Jump to content
Objectivism Online Forum

On Private Banks

Rate this topic


ReasonAlone
 Share

Recommended Posts

Do you think counterfeiting should be illegal? If so, why? Would it still be wrong to pass counterfeit bills if everyone knew they were counterfeit, but still accepted them?
A counterfeit bill creates a claim with nothing to back it. If the bill is distinguishable from the real bill, why would anyone accept it? if it is not, then one has more claims than the thing being claimed.

Aha! you say...that's exactly what FRB does, by creating more claims to gold than the real gold.

However, properly conceived, this is not what happens under FRB. An FRB bank note is different from a 100% reserve bank note. The latter is a claim to the underlying gold. The former, properly conceived, is not. The FRB note is a claim to a certain milieu of bank-selected assets, but redeemable in gold under most ordinary conditions.

Skipping back to the example of the cafe, you say that the cafe-owner creates inflation, because he has created money. (There are so many different concepts of inflation, and I'm fine working with this one for the purpose of this thread.) Does it follow that there is something wrong about what the cafe-owner did? From what you've said, I think you would say that there isn't. Now, what if the IOU is made out to "The Bearer" (e.g. "I promise to pay the Holder of this note, 10 oz of Gold on or after Jan 1st 2010"). Let's say the cafe-owner wants to buy some supplies and the vendor says he will accept the IOU instead of cash. Now, this inflation seeps into one more layer. Would this be wrong in some way?

As for the Robinhood treasure, make it marginally more believable: Let's say Rockerfeller dies and in his will sends many millions of his gold to his relatives in little Ireland. Does he steal by doing so?

Link to comment
Share on other sites

  • Replies 120
  • Created
  • Last Reply

Top Posters In This Topic

Then I'm confused where our disagreement is. You asked me to show you force, I showed you a case where John and Jim both have claim to the same thing. Is there no case of fraud here?

No. John, Bank A and Jim made a deal, the terms of which are known to everyone involved.

Well, I'm no lawyer. As to 1: I mean the currency, whatever it is, is backed by real assets - something difficult to create or produce. As to 2: How about: No one can loan out currency they don't have?

1.

Here's a story:

Larry and me are in a room together. I pick up a piece of paper, and write the number 5 on it. 
Then I turn to Larry and say:
-Larry, I want to buy your watch, and I'm willing to pay you this piece of paper you saw me write the number 5 on.
Larry says:
-OK. Takes the watch, gives it to me. I give him the paper. We go our separate ways.[/code]

Next day the Police show up at both my door and at Larry's door, and they arrest us because we both used a currency which is not difficult to produce, and isn't backed by real assets. You have two people sitting in jail, because they broke the law you wrote, Jeff.

Why did the people enforcing your law initiate force against me and Larry, Jeff?

2. I agree, with a few changes: No one is allowed to misrepresent himself as the owner of something(currency or not) and then loan it out to someone. That would be fraud, and a violation of the rightful owner's rights. This law exists, I'm not allowed to loan out Larry's car for instance to anyone, or I'll be arrested.

On the other hand, let's say Larry shows up with a kilogram of gold at my house, and says to me:

--I know what you do buddy. You take everyone's gold, you lend 90% of it out with interest to people, and keep the rest in reserve. Now take my gold, do your thing with it, but give me a piece of paper which proves that I gave you this gold, and in addition says: [i]"I, Jake Ellison, promise the following: When someone shows up at my house next, holding this paper, I will pay them a kilogram of gold plus a gram for every full month that passed since today's date. I will do this, or if I am unable to, hand over my entire business to all the holders of these papers, in accordance with bankruptcy laws which are public knowledge. Also, I promise to close my door and file for bankruptcy the minute it becomes clear that I cannot pay out all the papers which are expected to be brought in"[/i]

I say:

--OK, Larry, give me the gold, here's the paper with my signature on it, go with God.

Then, I proceed to do with the gold exactly as I described. I lend out 90% of it to whomever I see fit. I keep the rest. I do my best to keep this balance: 90% lent out, 10% in the safe in the basement. [important note: !! That gold I lend out, it's not mine. I am violating Jeff's law, which says: No one can loan out currency they don't have!!]

Larry does with the piece of paper as he sees fit too: he goes to his cousin Moe, who owns a car dealership, and says:

--You know Jake, the guy we went to school with, here's this piece of paper he gave me. Do you want to give me a car for it? Moe says:

--You mean Curly the guy who does the FRB banking?

Larry says:

--Yeah, that's the guy, His real name is Jake Ellison.

Moe says:

--Ok, I know him. You got yourself a deal, cousin. [important note: !! Jeff doesn't think that Curly's note is real currency, he says that they're inflating the money supply just about now, so both Larry and Moe are in big trouble with the Law!!]

And Larry drives away into the sunset in his new car.

Only to find himself chased down by the Police, and behind bars. So is Moe, and so am I. Why, Jeff? Why did you have to write a law that allows the Police to initiate force against Larry, Moe, and me? We were all so happy. We all knew exactly what we were trading, we never deceived anyone, we never took anything from anyone, and yet, there we are, doing hard time in the slammer. (and for some reason smacking each other and bumping into solid objects all the time)

Edited by Jake_Ellison
Link to comment
Share on other sites

However, properly conceived, this is not what happens under FRB. An FRB bank note is different from a 100% reserve bank note. The latter is a claim to the underlying gold. The former, properly conceived, is not. The FRB note is a claim to a certain milieu of bank-selected assets, but redeemable in gold under most ordinary conditions.

I'm afraid I don't know what you mean here. Is what we have now "properly conceived?"

Are you arguing that when someone accepts a credit card, for example, it's possible they'll receive a piece of office furniture? With this argument, you're also presuming the bank has other assets. How did the bank get these assets? That office furniture was purchased by the owners of the bank. Do we assume the owners purchased this furniture with a promise to pay? Very well, did the people who made the furniture get their raw materials with a promise to pay? Very well, did the people who produced the raw materials do so with a promise to pay? You see, we could go all the way back to the beginning, but at some point, somone is going to have to give up real, existing, unconsumed goods in exchange for real, existing, unconsumed goods.

Skipping back to the example of the cafe, you say that the cafe-owner creates inflation, because he has created money. (There are so many different concepts of inflation, and I'm fine working with this one for the purpose of this thread.) Does it follow that there is something wrong about what the cafe-owner did? From what you've said, I think you would say that there isn't. Now, what if the IOU is made out to "The Bearer" (e.g. "I promise to pay the Holder of this note, 10 oz of Gold on or after Jan 1st 2010"). Let's say the cafe-owner wants to buy some supplies and the vendor says he will accept the IOU instead of cash. Now, this inflation seeps into one more layer. Would this be wrong in some way?

Just as when we confined the coffee shop example to you and this one customer, if this vendor has no other customers then no problem, but I highly doubt that's reality. If this vendor supplies others, then he's going to raise his prices. In other words, all those who pay with gold (or currency) will find their gold no longer purchases as much as it used to. Is this wrong?

As for the Robinhood treasure, make it marginally more believable: Let's say Rockerfeller dies and in his will sends many millions of his gold to his relatives in little Ireland. Does he steal by doing so?

No.

Link to comment
Share on other sites

A counterfeit bill creates a claim with nothing to back it. If the bill is distinguishable from the real bill, why would anyone accept it? if it is not, then one has more claims than the thing being claimed.

Aha! you say...that's exactly what FRB does, by creating more claims to gold than the real gold.

Yes, that would be the correct complaint against fractional-reserve notes.

However, properly conceived, this is not what happens under FRB. An FRB bank note is different from a 100% reserve bank note. The latter is a claim to the underlying gold. The former, properly conceived, is not. The FRB note is a claim to a certain milieu of bank-selected assets, but redeemable in gold under most ordinary conditions.

Banks typically tend to tell their customers that demand deposits are safe. But according to you, banks should actually be warning their customers that demand deposits will mostly be safe, for most people, for the next couple years - until the current economic boom (caused by credit expansion, itself caused by fractional-reserve banking) ends with a bust, and all the bank' customers attempt to withdraw their deposits and the banks are forced to liquidate, at which point the banks' customers' accounts will be proven to be what they actually are: not money.

In fact, banks actually do slap something of a warning label on their demand deposit accounts. The warning label reads: "FDIC Insured." Banks and their customers, however, tend to treat this as a stamp of Federal approval. What it really means, though, is that the government explicitly and inappropriately grants protection to a widespread and virulent fraud. As Gresham's Law states, "bad money drives out good." Fractional-reserve notes are bad money, and their prevalence and the protection they enjoy are destroying the country's money and, ultimately - as we see all around us this past year -, its economy, its liberty, and its people.

Link to comment
Share on other sites

No. John, Bank A and Jim made a deal, the terms of which are known to everyone involved.

Except Home Depot. Home Depot has a promise from Bank A to pay them $100 in currency. Will Home Depot get paid?

Next day the Police show up at both my door and at Larry's door, and they arrest us because we both used a currency which is not difficult to produce, and isn't backed by real assets. You have two people sitting in jail, because they broke the law you wrote, Jeff.

Why did the people enforcing your law initiate force against me and Larry, Jeff?

First, Jake, your writing sort of implies you're getting frustrated. We're working in an imperfect medium, so that's only my impression. But if you are, may I recommend you step away for awhile? I'm really trying to explain my position to you, and I apologize if I'm not doing a very good job, but there's no point in getting upset about it. If it's not working, it's not working and we can part amicably.

Secondly, you did not use currency. You didn't even create money. Moreover, what you exchanged wasn't backed by assets - they were assets. It's not currency because currency is the official money used in a particular country; it's the bills and coins of legal tender sanctioned by the state. It's not money because money is property which can be exchanged for most other property or labour; you'll have a hard time getting anyone else to accept your piece of paper, or Larry's watch, for anything else let alone most anything else. From a legal standpoint (according to the admittedly poor law I wrote), there would be no reason for the cops to arrest you.

What you exchanged were real assets; your paper for Larry's watch. You no longer retain the power to use the paper, Larry no longer retains the power to use his watch. Let's contrast that with FRB. In our running example of Farmer John and Jim, Farmer John retains the use of his $100. He loaned part of it to Jim, but he's also giving it to other people. How many people should he be allowed to give it to? Well, if we let reality be the arbiter, then John shouldn't be allowed to give it to any other people. He's already given it to Jim.

2. I agree, with a few changes: No one is allowed to misrepresent himself as the owner of something(currency or not) and then loan it out to someone. That would be fraud, and a violation of the rightful owner's rights. This law exists, I'm not allowed to loan out Larry's car for instance to anyone, or I'll be arrested.

I wasn't going to parse this, but you're attributing a lot to me which needs to be clarified. In addition, I think we might be very close and hopefully being specific with this new example may help. In your example you're arguing that you should be allowed to loan out Larry's gold, even though you either a) don't own it (since you argue you don't have any of Larry's gold), or b ) Larry's still using it. How is this different from loaning out Larry's car if you either a) don't have Larry's car, or b ) Larry's still using it?

On the other hand, let's say Larry shows up with a kilogram of gold at my house, and says to me:

--I know what you do buddy. You take everyone's gold, you lend 90% of it out with interest to people, and keep the rest in reserve. Now take my gold, do your thing with it, but give me a piece of paper which proves that I gave you this gold, and in addition says: "I, Jake Ellison, promise the following: When someone shows up at my house next, holding this paper, I will pay them a kilogram of gold plus a gram for every full month that passed since today's date. I will do this, or if I am unable to, hand over my entire business to all the holders of these papers, in accordance with bankruptcy laws which are public knowledge. Also, I promise to close my door and file for bankruptcy the minute it becomes clear that I cannot pay out all the papers which are expected to be brought in"

I say:

--OK, Larry, give me the gold, here's the paper with my signature on it, go with God.

Then, I proceed to do with the gold exactly as I described. I lend out 90% of it to whomever I see fit. I keep the rest. I do my best to keep this balance: 90% lent out, 10% in the safe in the basement. [important note: !! That gold I lend out, it's not mine. I am violating Jeff's law, which says: No one can loan out currency they don't have!!]

You don't have the currency? What about the gold? Do you have that?

Larry does with the piece of paper as he sees fit too: he goes to his cousin Moe, who owns a car dealership, and says:

--You know Jake, the guy we went to school with, here's this piece of paper he gave me. Do you want to give me a car for it? Moe says:

--You mean Curly the guy who does the FRB banking?

Larry says:

--Yeah, that's the guy, His real name is Jake Ellison.

Moe says:

--Ok, I know him. You got yourself a deal, cousin. [important note: !! Jeff doesn't think that Curly's note is real currency, he says that they're inflating the money supply just about now, so both Larry and Moe are in big trouble with the Law!!]

Your note, right? Your note isn't currency, but if it will be accepted by most everyone in exchange for goods and services, then it is real money. But let's go back a bit in your example. Why not just let Larry keep the gold? I mean, if you're going to just loan out a promise, why do you need Larry? Furthermore, how can Larry go buy a car, use his gold, when you've already loaned his gold out? What will Curly get? Will he get gold?

Let's bring the example back to reality. In reality, I can depost money into a checking account and start writing checks for existing, unconsumed goods with all of that money. The bank I deposited my money in can loan part of that money out. The person they loan that money out to can use that money to purchase existing, unconsumed goods. What, in reality, allows us both to use the same money?

And Larry drives away into the sunset in his new car.

Only to find himself chased down by the Police, and behind bars. So is Moe, and so am I. Why, Jeff? Why did you have to write a law that allows the Police to initiate force against Larry, Moe, and me? We were all so happy. We all knew exactly what we were trading, we never deceived anyone, we never took anything from anyone, and yet, there we are, doing hard time in the slammer. (and for some reason smacking each other and bumping into solid objects all the time)

You decieved me, and everyone else who produced something for their money. I go into Curly's with my gold and discover my gold no longer purchases what it used to purchase because everyone suddenly has a lot more money without having to do any work for it.

Imagine this: Curly's got a car on sale for 1kg of gold. Larry and I show up at the same time and both offer 1kg of gold at the same time. Curly says, "Gosh, this is a toughy. You both showed up at the exact same time and I'm not sure who I should sell the car to." Larry says, "Hang on a sec. I'll go get more money and come back." Now, I know there's only 2kg of gold in the entire economy, so it's impossible for Larry to come back with more money. Larry shows up at your door and says, "Jake, I'll deposit 1kg of gold in your account if you loan it back to me." You agree. Larry returns to the dealership and says, "Curly, I'll give you 1kg of gold AND I'll give you this note from Ellison's bank for another 1kg of gold. You get 2kg of gold for the car." I stand there with my mouth agape. Nothing wrong with this?

Edited by JeffS
Link to comment
Share on other sites

First, Jake, your writing sort of implies you're getting frustrated.

I'm not, I was just going for a dramatic touch.

You deceived me, and everyone else who produced something for their money. I go into Curly's with my gold and discover my gold no longer purchases what it used to purchase because everyone suddenly has a lot more money without having to do any work for it.

I never even met you.(in the example I mean) How could I deceive you, when we never even talked? That's the most absurd claim!

Imagine this: Curly's got a car on sale for 1kg of gold. Larry and I show up at the same time and both offer 1kg of gold at the same time. Curly says, "Gosh, this is a toughy. You both showed up at the exact same time and I'm not sure who I should sell the car to." Larry says, "Hang on a sec. I'll go get more money and come back." Now, I know there's only 2kg of gold in the entire economy, so it's impossible for Larry to come back with more money. Larry shows up at your door and says, "Jake, I'll deposit 1kg of gold in your account if you loan it back to me." You agree. Larry returns to the dealership and says, "Curly, I'll give you 1kg of gold AND I'll give you this note from Ellison's bank for another 1kg of gold. You get 2kg of gold for the car." I stand there with my mouth agape. Nothing wrong with this?

[Notes:

There's not two kg of gold in the entire world, in my example we are in the real world (in a far nicer future world though, without any government backed currency), and there's plenty of gold and people. But I don't think it matters anyway.

You've also switched the names: I'm actually Curly (it's my nickname, I was going for the hackiest reference in history), the car dealership guy is Moe. But that's understandable, my story was confusing, and there was no need to use two names for myself. Sorry 'bout that.]

That said: If I decided to loan Larry 1 kg of gold, so that he can buy a car with it, I'd be a pretty lousy banker. I would not stay in business long enough for Moe(the car dealership guy) to have heard of me, and accept my notes. But that's not really an issue that should concern the Law. As long as everyone is aware of what's going on, that's our business.

You don't have the right to have Moe sell you that car. If he'd rather accept two pieces of paper from Larry, than your gold, that's his business. The idea that you are wronged by this arrangement implies that you somehow have the right to deal with the dealership on your own terms.

Surely you understand that your rights to life, liberty and property have not been violated, by Moe denying you the right to buy his car, in favor of his arrangement with Larry and I. If Moe wants to enter into this complex arrangement, in which Larry gives me a kg of gold, I give Larry a piece of paper and the gold back, and then he gives Larry a car for a kg of gold+ a piece of paper which at this point is surely worthless (where on earth would I get another kg of gold), what's it to you? You can take your gold, and go do business with someone who's a little smarter than us three silly geese.

The point is that stopping us, and forcing Moe to disregard our arrangement and treat you and Larry as equals, would be initiation of force.

..................................................................................

I decided (to better illustrate how you're the one initiating force here, and also to continue my hack joke) to create a very short side-scenario. Forget my banking thing for a second, I don't do that in this scenario. In fact there's no FRB involved.

What if Moe, Larry and I decided, out of the blue, to simply print 300 unique notes called stooges, divide the notes among ourselves, and from that point on also trade using these notes, alongside gold, and consider these stooges to be each worth an ounce of gold. (we each sign a contract-in fact every stooge has a copy of these signed contracts printed on the back- that we shall always exchange a stooge for an ounce of gold, from whoever is holding it and requesting us to do so--just to spite this guy Jeff who doesn't like it when the money supply is getting inflated)

Would you still consider yourself wronged (and justified in stopping us) if Larry (or someone else, it doesn't even have to be Larry, since he can give his stooges away) showed up at the dealership, and offered Moe 1 kg of gold and on top of it one stooge? If no, what is the difference between this scenario, and the one you describe (with Larry borrowing 1 kg of gold from me).

And if the answer is yes, I believe this is finally a simple enough scenario where you can easily point out the force or deception we are using to either steal something or defraud someone. There really is no excuse, like saying that the system is complicated enough to hide the deception from average people.

Link to comment
Share on other sites

I never even met you.(in the example I mean) How could I deceive you, when we never even talked? That's the most absurd claim!

Here's what I don't understand: Is it morally wrong for the government to print off currency not backed by any economic production? If so, why?

You've also switched the names: I'm actually Curly (it's my nickname, I was going for the hackiest reference in history), the car dealership guy is Moe. But that's understandable, my story was confusing, and there was no need to use two names for myself. Sorry 'bout that.]

That's actually very funny. I didn't even get the Three Stooges reference until you pointed it out. Guess I'm trying to keep too many balls in the air without dropping any.

You don't have the right to have Moe sell you that car.

Absolutely, unequivocably agree, and I didn't mean to imply that I did have a right to force Moe to sell me the car.

You've skipped over quite a few questions that I think will really help us get to the bottom of this:

1) In our running example of Farmer John and Jim, Farmer John retains the use of his $100. He loaned part of it to Jim, but he's also giving it to other people. How many people should he be allowed to give it to?

2) In your example you're arguing that you should be allowed to loan out Larry's gold, even though you either a) don't own it (since you argue you don't have any of Larry's gold), or b ) Larry's still using it. How is this different from loaning out Larry's car if you either a) don't have Larry's car, or b ) Larry's still using it?

3) In reality, I can depost money into a checking account and start writing checks for existing, unconsumed goods with all of that money. The bank I deposited my money in can loan part of that money out. The person they loan that money out to can use that money to purchase existing, unconsumed goods. What, in reality, allows us both to use the same money?

I respond to the rest of your post with the hope that you'll answer these questions.

I decided (to better illustrate how you're the one initiating force here, and also to continue my hack joke) to create a very short side-scenario. Forget my banking thing for a second, I don't do that in this scenario. In fact there's no FRB involved.

What if Moe, Larry and I decided, out of the blue, to simply print 300 unique notes called stooges, divide the notes among ourselves, and from that point on also trade using these notes, alongside gold, and consider these stooges to be each worth an ounce of gold. (we each sign a contract-in fact every stooge has a copy of these signed contracts printed on the back- that we shall always exchange a stooge for an ounce of gold, from whoever is holding it and requesting us to do so--just to spite this guy Jeff who doesn't like it when the money supply is getting inflated)

Would you still consider yourself wronged (and justified in stopping us) if Larry (or someone else, it doesn't even have to be Larry, since he can give his stooges away) showed up at the dealership, and offered Moe 1 kg of gold and on top of it one stooge? If no, what is the difference between this scenario, and the one you describe (with Larry borrowing 1 kg of gold from me).

And if the answer is yes, I believe this is finally a simple enough scenario where you can easily point out the force or deception we are using to either steal something or defraud someone. There really is no excuse, like saying that the system is complicated enough to hide the deception from average people.

Yes, you're (or someone is) stealing the purchasing power of whomever actually has gold to buy the goods or services Moe (?) is offering. I must say, though, this example is getting further and further from reality. The deception you're using is to pass off your Stooges as representing real, existing unconsumed goods. They don't. If I managed to convince someone that my piece of paper represented real, existing, unconsumed goods (like with a very good counterfeit), and they managed to convince someone else this counterfeit represented real, existing, unconsumed goods, I don't think you'd be so quick to let me off the hook. I don't think you would argue I haven't done anything wrong.

Link to comment
Share on other sites

The deception you're using is to pass off your Stooges as representing real, existing unconsumed goods.

No we're not. We told you and the whole world exactly what we are doing, and in fact we printed exactly what we are doing on the back of every single stooge: We are promising to pay an ounce of gold any time someone gives us a stooge.

Let me add this, for the sake of clarity, although I think it was already clear enough. On the front of every stooge, we will also print exactly what the stooge is: "Listen up gents! This stooge is one piece of paper out of the 300 unique notes Larry, Curly and Moe printed for the sole purpose of inflating the money supply, to bother one man by the name of Jeff. Make no mistake, there is nothing backing it except what it says on the back, it represents nothing else except what it says on the front."

That is what it is, that is what is printed on it. Who is being deceived (deceived means lied to, mislead-just to be clear)?

P.S. For this to actually work(be 100% realistic), there would have to be some kind of interest we pay on the stooge (let's say an extra half a gram of gold added to the ounce for every year that passes from the day we issued them), but that changes nothing.

Link to comment
Share on other sites

... But according to you, banks should actually be warning their customers that demand deposits will mostly be safe,... ...
The nature of the warnings or other conditions etc. is open, but since my first post I've been clear that the context in which FRB is not fraud is one in which its nature is clear to all. One might argue that certain other contractual conditions would be required to be spelled out: for instance conditions about the nature of availability of gold and conditions under which gold-payment may be curtailed, delayed or suspended.

However, the discussion does not go down that line, because -- I believe -- JeffS thinks that all that would not change the essential nature of FRB as being theft. There is a second sub-thread to the argument: which is the "third party" vein. The idea seems to be that if A accepts some non-money from B (or, from enough B's) that will raise prices for C and others (since their money now chases fewer goods). Regardless of the truth of this in economics, I argue that this is not theft or fraud.

Link to comment
Share on other sites

No we're not. We told you and the whole world exactly what we are doing, and in fact we printed exactly what we are doing on the back of every single stooge: We are promising to pay an ounce of gold any time someone gives us a stooge.

Very well, no fraud, just theft.

I take it you won't answer the questions in my last post?

Link to comment
Share on other sites

The nature of the warnings or other conditions etc. is open, but since my first post I've been clear that the context in which FRB is not fraud is one in which its nature is clear to all. One might argue that certain other contractual conditions would be required to be spelled out: for instance conditions about the nature of availability of gold and conditions under which gold-payment may be curtailed, delayed or suspended.

However, the discussion does not go down that line, because -- I believe -- JeffS thinks that all that would not change the essential nature of FRB as being theft.

Not at all. If the money can't be used by two people at the same time, then there's no inflation of the money supply, there's no theft.

What constraints does reality put on what someone does with their unconsumed goods (their money)? Reality allows them to hold on to it, or spend it. They can't do both at the same time, nor can they hold or spend more of it than they have. Loaning money is a form of spending it. Reality prevents us from loaning money to Peter, and then buying something with the same money from Paul.

Enter FRB. Now, I can deposit my money in a bank and have them loan money out to Peter while I go on a shopping spree at Paul's to spend the same money. Peter goes to Paul's right after me and uses my money to go on his own shopping spree. With FRB we can all seemingly get away from reality.

If the bank prevents you from using the same money you loaned to Peter, perhaps by curtailing, delaying, or suspending your payment then there is no increase in the money supply; then there is no theft. We have these today: time deposits. I wouldn't care if a bank loaned out 100% of its time deposits. In fact, as long as the bank manager was prudent, I'd want him to loan out 100% of my time deposit. This is entirely consistent with reality since I can't spend that money while someone else is.

It's a very different situation when the bank loans out portions of demand deposits. That is a denial of reality. That enables the depositor and the debtor to use the same money at the same time. That is inflation of the money supply, and functionally no different from the government printing off more fiat currency bills.

Link to comment
Share on other sites

Not at all. If the money can't be used by two people at the same time, then there's no inflation of the money supply, there's no theft.

Enter FRB. Now, I can deposit my money in a bank and have them loan money out to Peter while I go on a shopping spree at Paul's to spend the same money. Peter goes to Paul's right after me and uses my money to go on his own shopping spree. With FRB we can all seemingly get away from reality.

It's a very different situation when the bank loans out portions of demand deposits. That is a denial of reality. That enables the depositor and the debtor to use the same money at the same time. That is inflation of the money supply, and functionally no different from the government printing off more fiat currency bills.

This sort of example is where it gets really bizarre. If my money is in a bank, I'm not using it. If I pull my money out of a bank, then they can't loan it out to others, hence, others cant use it. The senario above never occurs.

You're suggesting instead that theft occurs if I have a claim on the same money that someone else happens to be using at the time, then. If this qualifies as theft, then modern finance does too. Any loan that can be called back suffers from this exact same case. The fact that the callability of this deposit is arbitrarily decided by me the depositor doesn't change anything.

Link to comment
Share on other sites

I'm sticking to this example, because it's simpler. Theft means force. We'd have to remove something that belongs to someone else, without their consent. Where's the force?

By increasing the money supply you're removing the value of my gold without my consent. Inflation is an increase in the money supply. Inflation is a value destroyer, that's why it's immoral for the government to print off fiat currency bills at will. This is the argument Rand is making in the quote Mr. McKeever posted as well as Francisco's money speech in AS. She argued increasing the money supply without commensurately increasing economic production constitutes a theft of value from those who own it. If increasing the money supply is immoral and theft when the government does it, why is it not immoral and theft when private individuals or banks do it?

Link to comment
Share on other sites

If increasing the money supply is immoral and theft when the government does it, why is it not immoral and theft when private individuals or banks do it?

Choice.

No central bank means multiple currency systems, potentially based on different models, giving you the choice of which to use.

Link to comment
Share on other sites

This sort of example is where it gets really bizarre. If my money is in a bank, I'm not using it. If I pull my money out of a bank, then they can't loan it out to others, hence, others cant use it. The senario above never occurs.

The scenario occurs all the time. You are using it by writing checks, or presenting some other sort of bank note. Those checks and banknotes are money. Since they are, the effect is the same - an increase in the money supply. You can leave your currency (or gold) in the bank, and still use it despite the fact that someone else is using the money they borrowed from you.

Choice.

No central bank means multiple currency systems, potentially based on different models, giving you the choice of which to use.

True, but that's not the system we have now.

Link to comment
Share on other sites

By increasing the money supply you're removing the value of my gold without my consent. ... She argued increasing the money supply without commensurately increasing economic production constitutes a theft of value from those who own it.

She most certainly did no such thing:

A right cannot be violated except by physical force. One man cannot deprive another of his life, nor enslave him, nor forbid him to pursue his happiness, except by using force against him. Whenever a man is made to act without his own free, personal, individual, voluntary consent—his right has been violated.

Therefore, we can draw a clear-cut division between the rights of one man and those of another. It is an objective division—not subject to differences of opinion, nor to majority decision, nor to the arbitrary decree of society. No man has the right to initiate the use of physical force against another man.

What I highlighted in red could not possibly leave any doubt to what Ayn Rand meant by violating individual rights. Physical force.

What you are describing is Larry, Curly and Moe using some kind of vodoo magic which only exists in people's heads (some kind of value you attribute to your "money", which you supposedly have a right to have stay unchanged). However, Ayn Rand was very clear on what you have the right to. You have the right to not have physical force, as described by one Isaac Newton, used against you. Nothing else. Nothing!!! A right cannot be violated except by physical force.

My source for the quote.

P.S. I believe we found your error (and if McKeever is against FRB on the grounds that it inflates the money supply, then this is his error too. But I don't know his work). There are only one set of individual rights which can be applied to everyone equally, without them conflicting. They are as Ayn Rand described them. In the quote above, she makes it easy to understand them, by tying them to a simple concept: physical force.

Through this thread you repeatedly tried to justify laws without considering this explanation Ayn Rand gave. I believe you need to integrate this explanation, and revise your entire view on banking and money, based on it. Then we can agree that a bank cannot engage in theft (unless they dress up in black and go to people's houses to steal their money), and discuss what a bank needs to do to not commit fraud while practicing FRB-along the lines of what people in this thread (Kendall, Nerd, Agrippa1, John) have been suggesting.

Edited by Jake_Ellison
Link to comment
Share on other sites

Not at all. If the money can't be used by two people at the same time, then there's no inflation of the money supply, there's no theft.
I'm sorry if I misrepresented what you were saying, Jeff. I don't think I did, because I was speaking of the idea that the system would constitute fraud/theft exists regardless of the knowledge of all the parties accepting the notes.

It seems that you're objecting to people deciding what they want to use as money. People should be free to choose what they will use as money: be it something concrete like a sea-shell or a gold coin, or something nebulous like a promise written on paper.

I suspect we might have reached a point of needing to "agree to disagree".

Link to comment
Share on other sites

What I highlighted in red could not possibly leave any doubt to what Ayn Rand meant by violating individual rights. Physical force.

What you are describing is Larry, Curly and Moe using some kind of vodoo magic which only exists in people's heads (some kind of value you attribute to your "money", which you supposedly have a right to have stay unchanged). However, Ayn Rand was very clear on what you have the right to. You have the right to not have physical force, as described by one Isaac Newton, used against you. Nothing else. Nothing!!! A right cannot be violated except by physical force.

I appreciate you being so passionate about this, and pointing it out to me in vibrant colors. But we've already agreed fraud is a violation of rights. And, if I recall my Newton correctly, he mentions nothing about fraud.

Rand writes here:

"A unilateral breach of contract involves an indirect use of physical force: it consists, in essence, of one man receiving the material values, goods or services of another, then refusing to pay for them and thus keeping them by force (by mere physical possession), not by right—i.e., keeping them without the consent of their owner. Fraud involves a similarly indirect use of force: it consists of obtaining material values without their owner’s consent, under false pretenses or false promises."

Therefore, fraud is a form of theft.

She also writes:

"...“inflation” does not mean growth, enlargement or expansion, it means an “undue”—or improper or fraudulent—expansion. The expansion of a country’s currency (which, incidentally, cannot be perpetrated by private citizens, only by the government) consists in palming off, as values, a stream of paper backed by nothing but promises (or hot air) and getting actual values, the citizens’ goods or services, in return—until the country’s wealth is drained. A similar activity, in private performance, is the passing of checks on a non-existent bank account. But, in private performance, this is regarded as a crime—and most people understand why such an activity cannot last for long."

From the same page, Alan Greenspan writes:

"The law of supply and demand is not to be conned. As the supply of money (of claims) increases relative to the supply of tangible assets in the economy, prices must eventually rise. Thus the earnings saved by the productive members of the society lose value in terms of goods. When the economy’s books are finally balanced, one finds that this loss in value represents the goods purchased by the government for welfare or other purposes with the money proceeds of the government bonds financed by bank credit expansion.

In the absence of the gold standard, there is no way to protect savings from confiscation through inflation. There is no safe store of value. If there were, the government would have to make its holding illegal, as was done in the case of gold."

From these quotes we can deduce the following:

Ayn Rand objected to government inflation of the money supply because it is the exchange of "paper backed by nothing but promises" for actual values. She objects to inflation of the money supply because it results in the loss of value in the savings of productive members of society. She believes inflation to be fraudulent - an indirect use of physical force consisting "of obtaining material values without their owner’s consent, under false pretenses or false promises." She doesn't object because it's government inflating the money supply. She objects because of the effect inflating the money supply has.

In trying to ascertain what she might have said about our current use of FRB, we need ask ourselves only one question: Does the manner in which we use FRB today, i.e. allowing people to loan their money while simultaneously using it to obtain material values, result in inflation; does it increase the money supply? If the answer is, "Yes," then I think we have to conclude she would also see this as fraud, as theft, for the same reasons. The effect is to obtain material values for nothing more than paper backed by promises. It doesn't represent existing production, at best it represents future production.

I'm sorry if I misrepresented what you were saying, Jeff. I don't think I did, because I was speaking of the idea that the system would constitute fraud/theft exists regardless of the knowledge of all the parties accepting the notes.

No reason to apologize. It appears I misunderstood your point. Here's an interesting quote from Rand I found while doing some research for the above:

"The “wage-price spiral,” which is merely a consequence of inflation, is being blamed as its cause, thus deflecting the blame from the real culprit: the government. But the government’s guilt is hidden by the esoteric intricacies of the national budget and of international finance—which the public cannot be expected to understand—while the disaster of nationwide strikes is directly perceivable by everyone and gives plausibility to the public’s growing resentment of labor unions."

Here, it doesn't seem she's so expectant of "the public" to understand what's going on with respect to financial "intricacies." A good argument could be made, I think, that she's arguing even if banks provide knowledge of what they're doing, that's not enough to argue they're morally correct in what they do. I mention this not as a point of contention, only as a point of interest. I maintain that if everyone knows what they're getting into, or if they choose to remain ignorant, then they get what they get and shouldn't pitch a fit.

It seems that you're objecting to people deciding what they want to use as money. People should be free to choose what they will use as money: be it something concrete like a sea-shell or a gold coin, or something nebulous like a promise written on paper.

I do object to people deciding what they want to use as money, and I think you would, too. Surely you would object to me printing off a bunch of counterfeit bills? Surely you would object to me paying you with sea-shells?

Money, in order to be money, must be widely accepted for most goods and services. If sea-shells are widely accepted for most goods and services, I have no problem with that. I also don't have a problem with people exchanging assets - barter. If you want to exchange your rare $10 bill, which is a fine representation of early 1800s counterfeiting techniques, for my 1oz of gold - no problem. But it must be recognized that you haven't created a new type of money. We've exchanged assets, and nothing more. What I do have a problem with is, after establishing that sea-shells are money, someone handing over fake sea-shells (counterfeits), or someone loaning sea-shells while simultaneously spending those same sea-shells (FRB on demand deposits).

I suspect we might have reached a point of needing to "agree to disagree".

I agree. Thank you very much for the very interesting and civil discussion, softwareNerd.

Edited by JeffS
Link to comment
Share on other sites

This sort of example is where it gets really bizarre. If my money is in a bank, I'm not using it. If I pull my money out of a bank, then they can't loan it out to others, hence, others cant use it. The senario above never occurs.

If you put your money in a bank, you can write checks against it. If you put your gold in a bank (back when we used gold as money), you can receive receipts for it which are as good as money.

That is, until fractional-reserve banking enters the show. That's when things get more complicated. That's when you start writing checks against the same deposits that were loaned out in a sub-prime mortgage which the bank now hopes to collect at 50 cents on the dollar. That's also when the FDIC shuts your bank down (bank failures and FDIC takeovers). In a real-world economy, you would lose your deposits because the bank defrauded you, but of course in today's liquid world, the rest of America is paying for your and your bank's mistakes.

Link to comment
Share on other sites

The scenario occurs all the time. You are using it by writing checks, or presenting some other sort of bank note.

No you remove it by doing this. Don't confuse the actual use with the potential use. You claim it from the bank to put it into use. Your notes are claim slips to use the funds. The fact that that capacity for use exists, does not mean the actual use exists. You cannot simultaneously leave it in the bank and "use" it. Your deposit is a loan to the bank according to FRB. It is a callable loan, but a loan none the less. And since you knew this up front, then you cannot be defrauded of that claim.

There are all sorts of instruments that have this capacity in modern finance, and they all can function to expand the credit supply just like FRB, why is this particular capacity singled out?

But we've already agreed fraud is a violation of rights.

And you already agreed that FRB was not fraud, but theft.

Edited by KendallJ
Link to comment
Share on other sites

No you remove it by doing this. Don't confuse the actual use with the potential use. You claim it from the bank to put it into use. Your notes are claim slips to use the funds. The fact that that capacity for use exists, does not mean the actual use exists. You cannot simultaneously leave it in the bank and "use" it. Your deposit is a loan to the bank according to FRB. It is a callable loan, but a loan none the less. And since you knew this up front, then you cannot be defrauded of that claim.

When you use your check, what happens? Someone transfers ownership of their stuff to you. The same thing happens when you use currency, a credit card, or any money. Your check is money. It functions just like money. As such, the effect is to allow us to suspend the reality which says, "You can't loan out your money and buy goods with it at the same time." We get this really "bizarre" situation.

It's entirely possible for you to make a $100 deposit into your checking account and take out a loan for $90 on the same day, then go buy a bunch of stuff for $190. This, by definition, is inflation of the currency. Since it is, we can refer to Rand's argument against inflation.

There are all sorts of instruments that have this capacity in modern finance, and they all can function to expand the credit supply just like FRB, why is this particular capacity singled out?

Without knowing specifically what you're referencing, I could only say that if it involves creditors loaning out something they don't have then it shouldn't be any different.

And you already agreed that FRB was not fraud, but theft.

As I understand Rand, fraud is a type of theft. I could be wrong.

I'm weary of this, Kendall, so you get the last word. I've really enjoyed the discussion, despite not wanting to get as in-depth as it's become. It's really helped me solidify my argument and I appreciate your efforts in helping me do that. Till the next time we disagree! :D

Link to comment
Share on other sites

It's really helped me solidify my argument and I appreciate your efforts in helping me do that.

As they say, practice makes perfect. If you practice errors, you get perfect errors.

Link to comment
Share on other sites

So you think Rand was arguing against the practice of fractional-reserve banking, and did not think to say it?

No. Did not KNOW to say it.

No it isn't. F.R.B. is when banks lend out say 90% of people's deposits, keeping only the rest in reserve. (to be payed out when someone makes a withdrawal)

How about this? Either one of you guys, follow the money with a concrete example of how this extra money is created, step by step, and tell me where the theft occurs, and what the specific act of force or deception is which made it theft(or fraud).

Let's start with Farmer John selling a pig, and getting 100 $ for it, which he promptly deposits into a bank called A. You take over from here, all the way to the point where somebody rips Farmer John off. No hypotheticals, focus only on specific things that can happen to this 100 $ and the farmer who owns it.

I've done this in painful detail in my videos. I'll refer you to those:

http://www.youtube.com/view_play_list?p=4EAE930200FB62B6

Link to comment
Share on other sites

I'm sorry, but there's nothing you can do to change my mind on this. We seem to have a philosophical disagreement. Whatever your view of individual rights and Capitalism is, it obviously differs from mine. Since I understand my view of it, and I know that it is right, I can't help but look at yours, advocating undue restriction on individual freedom (by error or by design, it doesn't matter), with little interest (beyond understanding it enough to know it is wrong).

Objectivism doesn't work the way you attempted to use it in your post. It isn't hard to find a quote that offers partial support to your theory from any author, especially a philosopher who was concerned with Capitalism.-none of them like the government's control of the money supply. The trick is to integrate her philosophy, and apply it. If you cannot or will not do it, you'll be just another Libertarian, making complex decisions on his gut feeling (or maybe basing his views on another philosophy, who knows-but you ought to mention that, if you do), and then attempting to justify them with various quotes from various free-market advocates-the more famous the better.

In my opinion you can't defend Capitalism well without understanding Rand's philosophy (or another rational philosophy which promotes Capitalism, if you can find any-I'm not preaching my religion here, I just don't know of any other basis for Capitalism), just as Michelle Malkin can't advocate for "going Galt" in a rational fashion, no matter how many times she says it on Fox.

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...
 Share

  • Recently Browsing   0 members

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