I return to the subject of fractional reserve banking and my recent post in response to an article by David Howden, entitled “A Simple Math Question for Bankers.”
Well, I have a simple question as well – a question about property rights:
Are property rights divisible?
Now I don’t mean divisible as in shares of stock in a commercial enterprise – I own 50%, you own 50%. In this case, our property rights are identical (assuming the same class of stock); the ownership of the enterprise is certainly divisible.
I mean divisible as in two different people have dissimilar interests in the same property.
The answer is likely so obvious that it seems like a purposely misleading question – what trick is BM trying to pull? Does he think I’m an idiot?
The most obvious examples of divisible rights in property can be found in rental or leasing agreements. Think of the typical landlord / tenant relationship. Each party has a right to the property – a nice 3 bedroom, 2 bath home with a white picket fence. Typically, the landlord has rights associated with ownership; the tenant has rights associated with occupancy and peaceful enjoyment.
They each have property rights, yet the rights of each party in the home are different. For brevity, I will assume that a further explanation of this landlord / tenant relationship is not necessary.
But, at its root, those who criticize FRB (for reasons other than its inflationary consequences), do not accept or recognize that property rights can be so divided or do not accept that today’s deposit contract does, in fact, divide property rights in the digits commonly referred to as money (and today’s deposit contract most certainly does divide the rights in the deposit).
As it relates to the concerns by critics of FRB, the point is captured well in Howden’s statement:
The conflict depositors and bankers are subject to should be apparent. They each have a claim to the deposit, but there is only one deposit available to satisfy each claim.
They do each have a claim to the deposit. But, like a landlord and a tenant, the claims are different – divisible rights in the property, if you will. This is explained in detail in my previous post (and embedded links in that post).
This concept is so simple that my mind cannot grasp why it is missed. I am willing to accept that I am the one missing something, yet I am yet to read a statement or argument that addresses this directly.
I have asked others to point me to definitive statements. Where does Rothbard best make the case that fractional reserve banking is fraud (as he seems to be where this idea was born)? I read the recommended passages, and to my surprise I find this in the same book!
It was recommended to me to read the most comprehensive work by Jesús Huerta de Soto, “Money, Bank Credit, and Economic Cycles”; all my questions would be answered. Instead, I conclude this.
Again, the issue is not inflation – and if anyone is interested as to why I say this, let me know.
The issue is directly found in Howden’s statement (and in those who hold and support a similar view) – and he is wrong, because he does not recognize (or will not admit) that two parties can have different rights in the same property.
My head hurts. Perhaps more scotch….