to a contract and get paid in a note that says you will get a kilo of gold from bank A, and go to the bank and they don't have a kilo of gold, the bank has stolen from you and committed fraud by saying it was there.

The only way it is really public knowledge that the value is less than stated is by marking the notes as less value to start with, and return to 100% reserve.  Otherwise your saying it is worth more than it is.  It is fraud. 
« Last Edit: January 20, 2012, 08:52:55 PM by Syock » Logged

JustSayNoToStatism
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« Reply #16 on: January 21, 2012, 12:21:20 PM »

The ability to opt out matters to me. In a free market, you can opt out of a bank that doesn't hold 100% reserves. You can choose to not accept notes from that bank, since you know they're worth less. If the customers are pissed enough, they can all pull their money and topple the bank.

Opting out of the FRN scheme is not a realistic choice (must pay taxes with it).

And those left holding the bag will have a note saying it is worth X amount of value, when in reality it isn't.  Theft and fraud all around.  If you agree to a contract and get paid in a note that says you will get a kilo of gold from bank A, and go to the bank and they don't have a kilo of gold, the bank has stolen from you and committed fraud by saying it was there.

The only way it is really public knowledge that the value is less than stated is by marking the notes as less value to start with, and return to 100% reserve.  Otherwise your saying it is worth more than it is.  It is fraud. 
The note doesn't say it's worth 1 kilo of gold, it says it's redeemable for 1 kilo of gold. If done properly, everyone who wants to redeem it can in fact get their kilo of gold. If you hold 90% reserves, no one will be left holding any bag. If they fail to live up to their contracts to redeem the notes for gold, then their business fails.

Regardless of whether their is fractional reserve banking or 100% reserve banking, the depositors can still lose their money.
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Syock
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« Reply #17 on: January 21, 2012, 01:26:35 PM »

The note doesn't say it's worth 1 kilo of gold, it says it's redeemable for 1 kilo of gold. If done properly, everyone who wants to redeem it can in fact get their kilo of gold. If you hold 90% reserves, no one will be left holding any bag. If they fail to live up to their contracts to redeem the notes for gold, then their business fails.

Regardless of whether their is fractional reserve banking or 100% reserve banking, the depositors can still lose their money.

With 100% reserve banking, there are not more notes claiming to be redeemable than there are actual units that can be redeemed.  They won't lose their money if the bank fails.

If you hold 90% reserves, and 91+% want to redeem, then you have been caught committing fraud, claiming they could redeem, and stolen that contracted unit from them. You can argue semantics, but it doesn't change the result.  By making notes exceeding the actual redeemable quantity, you devalue existing note holders (and note holders of all other types(fraud/theft)), commit fraud about actual redeemable quantity, and commit theft when failing to live up to the contractual promise to redeem.

You're trying to rationalize fraud and theft through the thought that you can do it in a way that won't get you caught.  That doesn't mean it isn't fraud and theft still.
« Last Edit: January 21, 2012, 01:55:06 PM by Syock » Logged

JustSayNoToStatism
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« Reply #18 on: January 21, 2012, 02:41:49 PM »

Without fractional reserve, banks couldn't do much other than provide CDs for their depositors. In which case it would still be possible for them to lose their money if the loans were bad.

Fractional reserve banking should not get mixed up and muddled with central banking. Their is a limit on the fractional reserve banks' capacity for creating money. The central bank has no restrictions.

I'm not saying fractional reserve banking is "good." I'm just saying that when people put money in banks, by their current definition, that is what banking is. It isn't a secret that banks do this. If I sell things out of my trunk and I have packaging on them that says "Fake iPods" it isn't fraud. I'm not being deceptive.

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Syock
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« Reply #19 on: January 21, 2012, 02:52:25 PM »

Without fractional reserve, banks couldn't do much other than provide CDs for their depositors. In which case it would still be possible for them to lose their money if the loans were bad.

Fractional reserve banking should not get mixed up and muddled with central banking. Their is a limit on the fractional reserve banks' capacity for creating money. The central bank has no restrictions.

I'm not saying fractional reserve banking is "good." I'm just saying that when people put money in banks, by their current definition, that is what banking is. It isn't a secret that banks do this. If I sell things out of my trunk and I have packaging on them that says "Fake iPods" it isn't fraud. I'm not being deceptive.

I've been trying to avoid writing a huge post on this.  I was hoping the obvious theft from everyone, not just depositors, would be enough.  I will write more later.
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Martin Brock
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« Reply #20 on: January 22, 2012, 01:05:45 PM »

If there are 100 kilos of gold at the bank, and the bank issues more than 100 kilos worth of "notes" then that's not money, it's a money substitute, right?
Money is anything that people use for indirect exchange, in lieu of barter, i.e. if I accept something from you only because I expect later to exchange it for something else, it's money. Promissory notes and bills of credit are money if people use them this way. A banknote promising gold is not money because it promises gold. It's money because people accept it only to exchange it later for something else.
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JustSayNoToStatism
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« Reply #21 on: January 22, 2012, 01:12:41 PM »

If there are 100 kilos of gold at the bank, and the bank issues more than 100 kilos worth of "notes" then that's not money, it's a money substitute, right?
Money is anything that people use for indirect exchange, in lieu of barter, i.e. if I accept something from you only because I expect later to exchange it for something else, it's money. Promissory notes and bills of credit are money if people use them this way. A banknote promising gold is not money because it promises gold. It's money because people accept it only to exchange it later for something else.

Yeah, that's a more modern definition of money. I was using money and money substitutes the way Mises did in Human Action, I should have been clearer on that.
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Martin Brock
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« Reply #22 on: January 22, 2012, 02:00:32 PM »

How would an issuer of some currency under free-banking make a profit?
At the risk of spamming, I'll address the question with an example.

www.favorati.net

Note: Favorati isn't quite open for business yet. You may join and browse the site at this point, but you should not post or accept offers expecting the records to remain. I'm still developing and testing the site, and it's not my day job, so I can't say exactly when I'll open it officially, but I'm close. I plan initially to market the site in my locale near the University of Georgia, but I won't limit membership.

Favorati is similar to other sites, like Ripplepay, that are operational. Favorati is not based on the Ripple project, but I hope eventually to interoperate with sites based on Ripple.

To answer your question, I expect to profit as people acknowledge the favor I've done them by providing the site. Acknowledging the favor is voluntary, but at some point, I would exclude a person from posting or accepting offers without acknowledging the favor.

Favorati is not exactly a bank, because it doesn't hold capital. Individual members hold the capital. If you require collateral before extending credit, you must work it out with the friend accepting your offer; however, I don't expect people to extend credit on this scale at first. I expect most credit at Favorati to be unsecured, like credit cards.

You could also profit by providing a service in which you insure creditors against loss by holding capital. This service is more like conventional banking. You would charge an insurance premium for the service. You could offer this service through Favorati itself.

I don't offer the service, because it raises legal issues that I prefer to avoid and because I'm not sure that a conventional bank is necessary in the information age. In principle, members could form insurance pools while still holding capital individually.

If I need to earn FRNs to maintain the site, I might use Google ads or something, but I'll never require anything but an acknowledgement for full membership. If these promises are not valuable enough to me to maintain the site ultimately, I'll close it down.
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Martin Brock
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« Reply #23 on: January 22, 2012, 02:23:22 PM »

I'm not saying fractional reserve banking is "good."
I am saying fractional reserve banking is good, but I also say that "fractional reserve" is misleading. If a bank uses a gold standard, gold in the bank's vault typically is not the reserve securing the bank's notes, even though its notes promise gold; however, the notes are not therefore unsecured. The bank also holds the titles to mortgaged houses for example. These houses have a value in gold. The value of these houses in gold secures the bank's notes promising gold.
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JustSayNoToStatism
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« Reply #24 on: January 28, 2012, 12:07:13 AM »

http://www.youtube.com/watch?v=YasmmiR0PrM#t=26m19s
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Syock
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« Reply #25 on: January 29, 2012, 12:56:06 AM »

Without fractional reserve, banks couldn't do much other than provide CDs for their depositors. In which case it would still be possible for them to lose their money if the loans were bad.

I see no reason why banks wouldn't be able to offer every service they currently offer plus others. 

Fractional reserve banking should not get mixed up and muddled with central banking. Their is a limit on the fractional reserve banks' capacity for creating money. The central bank has no restrictions.

It gets mixed up and muddled because they have the same effect on the economy and are accomplished with similar/same methods depending on the government. 

I'm not saying fractional reserve banking is "good." I'm just saying that when people put money in banks, by their current definition, that is what banking is. It isn't a secret that banks do this. If I sell things out of my trunk and I have packaging on them that says "Fake iPods" it isn't fraud. I'm not being deceptive.

Your not being deceptive of what you call it, but if you were being deceptive of the quality of the fake ipod, that would be fraud. 
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