In the ongoing discussion of fractional reserve banking as
fraud, AA8 September 1, 2015 at 8:39 AM offered a
very helpful comment. I suggest you
read it in its entirety.
In a reply to an early comment, AA8 offers:
I’m afraid I agree with bionic’s
refutations of your points.
Thank you…but don’t be afraid, I don’t bite…well wait, I am
a mosquito…and bionic at that…never mind.
This does not mean that AA8 agrees with my view on FRB:
The current depository contract is
comprised of not just explicit but also implicit contract terms supplied by the
context of cultural norms, generally accepted practices, and reasonable
expectations.
Thank you again, you have made my point.
That a bank advertisement might say “Your money is safe with
us” is not a statement of bailment. It
could just as easily apply to today’s banking practice – and given the
overwhelming weight of “cultural norms, generally accepted practices, and
reasonable expectations,” this would be the only reasonable conclusion. In
any case, since 1934 it has been an absolute fact.
People are stupid or dupes, this is the entirety of the
argument. Of course, people might also
choose to accept some interest income and no bank fees for a small amount of
risk. You do not know and cannot know the extent that this is true. So people may not be as stupid as you need
them to be to make your construct work.
How “cultural norms, generally accepted practices, and
reasonable expectations” are developed or have come to be might make for
interesting studies for Ph.D. candidates in sociology and the like, but this
does not change the reality – they are, in any case, “cultural norms, generally
accepted practices, and reasonable expectations.”
Where “cultural norms, generally accepted practices, and
reasonable expectations” violate the NAP, of course an issue should be raised. There is no violation of the NAP in today’s
deposit contract (if you want to argue that the government backing makes it a
violation, I will thank you again for making my point – the issue is the monopoly, full stop).
Inflation is not a violation of the NAP – value is
subjective: you deposit a dollar, you receive a dollar; this much is
assured. I cannot think of any industry
with a higher level of success – billions of successful transactions every day
for 80 years.
One side of virtually every single economic transaction in
the world involves the product of this banking system. There is no other economic good more widely
utilized. It doesn’t get more “cultural
norms, generally accepted practices, and reasonable expectations” than that.
On the other hand if there were no limited liability companies then no one would dare set up a fractional reserve bank.
ReplyDeleteIt really depends on the contract.
DeleteYour arguments are due much credit wherein you convincingly sweep away the objections to FRB that go off on structural analysis ignoring explicit contract. A contract is a contract. (Specifically, an explicit contract is a contract _and_ an implicit contract is a contract).
ReplyDeleteYou misread my position and celebrate mistakenly if you perceive I even inadvertently endorsed that "the issue is the monopoly, full stop." Yes, state monopoly over media, education, and the courts is monumentally useful and rampantly evident in bankers’ current manipulation of “cultural norms, generally accepted practices, and reasonable expectations" that creates modern day FRB fraud. But this does not mean monopoly is _necessary_ to create fraud. Or that eliminating monopoly would eliminate fraud.
Fraud of this nature can readily arise absent monopoly. Contradictory implicit and explicit contract terms are straightforward to manufacture by anyone, singlehandedly or conspiratorially. For example, Internet credit card fraud crime rings monopolize nothing yet thrive employing only rudimentary techniques of fraud.
Free market competitors operating under a bionic-mosquito-approved legal system that did not recognize the concept of implicit contract terms, would shift the basis of competition in every industry to some optimal mix of talent at productivity and talent at fraud. If getting caught bore no legal penalties, required no restitution to victims, then those locked in brutal free market competition who were also free to employ highly indirect, undetectable, and insidious schemes of fraud would be able to outcompete those confined to honest trade and productivity.
Some libertarians don't believe fraud should be part of the NAP. They believe everyone must presume everyone else to be completely fraudulent as a default starting point and proceed accordingly. That is, take steps to anticipate and defend in a world where every other person must be presumed to be lying, deceptive, manipulative, loophole-exploiting, word-breaking, baiting-and-switching or is free to become so at any time. These libertarians believe competition addresses the problem of fraud through free market evolution of counter-measures like due-diligence, reputation tracking, insurance, bonding.
Given your obstinate refusal to recognize the existence of fraud, even in such a monumental, 3D-technicolor instance as modern FRB practices, I believe you to be a “Fraud does not exist,” libertarian. That’s fine. I'd love to see you openly pursue that thesis. Write a few articles elaborating on your views about fraud. Make the case it does not exist to the rest of us in the libertarian community. If you succeed, your work could be as groundbreaking as Kinsella's "IP does not exist."
“Free market competitors operating under a bionic-mosquito-approved legal system that did not recognize the concept of implicit contract terms…”
DeleteI have written no such thing. I have written that where there is disagreement between parties regarding verbal (or implicit) terms, the written terms and / or customary practice will rule – this fits perfectly with my views on this topic. But you seem hell bent on convincing me or others about your religion.
“Given your obstinate refusal to recognize the existence of fraud, even in such a monumental, 3D-technicolor instance as modern FRB practices…”
Next time you decide it is worth peddling your elixir on this site, please provide 5 statements or examples from each of BofA, Wells Fargo, Chase Bank, and CitiBank backing up your insistence of “monumental, 3D-technicolor instance” of fraud via implicit statements. Given how “monumental” and “3D-technicolor” it is, this should be easy to do via advertising and promises made on their web sites, etc.
These better be slam-dunk, no doubt about it statements: “We hold your money as a bailment” will be a good one, or “we never lend against your deposit” or “we provide free services and interest income to you despite not making any money off of your deposit.” Really, these better be overwhelming examples that you provide – explicit statements to the effect that the deposit is a bailment.
Five slam-dunk winners from each bank. Absent this, you will be ignored.
“I believe you to be a “Fraud does not exist,” libertarian…”
I give up. I have written countless times about my view of the term “fraud.” You don’t have to guess at it or challenge me to write something about it.
"Inflation is not a violation of the NAP – value is subjective: you deposit a dollar, you receive a dollar; this much is assured. "
ReplyDeleteI'm not sure I agree with this statement.
But this I do feel confident about saying that if people VOLUNTARILY agree to transact in a medium that is debased by policy that is not a NAP violation....
But in our case, we have "legal tender" laws, which in my mind is a clear NAP violation, especially the coinage act of 65'- beyond that the history in the US in regard to tender is interesting to say the least.
With gov't violations of the NAP via law it's highly suspect to suggest we would be using FRN's today.(and I'm not saying that you're suggesting that, I'm just pointing out distortions as a result of NAP violations)
edit: "Without gov't violations"
DeleteNick, it is very nice to see you here. Thank you for the comment.
Delete“I'm not sure I agree with this statement.”
Do you propose to stop gold mining? Alternatively, do you accept the quantity theory of money? Inflation in money and credit will always be – and will be even in a free market. And value is always subjective.
Do we suggest that Volkswagen stop inflating the car supply because it will affect the value of my current car?
“I'm just pointing out distortions as a result of NAP violations”
The violation is the monopoly, and this is my point. There are distortions in any market – entrepreneurs will make mistakes. It is the distortions due to the monopoly position of banking today – including government deposit insurance, legal protection of and by central banking, etc., that are the issue. It is due to the monopoly that distortions are allowed to continue and grow beyond anything that could be supported in the market.
As an aside – and separate issue: Almost all of the economics profession agrees with and understands that government-backed monopolies are detrimental…except for the one behind money and credit. This is the soft-underbelly, yet instead of going for the stake in the heart, some are stuck on attacking a business relationship that does not violate the NAP (given the current contractual structure).
"Do you propose to stop gold mining? Alternatively, do you accept the quantity theory of money? Inflation in money and credit will always be – and will be even in a free market. And value is always subjective."
DeleteYes, I have no qualms with that, per my statement "VOLUNTARILY agree to transact in a medium that is debased".
Really, I was just commenting on what I perceived as suggestion the current system of money was "agreed upon".
Obviously you agree that it was not- so we're not necessarily in disagreement.
In regard to cultural norms though, it seems a mistake to compare the inflation of FRN's to that of gold as circulating currency.
Culturally people naturally chose gold over fiat when not forced...because the nature of the inflation was drastically different.
The NAP violation itself is the problem, we agree.
Thank you for the "welcome', I creep around from time to time...I just don't comment as prolifically because most of the time I simply agree with what you post.
Delete:)
Nick, from what I read of your comments here and elsewhere, yes we are in agreement most of the time.
DeleteDo you have a blog or write elsewhere? I only catch you at Wenzel's sites.
I don't, I have time issues.....(and in fairness I'm always working on time management..so some of my issues may be self inflicted):
DeleteI have a small business & 4 young kids(12 and under).
I actually read liberty sites(and books) at night when everyone is in bed and sporadically throughout the day from my desk when I need a break from my actual work.(yes, I take a break from work and read libertarian thought...lol)
When I deviate from that schedule, it's usually a holiday or something.
Hopefully I'm not perceived as a parasite to those like yourself or RW by taking advantage of the commenting opportunities.
My business has been increasingly successful lately which has freed up some time, but I use that extra time for my kids and I don't feel ready to do a blog nor do I want to take time from them at this stage in life.
I'm trying to balance everything, with mixed success- it's challenging to say the least.
I'm just excited by libertarian ideas and it's relatively new to me as I learned about Ron Paul in 06', became a rabid supporter,and eventually became to radical libertarian after 2012 primary. I'm rare in that I came around late in life compared to most in the movement(I'm 44 now, so basically radicalized at 41).
It's hard for me not comment from time to time even though this stage of my life is crazy, because it helps me sort out libertarian ideas. Usually my "comments" are somewhat Socratic and serve two purposes. Again, I hope I'm not perceived as annoying...lol
Comment as often as you like - anywhere. My only point is that you have a gift. Perhaps once some of your other responsibilities are lightened, you will have time to share it.
DeleteOr, read half as much and devote the time to writing!
Thank you so much for your kind words, it's greatly appreciated.
Delete"Inflation is not a violation of the NAP..." You are technically correct - the best kind of correct (j/k). But seriously, if I print a FRN at home and someone accepts it in exchange for goods, I think this is the same as if I broke into the store at night and stole them. Why not?
ReplyDeleteImagine a giant basket which holds all the goods and services (forget about how a basket came hold a service, moving on) produced and available for sale. If I work for my money, or let my capital do it, then I have contributed into the basket something which someone else found worthwhile - in fact, they found it to be worth more to them than the money. Yes? Then when I spend the money, all I'm doing is exchanging indirectly something for something else. But if I print the money, this is not the case. I go to the basket and I take out of it, without putting anything into it, an exchange of something for nothing: theft. Just because it doesn't involve violence or the threat of violence, doesn't make it less theft IMO.
Lets look at it from the categorical imperative perspective. If printing money is alright, why don't we all do it? Eh, Mr. Mosquito?
And, yes, I DO believe that minting gold coins should be a one-time thing. Mine gold all you want, but monetary use must be limited so that the supply of money does not increase.
Igor Karbinovskiy
"But seriously, if I print a FRN at home and someone accepts it in exchange for goods, I think this is the same as if I broke into the store at night and stole them. Why not?"
DeleteSetting aside the FRNs part, which will only needlessly complicate the matter, there is no "why not?"
The "someone else" accepted the notes as payment. Presumably the shopkeeper did not accept your thievery. It is not more complicated than this.
"If printing money is alright, why don't we all do it? Eh, Mr. Mosquito?"
I know why _I_ don't do it. Two reasons jump to mind: if the currency I print looks like an FRN (or Euro or whatever), I will go to prison, and if it doesn't look like an FRN (or Euro or whatever) likely the acceptance rate will be low.
But if a six-year old draws a stick-figure picture of Fido and exchanges it for a candy bar or a hug from grandma, are you suggesting this is not a legitimate transaction?
If I print a note that in no way shape or form is represented or considered an FRN and you accept it in trade - somehow _I_ am the one at fault?