John McVey

What you've shown is an example of the epistemological corruption I was talking about. The modern equivocation on the meaning of the word "deposit" has become so widespread and entrenched that it isn't even fraud in the full legal sense to knowingly make use of that equivocation. All the links you provide are modern definitions - based on non-essentials - that have arisen well after the corruption took place (and subsequently enshrined in bank licencing law). And, I am sorry to say, it looks as though Miss Rand is a victim of it, too. Happily enough, however, it doesn't change Midas' point. Here's how to define a bank properly. A bank is to be distinguished from other financial institutions, such as insurance companies, stockbrokers, or cheque-cashing operations, so the genus is "financial institution." What distinguishes a bank(*) from the others is that its products are cash-handling and payments-systems services, as opposed to other financial products. Those services include coin minting and assay, note issue, deposit accounts of various kinds, cheque accounts, ATM access, currency exchange (the source of the word 'bank' itself and who were the people that Jesus booted out of the Temple), and so on. Not one iota of that requires that the bank lend out of any of the funds in those accounts or issue more notes than coins held in vaults. You can have a bank today put a halt to the practice and it will still be a bank because the true differentia remains: its financial product is systems and services that make cash-handing and making payments easier for their customers. It is this focus on cash services for customer convenience that separates a true bank from a money-lender as well as other financial instutions. That a bank may also engage in money lending, whether from its own equity or longer-term debt bought by customers, and use the same branches as used by its banking activities proper to achieve operational efficiencies thereby, is beside the point. A bank is a financial institution that provides services to provide customers more convenient means of receiving, exchanging, storing and paying money, through the provision of either accounts denominated in money or tokens redeemable in money. A bank practices fractional reserve banking if there is less money physically set aside for payment against accounts or tokens than the total numerical amount held in accounts or tokens outstanding. Whether a bank does this or not has no bearing on its status as a bank. (*) A bank under this definition includes credit unions. As far as I can tell so far, the difference was originally class-based nonsense - my own banking textbook explicitly says that the term 'bank' is denied to credit unions because it has a certain cachet that is to be denied to them for some unexplained reason - and later one of licencing, ownership structure and law that kept up the class-based habits. For instance, banks are now legally required to be corporations with a certain minimum of assets, while CU's are member associations with a minimum of 25 members. I see no real justification in retaining this distinction and the laws that maintain it. I *think* S&L's are in the same boat. ---- On top of all this, I constantly see floating about the idea that a bank that does not practice fractional reserves cannot make loans. This is completely untrue. All that the avoidance of the practice means is that accounts subject to payment on demand aren't lent out of, but there are plenty of other sources that a bank has recourse to. The bank's own cash as originally invested by the stockholders of both ordinary and preferred stock is an example from equity sources. Time "deposits" and certificates of "deposit" are examples from non-equity sources, but so also are issues of commercial notes, normal bonds, units in cash management trusts, and so on. In fact, the last time I looked at the statistics for finance in Australia (as it stood some time last year) I found that non-fractional sources outweighed fractional sources of loanable funds by a whopping seven to one. The implicit idea that the non-use of FRB would mean economic contraction through businesses being starved of debt funding needs to be thrown out root and branch. JJM

You're missing what makes FRB as fractional - that 'only' thing is almost the whole trick, and makes all the difference in the world. With a fractional account, the bank lends the physical funds at the same time as the customer being able to make non-physical transactions directly against the numerical contents of the account. They are called fractional because only a fraction of the numerical contents are kept aside for immediate payment on demand. That doesn't apply to time deposits and CD's etc because they are not subject to the contractual requirement of immediate payment - cashing them in prior to maturity is a sale, not a withdrawal. All the detail about the commercial risk in the physical lending is of no consequence to the issue of whether a given instrument is fractional or not. Discussion of what backs them and what their values are is only of importance when dealing with the issue of whether FRB has any merit. While keeping the practice to a minimum can mean there is little problem of stability, there is no way to make FRB a net contributor to the economy. I'm not going over all that again, I've explained it in detail (admittedly not all that well in places) elsewhere. That depends on the actual nature of the account. If the customer can issue checks, withdraw cash from an ATM or branch teller's window, and do direct deposits in and out of it etc, all directly changing the numerical contents of the account, then that account will be fractional if the bank lends out so much as a single cent from it. JJM

That's not true. He could have made loans either out of funds he and other stockholders invested as equity, plus out of longer-term debt instruments bought by other Gulch residents. IRL, for instance, you can make time deposits or buy CD's or any of a wide variety of other non-fractional products, where in turn the funding you provide is on-lent by the issuing bank. Mulligan merely needed to institute something like that in miniature if his own equity was insufficient and so still be a non-fractional bank. Banking can indeed run full swing, with total efficiency-of-scale, without resort to fractional reserve banking. And yes, sorry Toad, but that still makes the institution a bank in the full sense of the word. JJM

As far as history and politics are concerned, you're not telling me anything I don't already know and you're preaching to the choir. There are no Objectivists who would dispute that central banking, fiat currency, and other interventions are evil practices necessarily having evil consequences. Focussing on those achieves nothing. The real problem is that you haven't distinguished between unsound-if-excessive and unsound-in-principle, which is where the real debate among Objectivists lies. Leaving aside the references to consequences of intervention, what you have provided is concrete historal consequences of what could be claimed merely as excessiveness (which is precisely what many Objectivists do, even intelligent ones who have done some investigation into the matter such as Dr Binswanger), devoid of reference to integrating principles that would show that the practice is inherently unsound. Without the latter all you've got is a white-swans fallacy - and unlike its namesake is one that just happens to have a conclusion that is correct. You need the principles to prove the conclusion properly, and for that you need to refer to economics and what the relationship in real terms is between capital, interest, and the money supply, to demonstrate that the practice is negative sum. If all you have is history then all you can offer in reason is a caution whose strength tends to vary with the history but which is never fully conclusive - and as it stands, all the history says is: avoid central banking and other intervention like the plague, but beyond that if you just take care to go easy and watch the rationality of your banker then you should be okay. Until you can show the economic principles you're just making yourself look like a rationalist on the matter. JJM

For all the reasons that y feldblum raises as practical objections. The practice is actually a negative-sum game, where the risk to the economy is not compensated for elsewhere in the economy in any form at all. Still, there are still people who think there's nothing wrong with it. For them, the practice is merely taken "too far" today and that in an LFC world without a central bank backing up unsound banks it would be much more moderate. They cite the considerably higher reserve fractions prevalent in the 19th century, point out the non-existence of fraud in the proper sense of the word, have no objection in principle to the practice, and otherwise leave it at that. They are underpricing risk because they don't see that the practice is fundamentally worthless, and don't look into the economic details (which are daunting to the non-economistically minded). If they did that and assessed the risk properly they'd demand higher rates of return on the accounts (if they'd use them at all), and if risk were properly calculated the required rates of return would end up being higher than the returns the bank earns on the funds it lends back out again. JJM

Huh! A relevant poll I hadn't voted in. Problem solved. G'day! I thought I was the only active Ozzie left! I live about 400km west of Dingo Woop Woop, y'self? JJM

I see the topic has reared its head again in earnest I have no doubt that in the early days of the practice it was indeed naked fraud because the goldsmiths weren't doing what their deposit customers were paying them to do. Today, however, I doubt very much if there is anyone over the age of 18 who either doesn't know or is given plenty of evidence that they should ask what it is that banks do with the money in deposit accounts. In the UK, for instance, there is a famous legal case from the 19th century that dealt with this issue and came down on the side of the banks for that reason (I keep forgetting the citation, dammit). This case is still common law in the UK, and while no longer such in Commonwealth countries it is still held as "persuasive" in non-UK courts. From both a practical and legal point of view, there is no longer any fraud these days. To be fraud, there has to be express expectation of certain things being done, either explicitly stated or as "standard practice" well-known enough to be held as such in common law of contract. True, for any given practice there is a big gulf between what is done occasionally (including secretly) on the one hand and what is common enough to be "standard" and expected to be known by customers on the other, but that gulf got crossed a looooong time ago re banks' lending out of "deposit" accounts: the practice is by far commonly enough known (evidence of which includes the constant reignition of this very debate and related issues) so that those who don't know what banks are doing are the odd ones out. So, the worst one could say about the use of the word "deposit" here is epistemological corruption - I certainly decry that (and I did so on this forum last year, somewhere), but epistemological decay is not the same as immorality. Fractional reserve banking is to be addressed and refuted on epistemological and economic grounds. Ethical grounds do play into it, not in the anger-driven head-on manner that most opponents of the practice repeatedly resort to, but in regards to the exercise of rationality and pursuit of sound behaviour as appropriate to the context. JJM

This article is interesting - not so much for what it contains (the principles of which aren't new news to anyone paying attention to forest management politics), but the facts that these words are from government employees and that a known greenism-lite-sympathising outlet is allowing it to be published with little hedging (this same outlet published the link provided below). As of today, the toll is over 170 dead with several dozen more people still unaccounted for. The greenies are trying to make a global-warming issue out of the fires and also the floods up north, but with commentary like this in clear view sooner or later the bulk of the population is going to realise that environmentalism is predicated on the hatred of man and not concern for the environment. For instance, one enviromentalist with a piece in the papers is a loonie philosopher, not a proper scientist; others with a less misanthropic agenda set this creature right. Environmentalism kills, and the fuel build-up over winter is blatant evidence of this. JJM

Probably a delegation headed by Majikthise and Vroomfondel as representatives of the Amalgamated Union of Philosophers, Sages, Luminaries and other Professional Thinking Persons. Demarcation, that's what it's about. Discussion of that sort of topic is the inalienable prerogative of your working thinkers. JJM

Actually on the subject that say what I think is the right explanation as to why fractional reserve banking is dumb, no, not off the top of my head. As far as I can see (admittedly a somewhat limited literature review at present), all those in print opposed to FRB are out to waggle an angry (and wrong) finger about fraud and don't even slightly touch the real issue: FRB does not increase real maintainable capital beyond what would exist without the practice anyway (in fact it reduces it). The only reason why a bank in an LFC world could make a profit at it is because risk is being underpriced by its various customers. The practice of FRB will come to an end when a sufficient number of people finally figure that out, see that FRB contributes sweet FA to the economy, and so demand full-reserve accounts. To get a handle on some of the prerequisites for figuring that out, look up why capital and interest exist at all and what they mean in physical terms... and on that note, start with Capital and Interest by Eugene von Bohm-Bawerk. Once you've got the physical meanings under your belt, look up the theory of the risk-return spectrum, from low-risk short-dated bills on through to speculative-grade debt and equity, as found in any decent graduate-level book on investment and portfolio theory (be warned that there are unwarranted conclusions in MPT - you'll have to sort out the good stuff from the bad yourself). Finally, read up on theory of sound bank management (eg the principle of duration-matching) and then tease out some of the unstated implications re FRB from what these books are saying: if you can figure out why the practice of FRB is not sui-generis but part of a whole class of questionable practices in bank management then you're well on your way. Again, any respectable graduate-level book on the matter would likely do, but also again you'll have to sort out good from bad. Those three are the basics, and are enough for the intelligent to determine the rest on his or her own. I think you'll find it more worthwhile if you do all the legwork required and figure it out for yourself - it's not that hard, really, once you know what you're doing. There is one key to it all: remember that the physical world is paramount; always reduce every concept you use back to the physical world and see how these physical components interact in an integrated system. If you can stay true to that then with time and effort you'll get there. I stress this over and over and over, but it's always in-one-ear-out-the-other whenever I deal with people who see no problem with FRB. JJM

There are already a bunch of threads on this topic. It's not going to be settled in a forum like this because proper understanding requires knowledge of a vast array of complicated pre-requisite subjects that are themselves unsettled and not commonly understood even by professionals. FWIW, my own argument is that, yes, when people figure out what is really going on, free markets will move towards contractually secured full-reserve banking. Beyond that, please use the search function to read more, recognising that you're not going to get much satisfaction here. JJM

Happy New Year, all! I don't think you're happy enough... that's right, I'll teach you to be happy! I'll...

Two changes... Uy that part is ugly! Change it to read: - people adjust their spending on the 'how much' part above based on their estimation of: the number of dollars they can expect to get for a given amount of effort; the value of a dollar today; the value of a dollar tomorrow; and what sort of investment returns they can get; all of which judgements include physical estimations and so are heavily influenced by the physical consequences of prior spending. I made a typo. It should be "no clue why the velocity is what it is", not average holding. JJM

And this is part of the reason why we Objectivists insist on the culture - particularly intellectuals - having a good grasp of epistemological principles and why they are necessary for political change for the better. Now, if we could get that through to some good men fallen among libertarians... So the real question would be: what purpose would the differentiation serve? The ultimate aim is to help the lawmaker make good law. So, on what basis would a top-level differentiation assist the said lawmaker? What are the characteristics that unite examples of each of the top-level subdivisions and which differentiates each of those top-level subdivisions from each other? My answer is: they are differentiated among each other, and united within each other, on the basis of the principles by which the constituents of class is derived by the legislature, policed and prosecuted by the executive, and adjudicated on by the justice system. Law is necessarily a complex topic - but modern law IRL is far more complex that what should properly be the law. In most cases the law will not be more complicated than could be understood by the ordinary man - and nor should it be, as it is to the ordinary man that the bulk of law in daily use applies. More complicated law (eg corporations law) would only apply to those with the capacity to work in those contexts (eg financiers and executives). JJM

Christmas is over. Could someone please take the extra-strong eggnog away now? JJM

Exactly. A goodly proportion of the law - and disputes under that law - would revolve around that and similar issues. As with the implicit terms principle it would be as dicy as all hell and definitely require thorough grounding in rational principles of justice for its proper implementation else we'd have various groups 'interpreting' legal points this way and that to suit social agendas. It would be jointly owned to the extent it was jointly produced, because as in your dancer's example it would be knowledge of an act that both participated in. No, I think it apt to make the comparison with patents and copyrights - particularly jointly produced ones or ones made under contracts of employment. Again, it would be ported to a suitable personal context for the law out of the commercial one. I'd say there's very good reasoning for joint property, and also property entrusted under employment. It is to expected that certain things are to be kept private (eg an affair with a loose dancer), and that certain relationships imply this in regards to all that is learned (eg one's butler or maid finding out), with or without non-disclosure agreements. One of the reasons why blackmail would be attempted is precisely because the blackmailer knows that the expectation applies in that case. JJM

There is such a thing as proprietary information - I see the right to privacy as being in the same broader category as intellectual property of all kinds. The sole difference here is that the intellectual property in question is personal rather than of a commercial nature. A person owns personal information in the same way that an author owns the text of a novel or an inventor owns the design of a device. In the same manner, the government should punish the publisher of personal information in the same way that it should punish a violator of copyrights. Note, not quite incidentally, that proper ownership of copyright does not require having published what is protected. As a secondary note to the present issue but more in line with what Zip intended, I'd break up 'property crime' into 'real property crime' and 'intellectual property crime' because the distinction between them in terms of derivation, discovery and protection is substantial enough. So, no, I don't think the right to privacy is sui generis but is instead a derivative of intellectual property rights generally in a particular class of circumstances. (Update: my apologies for not giving credit where it is due - Featherfall mentioned this first.) You're right insofar as I have not correctly fully identified the mechanism for the right's enforcement, but that's easily fixed. The issue is about how the information is obtained, the circumstances therein, and violation of conditions of trade that existed as means to otherwise legitimate acquisition of the information. What the loose dancer you posit is doing is violating the implicit terms under which she obtains information. The law on privacy would then include consideration of what constitutes legitimate implicit terms in personal relations, just as law must consider implicit terms in regard to commercial contracts such as one finds in Parnerships Law. We can argue all day about the diciness of the principle of implicit terms, but that does not mean it is to be casually dismissed as non-existent. Improper use of information jointly owned with another. Its publication is not much different in principle from of breach of copyright, where instead of the owner losing a potential revenue stream from sales the owner loses values of a personal nature. The nature and size of the consequence is beside the point. A particular book or song may not gain the writer a single red cent, but it is still wrong for someone else to publish it without the writer's permission. I never said one did, I only said that these things were a value and so the breach of privacy could have definite results. The actual consequences in any case would only be used to determine an amount of damages in a civil case, and would have no bearing on a criminal case. Even if nothing whatever actually arises from it, or the notoriety actually boosts ones reputation or business custom, the offending party is still guilty in just the same way as someone can be guilty of reckless endangement without harming a soul. JJM

G'day Richard, welcome to the Forum! Try being a door-to-door surveytaker with a quota to meet, still walking around at that time of the day. I had some fun times, and not-so-fun times. JJM

Do I think it wrong to violate the right of privacy, irrespective of the publisher's reason? If it were done deliberately, yes. This only requires that a motive exist, the content of that motive being irrelevant. The right to freedom of the press is not a licence to publish whatever one pleases, but to publish anything so long as this act does not violate others' rights. The question after that, then, is of what is or is not a violation of privacy, revolving around the particular circumstances under which the information was obtained. I am not enough of a legal scholar to say whether it should be a crime to do so accidentally but I suspect it would in many cases. JJM

Blackmail is dependent on threats of a breach of the right to privacy, or is dependent upon and accessory to such breaches so as to get the information. If you deny the rightness of making blackmail a crime then you're denying the existence of the right to privacy. There is no exchange of values in this transaction, there is only the threat by one party to impose a negative value upon a second party unless that second party hands over positive values. The first party has done nothing to gain genuine permission to take ownership of the positive values from the second party. The values still rightfully belong to the second party, and are thus being stolen by the first party. I think you're letting your negative judgements of what sort of information it may be interfere with your judgement of the action itself. An alternative is to think of what if the information in question relates to something that the victim is genuinely not ashamed of, nor has any rational grounds to be ashamed of, but whose exposure would cause great difficulty for life among not-so-rational people. For instance, it is considerably less of a problem today, but being exposed as a homosexual or an atheist would be one such piece of personal information that is nobody else's business and which religious nuts attach considerable significance to. There is nothing to be ashamed of in either case, yet it would still be rational to keep it quiet under many circumstances. But whether rational or not, someone who demands money from the homosexual or atheist is guilty of a crime, irrespective of whatever we may think of the homosexual's or atheist's motives, and irrespective of whether the nutcases' reactions would be physical violence (eg as in Iran) or merely a shunning and loss of business custom (eg as in the West until the last few decades). JJM

Yes, I am well aware of that, and you wont get any argument from me on the matter. However, as true as that is, it is missing my point. I was responding to the idea that all libertarians were nothing but plagiarists of the words of Miss Rand. I was pointing out that there are other schools of libertarianism besides the US one, that these schools predate Miss Rand by a long shot, and that some US libertarians could be motivated by learning from these schools rather than from Rothbard et al (who are mere plagiarists). My warning is that if people just take the plagiarism idea and run with it rather than knowing a bit about history then they will look like the very dogmatists our opponents claim us to be. JJM

*preen* JJM

Don't be so damn parochial. Libertarianism as an explicitly named movement is global, and to avoid looking like a dogmatist on that stage it helps to know some history. As it is, the wikipedia says that Rothbard was familiar with Herbert. I do believe I said exactly that. JJM

There was a scene that I just had to laugh at. I don't know if Nolan was aware of this, but if he did it was an excellent and subtle way of letting people know of the ultimate incompetence of evil. JJM

No, it was later than that. The book dated from the 1890's or so, and I am pretty sure it was English. JJM Update: I did a little digging, and I think it was probably Auberon Herbert. Even if it weren't him in particular, his ideas demonstrate my point about UK libertarians having an origin in time well before Miss Rand's discoveries.