Jump to content
Objectivism Online Forum

Money: Does Objectivism Hold That Govt

Rate this topic


nimble

Recommended Posts

As with all booking - with the dentist, with the hairdresser, with the airline - it is understood by both parties that the time booked is not written in stone, that there are situations which may cause either party not to be able to make that particular time.

This, however, has absolutely nothing to do with treating debt as money by fiat.

So do I gather correctly that what you object to is using the term "money" to refer to bank deposits for which the bank does not maintain a 100% reserve?

Link to comment
Share on other sites

  • Replies 78
  • Created
  • Last Reply

Top Posters In This Topic

The reason everyone always argues in support of a hard backed gold standard is that it would be inflation resistant when compared to current fiat currency. Actually I was just reading Gold and Economic Freedom (p 89 1st Edition, 3rd paragraph) and Greenspan actually does take a very Austrian view of currency.

He states effectively that each bank would keep a reserve of physical gold based on their experience. They would then of course loan some out and issue notes based on the total of the gold that they have on their books. So ostensibly the banks would be able to issue more notes than they have physical gold to cover. So, in the marketplace, as Hayek suggested with the "competitive central bank" idea, the value of the currency would fluctuate by the value of what people actually put on it.

Interesting. Citibank could issue paper with less gold but I'd trust them more than paper issued by say some bank I've never heard of that promised it's backed fully by deliverable gold, so I'd demand 100% payment in Citibank dollars but 200% in Bank of Sharpstown. Again, this could go right back to the argument where the government gets back into regulating the ratio of gold to dollars and we are right back to square 1.

Austrians want 100% reserves, that would eliminate inflation. Greenspan is still a fractional reserve banker, which I think is fraudulent. There is a whole thread on this in the econ. section.

Link to comment
Share on other sites

How is this fraud if the two parties are consenting? What if the consumer believes the bank on its word and wants to do business with it?

Under freedom, the government will lock up banks doing business with consenting customers? Dosn't sound like freedom to me.

The two parties might be consenting, but when there money is traded with other banks or in the open market, there money is considerably less valuable. If 10 dollars is printed by the bank to cover 1 dollar worth of gold reserve, then there money is only actually worth 1/10 of what it has printed on it. Yet they will trade it for goods and services as if it is actually worth 10 dollars, when in actuality it is only worth 1 dollar. So it is fraudulent to anyone they trade with. And if they are open about the fact that there money isnt backed by gold, then who would trade with them? The effective value of there money would go down to its real value if they ever let anyone know that its not back by gold. And then it would be just the same as having 100% reserves. I don't understand why all you very intelligent people cannot see how it is fraud.

Lets say I put 10 dollars worth of gold into this bank, they give me 10 dollars worth of CDs. Then the banking system goes out and loans 90 dollars worth of CDs as loans to people. So now the bank has 100 "dollars" in CDs (debt) but only 10 dollars worth of gold. If gold is the only thing with objective value then the amount of paper money will only be a fraction of what the gold is worth. It will have a relative price. So there is 100 dollars/10 gold, which means that each dollar is only REALLY worth 10 cents. The only thing making it worth more is the fact that the bank says its worth more. When the bank doesn't have the government to force people into accepting the banks word on its dollars' value, then the market will make these CDs worth what they are really worth. And thus the man who holds 10CDs because he deposited his gold will lose 9 dollars in this transaction, and the man who took the loan will owe 90 dollars when all he really received is 9 and the bank makes out like a bandit. If these people are smart enough to realize this they will go back to the bank and ask for them to make this right, and the bank will nullify the loan, and the man with the deposit will now have 10 dollars worth of CDs, and through market processes it will magically become a 100% reserve firm again. Thus it is either reserve or fraud or stupid people who don't mind losing 90% on there transactions with the bank.

edit for content

Edited by nimble
Link to comment
Share on other sites

One last thing I wanted to point out, look at the accounting sheet of the bank, and there you will see the fraud. The bank owes 100 dollars in CDs, and it only has 10 dollars in assets. If any business had a balance sheet that looked like this, they might be Enron.

And thus the man who holds 10CDs because he deposited his gold will lose 9 dollars in this transaction, and the man who took the loan will owe 90 dollars when all he really received is 9 and the bank makes out like a bandit.

Notice how the man who deposits the money loses 9 and the bank loans out 9. Isn't that like robbing peter to pay paul? Then the bank has the nerve to ask for there 90 dollars back from the man they only really loaned 9 dollars to. If that was a 1 year loan that would be 1000% interest plus whatever nominal interest rate they attached to the 90. So lets say they asked 5% interest on that loan, that would make the interest rate 1050%. Who would take that loan if the bank was honest about its fractional reserve policies?

Link to comment
Share on other sites

How would that work? Wouldn't the lack of a national currency cause potential chaos? Even more so internationally?

Why would you want a national currency? Wouldn't the government have to dictate what the currency would be in order to make it a national currency? That seems like government control of the free market, which wouldn't make it a very free market.

I suggest everyone should read Murray Rothbard's "What has government done to our money?" or Ludwig Von Mises "Theory of Money and Credit." Both are available to read online at www.mises.org

Rothbard's book will only take about 20 minutes to read.

Money

Link to comment
Share on other sites

Yet they will trade it for goods and services as if it is actually worth 10 dollars, when in actuality it is only worth 1 dollar. So it is fraudulent to anyone they trade with. And if they are open about the fact that there money isnt backed by gold, then who would trade with them?

The issue you bring up is not that fractional reserve banking is fraudulent, it's whether a lying bank would trade its currency with others under the guise that it is 100% backed with gold. Sure, that's fraudulent, but fractional reserve banking isn't.

Link to comment
Share on other sites

The issue you bring up is not that fractional reserve banking is fraudulent, it's whether a lying bank would trade its currency with others under the guise that it is 100% backed with gold. Sure, that's fraudulent, but fractional reserve banking isn't.

Okay, so lets say all the parties consent. And anyone who holds the CDs is honest about the fact that they are not worth their face value, then why would anyone use fractional reserve banking if they stand to lose 90% of their gold's value simply by putting it in a fractional reserve bank? When no one commits fraud everyone but the bank loses.

I concede that it is possible for it to not be fraudulent, however, I cannot see any use for that type of system because the loanee has at least 1000% interest on his loan, and the depositor of gold loses 90% of his golds value, and the only one who wins is the banker. See my example above if you don't understand what I just said.

Edited by nimble
Link to comment
Share on other sites

The issue is whether one can have one's cake and eat it too. Under a fiat money, whether paper or fractional reserve, the government says you can: but in reality, once you've eaten your cake, you're left with inflation.

The issue is not with the depositor. The issue is with the new and additional fiat money which the bank creates, with the blessing and protection of government, when it loans out the real money deposited while still promising that very same money to the depositor. Once the money has been loaned out, it's eaten, and the bank no longer has it. Government treats the case as if the bank still has it.

The practical effects of fractional reserve banking and the inflation it causes are quite evident: the numerous deflation-depressions that plagued the United States late in the nineteenth century and in the twentieth century up until the Great Depression. It is the natural state of affairs that businesses sometimes fail. When they do, they default on their loans, and when they do that, the banks' promises to keep depositors' money safe is shown to be false. The new and additional fiat money which the banks had created via fractional reserve banking is destroyed as businesses default on loans made with it. Depositors cannot withdraw the money in their bank accounts, and when the depositors are businesses especially they no longer have the cash necessary to carry on transactions. As depositors demand money which the banks owe them but which the banks no longer have and which no longer exists, they force banks to fail. Bank failures cause further business failures, and further business failures cause yet further bank failures. The inevitable result of the inflation of fiat money or of fractional reserve money is deflation-depression. And the only agency capable of causing inflation, whether via fiat money or via fiat fractional reserve money, is government intervention in money.

Business failures and defaults on loans cannot destroy 100% reserve gold-backed money, because the gold itself is never destroyed. It is only fake money which is exposed in this way and destroyed.

Link to comment
Share on other sites

The issue is not with the depositor. The issue is with the new and additional fiat money which the bank creates, with the blessing and protection of government, when it loans out the real money deposited while still promising that very same money to the depositor.

What if the bank does the same thing in a completely laissez-faire economy, WITHOUT any blessing or protection from the government, and with the full consent of the depositor? Would you still be opposed to it?

Once the money has been loaned out, it's eaten, and the bank no longer has it.

The bank still has it as an asset, only it's not cash now but a debt owed to the bank. It's a less liquid and somewhat riskier kind of asset, but it is still an asset. Only IF the debtor defaults has the bank lost the money.

Keeping the money in gold has its risks too: The bank can be robbed and the gold can be stolen. The bank can take measures to reduce the risk of theft--just like it can exercise caution in making loans--but the risk is still there. The presence of this risk--the inability of the bank to guarantee with 100% certainty that it will still have the gold when the depositor wants it back--does not make the deposit fraudulent. The depositor knows about robbers; in fact, they are probably the very reason he wants to keep his money in the bank (assuming that the deposit is 100% gold backed, and therefore yields no interest).

Banks do offer this kind of service today, in the form of safes where you can keep your gold, jewelry, and important documents. The bank charges a fee for their use, but the clients are willing to pay that fee in exchange for the reduced risk of theft. People who don't mind the risk of keeping their valuables at home will not take advantage of this offer by the bank, but those of them who are even more risk-tolerant might take another offer: the offer of the interest-yielding current account.

You have $100 now. By next year, you can have:

  • $99 with a probability of 99.99%, or $0 with a probability of .01%
  • $100 with a probability of 99.95%, or $0 with a probability of .05%
  • $103 with a probability of 99.9%, or $0 with a probability of .1%

If you like the first option, a safe in the bank is the way for you to go. If you prefer the second, no one is keeping you from keeping your gold in your home. If you, like me and most other people, are attracted to the third option, go to the bank and open an account.

Link to comment
Share on other sites

I really wish someone would address the points I made. Yes, it is possible for that type of banking to be non-fraudulent. But who would participate in that type of system. If I were a bank and I had 10 dollars in gold, and then printed 100 CDs to represent that gold, what would you say the price of my CDs would sell for if the bank was honest and open about the fact that they have 100 CDs and only 10 dollars (gold)? It wouldn't be 100 dollars, unless you had the government enforcing it like it does now.

Link to comment
Share on other sites

I think a good example of how shady this practice is would be to pretend that I can do what a bank does. Lets say I take my printer and print off some cool looking checking deposit slips, and I give 1000 of them to you at a 5% interest rate in a loan. Right now, I only currently possess 500 dollars in money. So really I just pulled the other 500 dollars of my thousand dollar loan out of thin air, and loaned it to you with interest. If anyone figured out my scheme and that I just "made up" the other 500 dollars, the value of your CDs would drop by 50% making them worth the amount of money I have to back them up. Thus fractional reserve banking, if honest about its practices, would become 100% reserve banking through market forces.

Edited by nimble
Link to comment
Share on other sites

I really wish someone would address the points I made.

Nimble, Has it not been addressed in the previous thread that you started? I find myself lost in these two threads, with main arguments and incidental side issues all mixed together by now. Would you like to re-cap by starting with the points on which you find general agreement in the forum, and then the points on which you're hearing arguments you disagree with? I think that would help focus the discussion on essentials.

Link to comment
Share on other sites

Yes, it is possible for that type of banking to be non-fraudulent. But who would participate in that type of system.

Same people who deposit money in banks today. No one is forcing them to do so, and yet they do it nonetheless. That would seem to indicate to me that they think it is in their interest.

If I were a bank and I had 10 dollars in gold, and then printed 100 CDs to represent that gold

You are begging a number of questions here: Where do you have those $10 in gold from? Why do you print CDs? Whom do you give them to? Are you getting something in exchange for them, or are you just giving them away? What is in it for you?

I'll be charitable and assume that you really don't know how banking works. So here is how: Jack has $10 in gold, which he does not want to spend until next year. He figures he could just keep it in a box under his bed, but the bank is offering him a deal: If he gives the gold to the bank now, the bank will give him $11 in gold next year.

"So where would that extra $1 come from?" he asks the bank.

"We would loan out your money and collect interest for it. To make it worth while for you, we pass on some of the interest to you."

"That would sound like a good deal, but I am not completely sure I won't need the money until next year."

"No problem, you can withdraw any time you want. You just present your CD and we'll give you $10 in gold."

"But if you've loaned it out, it won't be yours to give back."

"We don't loan all our depositors' money out. We always maintain a reserve of gold that is sufficient to cover the likely withdrawals of our clients. If we happened to run out of gold, we can borrow some on the money market."

"What if ALL your depositors wanted to withdraw at the same time?"

"Since we have millions of depositors from all across the country and from all walks of life, it is extremely unlikely for all of them to conspire to withdraw at the same time. Sooner will a meteor hit your house than our bank become insolvent. I grant that there is some risk involved with your deposit, but it is no greater than the general risk involved in ANY kind of business transaction."

"Hmmm ... okay, I think that makes sense. Where do I sign?"

Link to comment
Share on other sites

"Hmmm ... okay, I think that makes sense. Where do I sign?"

That was nice ;)

I'll add (in anticipation of an objection) that the bank does have assets to cover $10 and more, even if those assets are not immediately liquid when the whole world comes calling. In fact, the bank probably has $11 of assets (the $1 belongs to the shareholders) to back up the $10 on the CD.

Link to comment
Share on other sites

I'll add (in anticipation of an objection) that the bank does have assets to cover $10 and more, even if those assets are not immediately liquid when the whole world comes calling.

Of course; that is what I spoke about in post #37. And it is also worth noting that the CD in your hands is an asset too, so if you really need the cash quickly and for some reason the bank can't give it to you, you can sell your CD to someone, who can cash it later when the bank is liquid again.

In fact, the bank probably has $11 of assets (the $1 belongs to the shareholders) to back up the $10 on the CD.

Exactly; good that you mention this.

Link to comment
Share on other sites

Same people who deposit money in banks today. No one is forcing them to do so, and yet they do it nonetheless. That would seem to indicate to me that they think it is in their interest.

The only reason it is in their interest is because the government decrees that those worthless CDs have value and backs it up with its power to tax, so they take a part in the cheat because they stand to benefit from it.

Second, I do know how banks work. Ever read Von Mises? He has the exact same stance I have, if you ever read Rand, you would know she agreed with him economically. I would say that Objectivism dictates my position, but that isn't the point.

Banks do not have assets to cover their debts, and most of the time the assets they do possess will not cover their debts. For instance, when I got my car loan, the car was collateral. I paid 10,000 for the car. If the bank confiscated the car, if I default on my loan, it will not even get them close to 10,000 dollars. Paper is worthless. Lets say they print and have given out $1000 in CDs, yet they only have $100 in real MONEY gold. The paper is only worth the gold it represents. Thus all 1000 CDs only have worth relative to their gold. Thus each CD is only worth 1/10 of a dollars worth of gold. Or stated simply, they are only worth 10 cents each even though they may have a face value stated at a dollar. The bank cannot create value out of nothing. I only possess 500 dollars right now (this is my reserves). If I loaned out $5000 to my friends with interest, what would I be giving them? It doesn't matter that I print out checking deposits slips that say I loaned them 5000 dollars, I still didn't have the money to loan. The paper I gave them is worth considerably less than I printed on it.

Link to comment
Share on other sites

Banks do not have assets to cover their debts,... For instance, when I got my car loan, the car was collateral. I paid 10,000 for the car. If the bank confiscated the car, if I default on my loan, it will not even get them close to 10,000 dollars.
This is a minor point, but your car is not an asset of the bank. The loan itself is an asset. In other words, the bank's asset exists in the form of your promise to repay the whole amount. The car is merely extra security, as is the insurance policy that the bank will usually insist you take before they give you the money.

I would say that Objectivism dictates my position, but that isn't the point.
What is your position? In your first post, the one that started the thread, you state that money should be private. That's a similar stance as in second post in this thread. Basically, there was overwhelming agreement with your position from other posters, saying that Objectivism calls for separation of government and economics. It follows that money should be private.

The disagreements seem to be about how private banks might operate in a free-market, whether they will be called banks or brokers, and things like that. Or, am I missing the gist of your position?

Link to comment
Share on other sites

What if the bank does the same thing in a completely laissez-faire economy, WITHOUT any blessing or protection from the government, and with the full consent of the depositor? Would you still be opposed to it?

All that would have to happen is that both sides stop considering the deposit to be a money asset, and instead to be a debt asset, because that is what it is. Unlike our society, in which government makes it easy to pass off debt assets as money assets, in a capitalist society debt assets will not be treated as money either by the government - via legal tender laws - or by anybody else.

A simple Google search picked up an essay which clarifies some ideas.

Link to comment
Share on other sites

All that would have to happen is that both sides stop considering the deposit to be a money asset, and instead to be a debt asset, because that is what it is.

Is there a significant difference between the two?

A simple Google search picked up an essay which clarifies some ideas.

Good article; thanks for the link. The author is correct in his recognition that the distinction between the "warehousing" and "loan brokering" services crucial in understanding that both are legitimate ones, without any fraud or other form of force involved in either.

I do not share his prediction about what will happen in a free market, though:

Since a genuine need for safe storage does exist, there will also be someone, somewhere, who issues 100 per cent backed notes for the convenience of his customers, and those pieces of paper will circulate as money, by the natural workings of the market.

There is a need for safe storage of specific physical objects, but only in cases where the identity of the objects matters (such as jewelry, documents, or works of art). In the case of gold kept for later purchases, it does not matter if the bank returns you the exact same bar of gold you deposited or a different one (possibly of a different shape) that some other client deposited more recently. All you care about is to get back the exact same amount of gold. Because of this and because of the fact that interest-yielding "loan brokering" accounts are almost totally risk-free, clients will overwhelmingly prefer the latter.

Link to comment
Share on other sites

This is a minor point, but your car is not an asset of the bank. The loan itself is an asset. In other words, the bank's asset exists in the form of your promise to repay the whole amount. The car is merely extra security, as is the insurance policy that the bank will usually insist you take before they give you the money.

What is your position? In your first post, the one that started the thread, you state that money should be private. That's a similar stance as in second post in this thread. Basically, there was overwhelming agreement with your position from other posters, saying that Objectivism calls for separation of government and economics. It follows that money should be private.

The disagreements seem to be about how private banks might operate in a free-market, whether they will be called banks or brokers, and things like that. Or, am I missing the gist of your position?

I am saying that in a free market, having a bank not have as much assets as it has debts, would cause the market to value the money of a fractional reserve bank less, to the extent that the fraction of the reserve that is kept would cause the value of the CDs to equal the fraction of the total CDs divided by the amount of real money (gold) in the reserve. So if a bank had 2000 CDs out standing in loans and deposits, and only 200 in reserves, their CDs would be worth the fraction 2000/200 on a free market (only if no fraud is committed). Also if you read Von Mises "Theory of Money and Credit" you would know that fractional reserve banking is the cause of inflation and the business cycle, which are both bad things.

Also...

I think it is futile to talk to nimble until he at least understands the difference between a deposit into the bank and a loan from the bank.

I have never confused deposits with loans in any one of my posts. So I do not see any truth in your condescending statement.

Edited by nimble
Link to comment
Share on other sites

Here is a good selection from the Austrian School that illustrates the point I was trying to make.

We come now to perhaps the thorniest problem facing the monetary economist: an evaluation of "fractional reserve banking." We must ask the question: would fractional reserve banking be permitted in a free market, or would it be proscribed as fraud? It is well-known that banks have rarely stayed on a "100%" basis very long. Since money can remain in the warehouse for a long period of time, the bank is tempted to use some of the money for its own account—tempted also because people do not ordinarily care whether the gold coins they receive back from the warehouse are the identical gold coins they deposited. The bank is tempted, then to use other people's money to earn a profit for itself.

If the banks lend out the gold directly, the receipts, of course, are now partially invalidated. There are now some receipts with no gold behind them; in short, the bank is effectively insolvent, since it cannot possibly meet its own obligations if called upon to do so. It cannot possibly hand over its customers' property, should they all so desire.

Generally, banks, instead of taking the gold directly, print uncovered or "pseudo" warehouse receipts, i.e., warehouse receipts for gold that is not and cannot be there. These are then loaned at a profit. Clearly, the economic effect is the same. More warehouse receipts are printed than gold exits in the vaults. What the bank has done is to issue gold warehouse receipts which represent nothing, but are supposed to represent 100% of their face value in gold. The pseudo-receipts pour forth on the trusting market in the same way as the true receipts, and thus add to the effective money supply of the country. In the above example, if the banks now issue two million ounces of false receipts, with no gold behind them, the money supply of the country will rise from ten to twelve million gold ounces—at least until the hocus-pocus has been discovered and corrected. There are now, in addition to four million ounces of gold held by the public, eight million ounces of money substitutes, only six million of which are covered by gold.

Issue of pseudo-receipts, like counterfeiting of coin, is an example of inflation, which will be studied further below. Inflation may be defined as any increase in the economy's supply of money not consisting of an increase in the stock of the money metal. Fractional reserve banks, therefore, are inherently inflationary institutions.

Defenders of banks reply as follows: the banks are simply functioning like other businesses—they take risks. Admittedly, if all the depositors presented their claims, the banks would be bankrupt, since outstanding receipts exceed gold in the vaults. But, banks simply take the chance—usually justified—that not everyone will ask for his gold. The great difference, however, between the "fractional reserve" bank and all other business is this: other businessmen use their own or borrowed capital in ventures, and if they borrow credit, they promise to pay at a future date, taking care to have enough money at hand on that date to meet their obligation. If Smith borrows 100 gold ounces for a year, he will arrange to have 100 gold ounces available on that future date. But the bank isn't borrowing from its depositors; it doesn't pledge to pay back gold at a certain date in the future. Instead, it pledges to pay the receipt in gold at any time, on demand. In short, the bank note or deposit is not an IOU, or debt; it is a warehouse receipt for other people's property. Further, when a businessman borrows or lends money, he does not add to the money supply. The loaned funds are saved funds, part of the existing money supply being transferred from saver to borrower. Bank issues, on the other hand, artificially increase the money supply since pseudo-receipts are injected into the market.

A bank, then, is not taking the usual business risk. It does not, like all businessmen, arrange the time pattern of its assets proportionately to the time pattern of liabilities, i.e., see to it that it will have enough money, on due dates, to pay its bills. Instead, most of its liabilities are instantaneous, but its assets are not.

The bank creates new money out of thin air, and does not, like everyone else, have to acquire money by producing and selling its services. In short, the bank is already and at all times bankrupt; but its bankruptcy is only revealed when customers get suspicious and precipitate "bank runs." No other business experiences a phenomenon like a "run." No other business can be plunged into bankruptcy overnight simply because its customers decide to repossess their own property. No other business creates fictitious new money, which will evaporate when truly gauged.

The dire economic effects of fractional bank money will be explored in the next chapter. Here we conclude that, morally, such banking would have no more right to exist in a truly free market than any other form of implicit theft. It is true that the note or deposit does not actually say on its face that the warehouse guarantees to keep a full backing of gold on hand at all times. But the bank does promise to redeem on demand, and so when it issues any fake receipts, it is already committing fraud, since it immediately becomes impossible for the bank to keep its pledge and redeem all of its notes and deposits. [15]Fraud, therefore, is immediately being committed when the act of issuing pseudo-receipts takes place. Which particular receipts are fraudulent can only be discovered after a run on the bank has occurred (since all the receipts look alike), and the late¦coming claimants are left high and dry."

If the bank is not fraudulent about its practices and admits that its paper money (CDs) are not equivalent to the real money (gold), then the value of the CDs will fall to the right fraction of gold that they should represent (as I showed in many above posts). First, the practice of inflating the money supply is not beneficial at all economically. If the money supply increases, have capital goods, labor, or production increased? NO! So, what benefit does having more money in an economy have economically? None. It only causes inflation. Second, if gold is the medium of exchange, (not paper) why would the paper be worth the equivalent of gold when the ratio of CDs to gold is not 1:1 (or 100%)? If you can get passed those two issues you might have a case for fractional reserve banking, but you won't be able to. I think what you guys are arguing for is not a fractional reserve bank, but a financial planning firm, that you agree to "loan them" your money, then they take risks with your money (loan it to another at a higher interest rate than they are paying you), and meanwhile, you cannot redeem your money until they have received payments for the loan adventure they made on your behalf. That isn't a bank at all. And that isn't fractional reserves. Its financial planning.

Link to comment
Share on other sites

Also, I particularly liked this overview at the end of Rothbard's "What has government done to our money?"

What have we learned about money in a free society? We have learned that all money has originated, and must originate, in a useful commodity chosen by the free market as a medium of exchange. The unit of money is simply a unit of weight of the monetary commodity—usually a metal, such as gold or silver. Under freedom, the commodities chosen as money, their shape and form, are left to the voluntary decisions of free individuals. Private coinage, therefore, is just as legitimate and worthwhile as any business activity. The "price" of money is its purchasing power in terms of all goods in the economy, and this is determined by its supply, and by every individual's demand for money. Any attempt by government to fix the price will interfere with the satisfaction of people's demands for money. If people find it more convenient to use more than one metal as money, the exchange rate between them on the market will be determined by the relative demands and supplies, and will tend to equal the ratios of their respective purchasing power. Once there is enough supply of a metal to permit the market to choose it as money, no increase in supply can improve its monetary function. An increase in money supply will then merely dilute the effectiveness of each ounce of money without helping the economy. An increased stock of gold or silver, however, fulfills more non-monetary wants (ornament, industrial purposes, etc.) served by the metal, and is therefore socially useful. Inflation (an increase in money substitutes not covered by an increase in the metal stock) is never socially useful, but merely benefits one set of people at the expense of another. Inflation, being a fraudulent invasion of property, could not take place on the free market.

If inflation is a result of a increase in the money supply, and inflation also is a tax on the holders of money. Both economics definitions, then we can deduce that when a bank causes inflation it basically taxes both the depositor and the loanee for the benefit of the bank who holds the real money (which wont lose its value) and lets its fiduciary media lose value which luckily it isn't holding, the depositors and the loanees are holding. Thus giving the bank stolen real value. And even if all parties enter this willingly, the bank is at least not giving its customers a very good deal, which makes me think that on a free market, there would be no use for a business that screwed over its customers.

Link to comment
Share on other sites

Join the conversation

You can post now and register later. If you have an account, sign in now to post with your account.

Guest
Reply to this topic...

×   Pasted as rich text.   Paste as plain text instead

  Only 75 emoji are allowed.

×   Your link has been automatically embedded.   Display as a link instead

×   Your previous content has been restored.   Clear editor

×   You cannot paste images directly. Upload or insert images from URL.

Loading...
  • Recently Browsing   0 members

    • No registered users viewing this page.
×
×
  • Create New...