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Author Topic: A question for Free Banking advocates  (Read 8896 times)
AgoristTeen1994
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« on: January 20, 2012, 08:20:04 AM »

Hello all. I have a question regarding free banking. I very much tried to figure it out in my head, but I guess I don't know enough about the topic to do so. My question is:
How would an issuer of some currency under free-banking make a profit? The reason I'm asking is that since as from what I can tell there isn't a method for a Currency Issuer to make a profit....in which case what would be the incentive of the majority of those who issue their own currency to issue said currency?
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Syock
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« Reply #1 on: January 20, 2012, 08:25:10 AM »

Hello all. I have a question regarding free banking. I very much tried to figure it out in my head, but I guess I don't know enough about the topic to do so. My question is:
How would an issuer of some currency under free-banking make a profit? The reason I'm asking is that since as from what I can tell there isn't a method for a Currency Issuer to make a profit....in which case what would be the incentive of the majority of those who issue their own currency to issue said currency?

This depends on the type of currency being issued, and why it is being issued.  I could write a book on this subject.

Considering the way banking is usually done, I could also say it depends on how much fraud you want to commit.
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AgoristTeen1994
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« Reply #2 on: January 20, 2012, 11:04:38 AM »

Okay...well are there any books you would suggest I read so that I can find out more? Since I do find it interesting. And I mean aside from Rothbard's "What has Government Done to Our Money" which I'm currently reading
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Syock
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« Reply #3 on: January 20, 2012, 11:45:34 AM »

Hmm, you know what...  I don't know of a book that teaches that.  Maybe someone else will know of one. 
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JustSayNoToStatism
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« Reply #4 on: January 20, 2012, 01:08:38 PM »

Imagine you were following Bitcoin's model except you let yourself do a lot of the initial mining, or just gave yourself money to start with. Then if it appreciates against other goods or currencies, you win.

If you want your currency to be a precious metal, people "win" by mining it when profitable to do so.
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Syock
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« Reply #5 on: January 20, 2012, 01:15:48 PM »

Imagine you were following Bitcoin's model except you let yourself do a lot of the initial mining, or just gave yourself money to start with.

That's the fraud part.  

If you want your currency to be a precious metal, people "win" by mining it when profitable to do so.

Smelting and coining (re-coining) in a mint are industries in themselves.  It can be quite profitable. You can also use a hard currency to use for a paper currency as a receipt.
« Last Edit: January 20, 2012, 09:42:29 PM by Syock » Logged

JustSayNoToStatism
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« Reply #6 on: January 20, 2012, 01:19:22 PM »

Imagine you were following Bitcoin's model except you let yourself do a lot of the initial mining, or just gave yourself money to start with.

That's the fraud part. 
Not if this was publicly available information.
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Syock
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« Reply #7 on: January 20, 2012, 01:25:34 PM »

Not if this was publicly available information.

Why would people wish to participate with a system that was initiated with a theft of value, unless the alternatives were greater theft?  If your passing out money in return for something, and your sitting on a pile from nothing, that inflation is a form of theft, and likely fraud as many people won't realize the problem. 
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Seth King
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« Reply #8 on: January 20, 2012, 02:06:00 PM »

Why does the bank have to issue a currency? If the currency is Bitcoin, the bank merely accepts deposits and loans them out at interest, and then gives a cut of the profit to the savings account depositors. Nuff said.
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Syock
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« Reply #9 on: January 20, 2012, 02:26:13 PM »

Why does the bank have to issue a currency? If the currency is Bitcoin, the bank merely accepts deposits and loans them out at interest, and then gives a cut of the profit to the savings account depositors. Nuff said.

The initial reason for banks to issue currency was convenience for customers and easy fraud for more profit.  When people didn't want to cut gold up into tiny pieces, they could get receipts for small amounts of gold as paper.  That of course led to banks issuing more receipts than they had gold.  It also led to the government changing over from weight to a arbitrary number, which further enabled fraud.  

In the case of banks accepting existing currency, they were able to do the same thing.  They would loan out more money than they really should have.  If you have someone on a 30 year mortgage, and people have on demand savings accounts, your essentially betting that they won't ask for the money.  When they asked for the money, the banks don't have the cash and fold.  If they can they will claim the house, and the bank was also betting on the value of the house going up.  Most banks are a house of cards.  

Of course with currency these days being 1's and 0's on a hard drive, they don't even need money in the savings accounts.  They are again enabled by the government to commit fraud.  They essentially are back to printing currency. 

100% reserve banking is what you should look into.  The cash flows in that are different, and still profitable.  They just are not enabled by the government and fraud to increase profits further.  That makes them illegal in many places, and uncompetitive in comparison.  
« Last Edit: January 20, 2012, 03:22:44 PM by Syock » Logged

JustSayNoToStatism
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« Reply #10 on: January 20, 2012, 04:04:42 PM »

I don't necessarily think 100% reserve banking is the only way to go, so long as banks are allowed to fail. Then people can take their own risks, and we'll see what the market tells the banks to do.

But I think it's pretty obvious that 10% wouldn't be the winning number.
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Syock
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« Reply #11 on: January 20, 2012, 04:06:56 PM »

I don't necessarily think 100% reserve banking is the only way to go, so long as banks are allowed to fail. Then people can take their own risks, and we'll see what the market tells the banks to do.

But I think it's pretty obvious that 10% wouldn't be the winning number.

10% is the historically proven number.  Really though when your looking at balance sheets, less than 100% comes out as fraud/theft.  That doesn't mean the bank doesn't do loans, it means they don't create money from nothing. 
« Last Edit: January 20, 2012, 07:37:03 PM by Syock » Logged

JustSayNoToStatism
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« Reply #12 on: January 20, 2012, 08:00:49 PM »

I don't necessarily think 100% reserve banking is the only way to go, so long as banks are allowed to fail. Then people can take their own risks, and we'll see what the market tells the banks to do.

But I think it's pretty obvious that 10% wouldn't be the winning number.

10% is the historically proven number.  Really though when your looking at balance sheets, less than 100% comes out as fraud/theft.  That doesn't mean the bank doesn't do loans, it means they don't create money from nothing. 
In free banking, you can't create money from nothing. 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? And, as you mentioned with the balance sheets, since banks would report financial statements, this would be public information. So by banking there, you consent to fractional reserve banking (and "vote" for it on the market).
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Syock
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« Reply #13 on: January 20, 2012, 08:12:10 PM »

In free banking, you can't create money from nothing. 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? And, as you mentioned with the balance sheets, since banks would report financial statements, this would be public information. So by banking there, you consent to fractional reserve banking (and "vote" for it on the market).

Public knowledge or not, were talking about inflation, which is a form of theft.

You can call it a money, or a money substitute, or credit expansion, or cow dung, it has the same effect.  If you are putting out markers representing more than the 100 kilo's of gold, you are representing a value that does not exist.  You as the creator benefit from it as the market is only representing the 100 kilo's of gold.  You are able to print however many kilo's of gold worth of notes to purchase with before the market realize the place is being flooded with notes that are actually below value.  Everyone else that has notes, believing it represents a kilo of gold actually has purchasing value below a kilo of gold.  You are effectively stealing by creating a false representation of value.  

Everyone knows governments inflate.  That doesn't stop the government from being able to use the money first on the market.  It doesn't stop people holding a representation of value from losing purchasing power.
« Last Edit: January 20, 2012, 08:37:59 PM by Syock » Logged

JustSayNoToStatism
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« Reply #14 on: January 20, 2012, 08:38:14 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).
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