I know, on the surface it seems a stunning statement coming from bionic. It all depends on the definition of fractional reserve banking, I guess.
Mr. Engel has provided a definition:
But herein lies the problem: what fractional-reserve banking is, by definition, is a mixture of the two types of contracts expressed above. It is, by definition, a contract wherein it is agreed upon that the money deposited is a bailment that is to be returned upon demand by the customer; wherein at the same time, that money is loaned out to some other customer.
This certainly could be a definition of fractional reserve banking; I imagine the entire controversy could be quickly put to bed if everyone accepted this definition (spoiler alert; they don’t).
It is certainly a breach of contract, and could in addition be deemed fraudulent (although I do not like the concept of “fraud” nearly as much as I like just dealing with terms of a contract).
What you define is not today’s banking relationship – today’s contract is not a bailment. You seem to agree with me on this if I have read your post correctly. Please advise if I am drastically off base on this.
I will keep my reply simple and short, as we seem to be making progress and we agree far more than not.
You offer one definition. I will offer two others.
From Wikipedia (emphasis added):
Fractional-reserve banking is the practice whereby a bank accepts deposits, and holds reserves that are a fraction of the amount of its deposit liabilities. Reserves are held at the bank as currency, or as deposits in the bank's accounts at the central bank. Fractional-reserve banking is the current form of banking practiced in most countries worldwide.
Per your definition of the term, today’s banking practice is not fractional reserve banking – there is no bailment today. Yet Wikipedia says that today’s banking is fractional reserve banking, even though there is no bailment. I don’t get it…. But that’s just Wikipedia, what do they know?
From Mises (emphasis added):
Fractional-reserve banking (or FRB) is the widespread banking practice in which only a fraction of a bank's demand deposits are kept in reserve and available for immediate withdrawal (as cash and other highly liquid assets), whilst the remaining cash is lent out to borrowers (and so is never actually available for immediate withdrawal to legitimate deposit-holders). The bank in effect lends out most or even all of the funds it receives in demand deposits, whilst at the same time guaranteeing that all deposits are available for immediate withdrawal upon demand. Fractional reserve banking is currently legal and practiced by all commercial banks.
Mises.org also says that today’s banking is fractional reserve banking, even though there is no bailment. But according to your definition, it isn’t – as a bailment is promised in order for your definition to apply.
Today’s practice is FRB, so say Wikipedia and Mises. FRB is not today’s practice, so says Mr. Engel.
You can understand my confusion.
Nothing personal, but I have never read your definition before – I think until these other sources come around to your view, I will continue to base my arguments and positions on their definitions.
Perhaps you should write the definitions for these entities.
I will be clear (and repetitive): a contract that grants two people the same right to the same deposit at the same time would be illegitimate; it would be deemed an invalid contract. Depending on the details of the situation, it could be fraudulent.
This is consistent with your definition of FRB, I believe.
1) This is not today’s contract.
2) Neither the wishes nor ignorance of the depositor will turn today’s contract into something it isn’t.
3) Banks today do not practice fractional reserve banking – per your definition above.
4) Banks today do practice fractional reserve banking per Wikipedia and Mises.
Items 3) and 4) cannot both be true - banks today cannot at the same time practice and not practice FRB.
There is nothing fraudulent in banking as practiced today beyond the issue of the monopoly – which technically I think isn’t fraud (but I don’t want to spend any time thinking through this right now); it is just the only problem to complain about.
It seems to me that your debate is not with me. Your debate is elsewhere.