Fractional Reserve Banking Is Not Fraudulent

[heavenlyboy34]

It's the fault of the Fed printing money. Absent that, FRB would not be inflationary. Let's say that FRB banks in a free market settle on an average reserve ratio of 20% (for every $1 in bank notes outstanding, they hold $0.20 in gold). Individual banks may expand, while others contract, the but the system as a whole cannot inflate without an influx of gold. The way it works in our current system is that base money is the dollar, rather than gold, and the Fed can create dollars at will - allowing the banks to expand each time it does.

Now this guy^^ gets it!

 

[heavenlyboy34]

This is another example of how indoctrinated we are to thinking that FRB is the bringer of credit.

Oh, thou blessed bankers and their charitable gifts of liquidity!

You need banks for the payment functionality. Banks are not in any way logically linked to the act of loaning except through the FRB system.

Bitcoin is a 100% reserve based currency. You could try to start an FRB using Bitcoin, but the community would likely laugh at you.

Not really indoctrinated, bro. There just haven't been any good alternatives allowed to compete yet. I know as well as you that something better will likely come around when the State is smashed. ~hugs~

 

[TheTexan]

when the State is smashed. ~hugs~

Ya-sure-OK.GIF

 

[wizardwatson]

It's the fault of the Fed printing money. Absent that, FRB would not be inflationary. Let's say that FRB banks in a free market settle on an average reserve ratio of 20% (for every $1 in bank notes outstanding, they hold $0.20 in gold). Individual banks may expand, while others contract, the but the system as a whole cannot inflate without an influx of gold. The way it works in our current system is that base money is the dollar, rather than gold, and the Fed can create dollars at will - allowing the banks to expand each time it does.

What is the "Fed"?

So the current Fractional Reserve Banking cartel that is actually operating IS fraudulent. But once we get rid of government debt, return to sound money, eliminate legal tender laws, and allow private currencies and bank notes to compete along with constitutional gold and silver THEN in that banking utopia, fractional reserve banking would not be fraudulent.

But currently...

it is.

 

[r3volution 3.0]

Repeating your disproved assertions in a sarcastic tone doesn't improve your argument any..

 

[wizardwatson]

Repeating your disproved assertions in a sarcastic tone doesn't improve your argument any..

Proved?

Are we doing a math problem? There are no real debates, because no one has respect for the meaning of words.

We both agree the current system of fractional reserve banking is corrupt. You assert that in libertarian utopia fractional reserve banking is perfectly acceptable. But even in order to get there we have to change a few meanings, and turn into a contract what currently exists as law.

What do I gain in our argumentative context by conceding to a contrived argument?

 

[Superfluous Man]

Fractional reserve banking isn't by definition fraudulent.

But it can be, and in practice is.

In a free market of banks, without a lender of last resort supported by the state, banks would be able to experiment with fractional reserve banking, and see how well it was received and the affects it had on their bottom lines, good or bad. As long as they were open with their customers about it, it wouldn't be fraudulent.

If they lied about their reserves, that would be fraudulent.

What a central bank does is shift the fraud up to the central bank level. On the level of the individual banks, they aren't committing fraud on their own merely by practicing fractional reserve banking. Their customers know (or at least should know, and have no excuse for not knowing) that they practice fractional reserve banking. But they are participating in fraud at the larger level of the banking system.

Here's what would happen in a free market money system. I'll use gold for this example. But it need not be gold.

People store their gold at banks and get back bank notes that can be exchanged at that bank for that amount of gold. If the bank keeps 100% reserves and has a good reputation, then its bank notes will be widely accepted in the marketplace as worth that amount of gold. But if it lends out that gold, and only keeps a fraction, then the demand for its bank notes will decrease commensurately. It may try to avoid this by fraudulently keeping smaller reserves than it claims to keep. But it will fail at this because the increase in its bank notes in circulation will cause each note's value to decrease.

The other way to avoid the consequences (or to postpone them) is by collusion among all the banks to recruit the state to support them and prop up their fractional reserve banking in a state-sponsored monetary cartel, privileging the money that this cartel issues, and burdening those who attempt to use other money with artificial disincentives.

When Ron Paul calls fractional reserve banking fraudulent, he is speaking within a context in which a state-supported monetary cartel is a given.

 

[Superfluous Man]

There are very few things I disagree with Ron Paul, Walter Block and Murray Rothbard about.

The allegedly inherent fraudulence of fractional reserve banking is one of them.

My own stance on the subject aligns with a certain mosquito's ....

Walter Block Errs on Fractional Reserve Banking
https://bionicmosquito.blogspot.com/2016/06/walter-block-errs-on-fractional-reserve.html
bionic mosquito (18 June 2016)

It is an error common to many in the Austrian school.

It has been some time since I have written on this topic (here are over 60 posts on this topic), but here Block has offered a simple example for examination:

In fractional reserve banking, A lends $100 to B, the bank. B gives A a demand deposit for that $100. B keeps a reserve of 10%. B lends out $90 to C. B gives C a demand deposit for that $90. Thus, both A and C are the “proper” owners of that $90. This is incompatible with libertarian law, since only one person may own one thing at a particular time.​

There are two words in the above that, when properly examined and understood, demonstrate in very simple terms the flaw of the fractional-reserve-banking-is-fraud concept. These are “lends” and “own.” Person A “owns” something. In Walter’s case, he owns $100. He “lends” this $100 to bank B. In this, the flaws of the FRB-as-fraud claims are fully exposed.

What happens when someone “lends” something he “owns” to another? He gives up the use of the item during the time it is lent. He still owns the item – that is, he has certain rights in property of the item – but he has also given up certain rights in the property.

A simple example is a home rental contract. I understand the differences of this and FRB, and don’t intend to debate why the example isn’t perfect. It is merely sufficient for my purpose.

Does the homeowner give up ownership of the home when he rents it to a tenant? No, the home is still his. However, the homeowner has given up the right to live in the home for the duration of the lease. The homeowner still has rights in the property (the home) while giving up certain rights (occupancy).

Depositor A has given up $100 cash from his pocket. He lends this to the bank; this term, lends, should not be overlooked – and unlike many critics of FRB, Block does not overlook it. Depositor A has lent the bank $100 – he did not ask the bank to store $100 as a bailment; he lent the bank $100.

By doing so, he gave up certain aspects of the property – he no longer has the $100 in his pocket. Instead, he has a document from the bank stating that the bank will return $100 on demand.

(As an aside, this demand is conditional, as stated in the contract; I have written about this too many times to count, and so won’t get into it here. Yes, yes, yes…if everyone with a demand deposit demanded their deposits at the same time, the bank would be unable to fulfill the requests. Business failure isn’t always fraud – sometimes it is just poor entrepreneurship. Suffice it to say, since the founding of the FDIC, banks have made good on this contract virtually 100% of the time – a level of performance unmatched by virtually every other industry.)

Back to Block’s example: Depositor A gave up certain uses of his property. The bank has acquired these uses in exchange for something valued by A. While A “owns” the $100, he lent it to the bank for the bank to use. The bank uses the $100 to lend to a third party – borrower C. Something like a sub-lease on the aforementioned home.

A and C do not own the same property at the same time – Walter is just plain wrong about this. A owns the property but gave up certain rights to the use of his property when he lent it to the bank. The bank gave those rights to C. C does not “own” the $90 any more than a tenant “owns” the house he is renting. The tenant merely has use of the house, as C merely has use of the $90. Both the tenant and C are obliged to return the property under the conditions of the respective contracts.

A doesn’t have use of the $100 cash no longer in his pocket – he has a contract from the bank instead. A gave up $100 cash in exchange for the terms in the contract with the bank. One of these terms (but not the only one, else A would likely not enter into the agreement) is that the bank would return $100 to A on demand (with certain exceptions, again I won’t get into these here). A still owns the property; C does not.

Conclusion

The control, use, and disposition of property is divisible – and can be separated from ownership via agreement of the owner. As Walter states, property can be legally owned by only one individual (or an entity established for property ownership). However, that individual can give up control and use of the property in exchange for something valued by the property owner – the ownership is now conditioned as is the use of the property.

I thank Walter for offering a simple example to demonstrate this point.

"You must spread some Reputation around before giving it to Occam's Banana again."

 

[not.your.average.joe]

Where do the bank notes come from to pay wages, or rent, or buy groceries? They already exist; they're circulating around the economy somewhere. The bank pays interest to its creditors from its revenues; the bank's borrowers pay the bank interest from their revenues. It's a transfer of money, as from employer to employee to landlord to landlord's grocer to grocery employees and so on and so forth. Money doesn't need to be created.

That said, as the economy grows (more goods and services being chased by the same amount of money), the real value of money increase. If you were thinking about interest compounding and the banking sector growing ever larger, that can happen without an increase in the money supply, as money gains in value. The same for any other industry - total receipts for the oil industry, say, cannot grow indefinitely in nominal terms with a fixed money supply, but they can grow indefinitely in real terms, as the economy grows and prices fall.

Thanks for your comment, but something about it just didn't work for me. I wanted to know how bank notes got to be just "circulating around the economy somewhere". So, I got out "The Creature from Jekyll Island" by G. Edward Griffin to read more.
What I read supports what I've been reading throughout this thread, both from you and from wizardwatson. Yes, FRB could work if a number of the characteristics present today were removed (e.g. unbacked currency, legal tender). No, FRB is not fraudulent, in the sense that it would work under specific circumstances. However, FRB as it is practiced today is part of a system of fraud, the system of the Federal Reserve Bank.
One of the things I didn't understand after reading this thread was, 'why do people want bank notes?' The entire system is made possible because government demands bank notes as payment for tax. If tax is not paid, force is initiated. The government's demand is what provides the incentive for people to accept unbacked bank notes as a currency.
I also didn't understand where the money to pay the interest came from. Griffin addresses this exact issue in possibly one of the most important paragraphs in his book:

WHO CREATES THE MONEY TO PAY THE INTEREST?
One of the most perplexing questions associated with this process is "Where does the money come from the pay the interest?" If you borrow $10,000 from a bank at 9%, you owe $10,900. But the bank only manufactures $10,000 for the loan. It would seem, therefore, that there is no way that you - and all the others with similar loans - can possibly pay off your indebtedness. The amount of money put into circulation just isn't enough to cover the total debt, including interest. This has led some to the conclusion that it is necessary for you to borrow the $900 for the interest, and that, in turn, leads to still more interest. The assumption is that, the more we borrow, the more we have to borrow, and that debt based on fiat money is a never-ending spiral leading inexorably to more and more debt.
This is a partial truth. It is true that there is not enough money created to include the interest, but it is a fallacy that the only way to pay it back is to borrow still more. The assumption fails to take into account the exchange value of labor. Let us assume that you pay back your $10,000 loan at the rate of approximately $900 per month and that about $80 of that represents interest. You realize you are hard pressed to make your payments so you decide to take on a part-time job. The bank, on the other hand, is now making $80 profit each month on your loan. Since this amount is classified as "interest", it is not extinguished as is the larger portion which is a return of the loan itself. So this remains as spendable money in the account of the bank. The decision then is made to have the bank's floors waxed once a week. You respond to the ad in the paper and are hired at $80 per month to do the job. The result is that you earn the money to pay your interest on the loan, and - this is the point - the money you receive is the same money which you previously had paid. As long as you perform labor for the bank each month, the same dollars go into the bank as interest, then out the revolving door as your wages, and then back into the bank as loan repayment.
It is not necessary that you work directly for the bank. No matter where you earn the money, its origin was a bank and its ultimate destination is a bank. The loop through which it travels can be large or small, but the fact remains all interest is paid eventually by human effort. And the significance of that fact is even more startling than the assumption that not enough money is created to pay back the interest. It is that the total of this human effort ultimately is for the benefit of those who create fiat money. It is a form of modern serfdom in which the great mass of society works as indentured servants to a ruling class of financial nobility.

So, I think that both sides presented in this thread are right. On the one side, you have wizardwatson quoting Ron Paul and Rothbard about how FRB is fraud. And I think the terms in which RP and MR are referring to FRB are under the Federal Reserve Bank (interesting how the acronyms are the same) with elastic currency not backed by gold. And on the other side, you have r3v saying that theoretically FRB is not fraudulent and I think that is true as well. But when all is said is done, I think the argument itself is not as important as the results of how fractional reserve banking would fare in a free society.

 

[r3volution 3.0]

'why do people want bank notes?'

Because it's inconvenient to walk around with gold coins. They put their gold in the bank and get redeemable banknotes in exchange. The bank can just sit on the deposits (full reserve banking), in which case the depositors will have to pay fees (to cover the bank's costs). Or, the bank can loan out a fraction of the deposits, to earn interest to cover their costs, so that depositors don't have to pay fees and/or earn interest. That's the source of the demand for banknotes and fractional reserve banking in a market economy. No governmental compulsion is required.

I also didn't understand where the money to pay the interest came from. Griffin addresses this exact issue in possibly one of the most important paragraphs in his book

I don't see the problem Griffin is trying to solve. Consider these two scenarios:

SCENARIO #1

Today - Bob borrows $10,000 from the bank at 10% interest for 1 year (the bank creates $10,000 in bank notes and give them to Bob).
1 Year Later - Bob repays the bank $11,000

Where did the 1,000 come from?

SCENARIO #2

May 1 - Bob rents an apartment and agrees to pay $1000/month payable at the end of the month
May 31 - Bob pays the landlord $1000

Where did the $1000 come from?

...why is the origin of the $1000 in the first scenario mysterious, but not in the second scenario?

 

[not.your.average.joe]

Because it's inconvenient to walk around with gold coins. They put their gold in the bank and get redeemable banknotes in exchange. The bank can just sit on the deposits (full reserve banking), in which case the depositors will have to pay fees (to cover the bank's costs). Or, the bank can loan out a fraction of the deposits, to earn interest to cover their costs, so that depositors don't have to pay fees and/or earn interest. That's the source of the demand for banknotes and fractional reserve banking in a market economy. No governmental compulsion is required.



I don't see the problem Griffin is trying to solve. Consider these two scenarios:

SCENARIO #1

Today - Bob borrows $10,000 from the bank at 10% interest for 1 year (the bank creates $10,000 in bank notes and give them to Bob).
1 Year Later - Bob repays the bank $11,000

Where did the 1,000 come from?

SCENARIO #2

May 1 - Bob rents an apartment and agrees to pay $1000/month payable at the end of the month
May 31 - Bob pays the landlord $1000

Where did the $1000 come from?

...why is the origin of the $1000 in the first scenario mysterious, but not in the second scenario?

Yes, I understand why people would want a lighter placeholder for gold, with a gold standard. And yes, I agree that no government compulsion would be required to use banknotes with a gold standard. I guess I didn't fully understand why people accept banknotes today, without a gold standard.

I don't think that Griffin is attacking fractional reserve banking. What Griffin is attacking is a fiat currency that is not tied to gold. That currency, when loaned out, is less then the amount owed with interest. And yes, it would be the same in a free market economy, but the difference is that in a free market economy with a gold standard, wealth is practically unlimited, because any object of value could be traded for bank notes in order to repay the bank or you landlord. I feel that is largely discouraged today, because having, for example, cows or a carved piece of furniture is not seen to be as valuable as banknotes, because ultimately it is whether or not you have banknotes to pay your debt that determines if men with guns are going to take your house, hence the fiat currency.

In your two situations, I am interpreting them as though the money in question is fiat and not backed by gold, since that is the issue that I think Griffin (and Ron Paul) have with banking practice. In the first situation, Bob gets the extra thousand by exerting human effort to do a job. The money he gets paid to do that job comes from the extra money he is paying each month to the bank, because the bank will pay somebody with that extra money and that extra $80 in the economy will eventually be paid to Bob. He then uses that money to pay his debt (or interest) the next month, and the cycle continues. All that is really happening is that Bob is performing labor for no net gain, hence the modern day serfdom.

The second situation is a bit different because Bob 2 is not borrowing bank notes from his landlord. He is not borrowing bank notes at all. He owes money for a service (the provision of shelter). Essentially, though, his income comes from the bank, which is given to the landlord, which is given to the bank.
"No matter where you earn the money, its origin was a bank and its ultimate destination is a bank. The loop through which it travels can be large or small, but the fact remains all interest is paid eventually by human effort."
The difference in the two scenarios is that Bob 2 does not owe interest on money created out of thin air. The money that he earns and pays is most likely the interest money that Bob 1 has to pay every month - the money reaching Bob 2 is just another step in a "large loop".

 

[heavenlyboy34]

Fractional reserve banking isn't by definition fraudulent.

But it can be, and in practice is.

In a free market of banks, without a lender of last resort supported by the state, banks would be able to experiment with fractional reserve banking, and see how well it was received and the affects it had on their bottom lines, good or bad. As long as they were open with their customers about it, it wouldn't be fraudulent.

If they lied about their reserves, that would be fraudulent.

What a central bank does is shift the fraud up to the central bank level. On the level of the individual banks, they aren't committing fraud on their own merely by practicing fractional reserve banking. Their customers know (or at least should know, and have no excuse for not knowing) that they practice fractional reserve banking. But they are participating in fraud at the larger level of the banking system.

Here's what would happen in a free market money system. I'll use gold for this example. But it need not be gold.

People store their gold at banks and get back bank notes that can be exchanged at that bank for that amount of gold. If the bank keeps 100% reserves and has a good reputation, then its bank notes will be widely accepted in the marketplace as worth that amount of gold. But if it lends out that gold, and only keeps a fraction, then the demand for its bank notes will decrease commensurately. It may try to avoid this by fraudulently keeping smaller reserves than it claims to keep. But it will fail at this because the increase in its bank notes in circulation will cause each note's value to decrease.

The other way to avoid the consequences (or to postpone them) is by collusion among all the banks to recruit the state to support them and prop up their fractional reserve banking in a state-sponsored monetary cartel, privileging the money that this cartel issues, and burdening those who attempt to use other money with artificial disincentives.

When Ron Paul calls fractional reserve banking fraudulent, he is speaking within a context in which a state-supported monetary cartel is a given.

I agree with this^^

 

[wizardwatson]

Fractional reserve banking isn't by definition fraudulent.

But it can be, and in practice is.

In a free market of banks, without a lender of last resort supported by the state, banks would be able to experiment with fractional reserve banking, and see how well it was received and the affects it had on their bottom lines, good or bad. As long as they were open with their customers about it, it wouldn't be fraudulent.

If they lied about their reserves, that would be fraudulent.

What a central bank does is shift the fraud up to the central bank level. On the level of the individual banks, they aren't committing fraud on their own merely by practicing fractional reserve banking. Their customers know (or at least should know, and have no excuse for not knowing) that they practice fractional reserve banking. But they are participating in fraud at the larger level of the banking system.

Here's what would happen in a free market money system. I'll use gold for this example. But it need not be gold.

People store their gold at banks and get back bank notes that can be exchanged at that bank for that amount of gold. If the bank keeps 100% reserves and has a good reputation, then its bank notes will be widely accepted in the marketplace as worth that amount of gold. But if it lends out that gold, and only keeps a fraction, then the demand for its bank notes will decrease commensurately. It may try to avoid this by fraudulently keeping smaller reserves than it claims to keep. But it will fail at this because the increase in its bank notes in circulation will cause each note's value to decrease.

The other way to avoid the consequences (or to postpone them) is by collusion among all the banks to recruit the state to support them and prop up their fractional reserve banking in a state-sponsored monetary cartel, privileging the money that this cartel issues, and burdening those who attempt to use other money with artificial disincentives.

When Ron Paul calls fractional reserve banking fraudulent, he is speaking within a context in which a state-supported monetary cartel is a given.

And that's the whole point, really. You get a cookie.

These intellectual arguments about pure forms of "this and that" are irrelevant.

"Well 'technically' Ron Paul is wrong..."

Well, in the real game of ideas, what does it serve Ron Paul's ideas to contradict him 'technically' when we aren't trying to reach the 'technical' truth about an economic idea under ideal circumstances? Whose to even say that in this fanstasy realm that "thing" we are calling FRB will even be called "Fractional Reserve Banking"? Maybe they will be called Promissory Pools, or Loan Banks.

"Abide in the fruit, not the flower."

We are here, or should be, to promote and defend the good name of liberty, not defend the good name of Fractional Reserve Banking.

So the message should stand:

Fractional Reserve Banking is Fraudulent

 

[Chester Copperpot]

The Wiz does, as he thinks FRB is fraudulent.

Wiz doesnt think FRB is fraudulent.. he KNOWS it is..

In fact everybody here knows it is, including you.

 

[Madison320]

There are very few things I disagree with Ron Paul, Walter Block and Murray Rothbard about.

The allegedly inherent fraudulence of fractional reserve banking is one of them.

My own stance on the subject aligns with a certain mosquito's ....

Walter Block Errs on Fractional Reserve Banking
https://bionicmosquito.blogspot.com/2016/06/walter-block-errs-on-fractional-reserve.html
bionic mosquito (18 June 2016)

It is an error common to many in the Austrian school.

It has been some time since I have written on this topic (here are over 60 posts on this topic), but here Block has offered a simple example for examination:

In fractional reserve banking, A lends $100 to B, the bank. B gives A a demand deposit for that $100. B keeps a reserve of 10%. B lends out $90 to C. B gives C a demand deposit for that $90. Thus, both A and C are the “proper” owners of that $90. This is incompatible with libertarian law, since only one person may own one thing at a particular time.​

There are two words in the above that, when properly examined and understood, demonstrate in very simple terms the flaw of the fractional-reserve-banking-is-fraud concept. These are “lends” and “own.” Person A “owns” something. In Walter’s case, he owns $100. He “lends” this $100 to bank B. In this, the flaws of the FRB-as-fraud claims are fully exposed.

What happens when someone “lends” something he “owns” to another? He gives up the use of the item during the time it is lent. He still owns the item – that is, he has certain rights in property of the item – but he has also given up certain rights in the property.

A simple example is a home rental contract. I understand the differences of this and FRB, and don’t intend to debate why the example isn’t perfect. It is merely sufficient for my purpose.

Does the homeowner give up ownership of the home when he rents it to a tenant? No, the home is still his. However, the homeowner has given up the right to live in the home for the duration of the lease. The homeowner still has rights in the property (the home) while giving up certain rights (occupancy).

Depositor A has given up $100 cash from his pocket. He lends this to the bank; this term, lends, should not be overlooked – and unlike many critics of FRB, Block does not overlook it. Depositor A has lent the bank $100 – he did not ask the bank to store $100 as a bailment; he lent the bank $100.

By doing so, he gave up certain aspects of the property – he no longer has the $100 in his pocket. Instead, he has a document from the bank stating that the bank will return $100 on demand.

(As an aside, this demand is conditional, as stated in the contract; I have written about this too many times to count, and so won’t get into it here. Yes, yes, yes…if everyone with a demand deposit demanded their deposits at the same time, the bank would be unable to fulfill the requests. Business failure isn’t always fraud – sometimes it is just poor entrepreneurship. Suffice it to say, since the founding of the FDIC, banks have made good on this contract virtually 100% of the time – a level of performance unmatched by virtually every other industry.)

Back to Block’s example: Depositor A gave up certain uses of his property. The bank has acquired these uses in exchange for something valued by A. While A “owns” the $100, he lent it to the bank for the bank to use. The bank uses the $100 to lend to a third party – borrower C. Something like a sub-lease on the aforementioned home.

A and C do not own the same property at the same time – Walter is just plain wrong about this. A owns the property but gave up certain rights to the use of his property when he lent it to the bank. The bank gave those rights to C. C does not “own” the $90 any more than a tenant “owns” the house he is renting. The tenant merely has use of the house, as C merely has use of the $90. Both the tenant and C are obliged to return the property under the conditions of the respective contracts.

A doesn’t have use of the $100 cash no longer in his pocket – he has a contract from the bank instead. A gave up $100 cash in exchange for the terms in the contract with the bank. One of these terms (but not the only one, else A would likely not enter into the agreement) is that the bank would return $100 to A on demand (with certain exceptions, again I won’t get into these here). A still owns the property; C does not.

Conclusion

The control, use, and disposition of property is divisible – and can be separated from ownership via agreement of the owner. As Walter states, property can be legally owned by only one individual (or an entity established for property ownership). However, that individual can give up control and use of the property in exchange for something valued by the property owner – the ownership is now conditioned as is the use of the property.

I thank Walter for offering a simple example to demonstrate this point.

That's was a great post. I totally agree. In a free country you can voluntarily give up your rights. For example you can take a job in exchange for submitting to a drug test. No one can force you to take a drug test, but you can voluntarily submit to it. That's liberty. Being banned by government to enter into a contract where you voluntarily give up your rights, that's not liberty.

More specifically suppose you have to choose between 2 banks to save your money. One offers a savings account with frb with a rate of 5%. The other offers a savings account without frb with a rate of 2%. You should be free to choose which bank you'd like to do business with.

 

[wizardwatson]

There are very few things I disagree with Ron Paul, Walter Block and Murray Rothbard about.

The allegedly inherent fraudulence of fractional reserve banking is one of them.

My own stance on the subject aligns with a certain mosquito's ....

Walter Block Errs on Fractional Reserve Banking
https://bionicmosquito.blogspot.com/2016/06/walter-block-errs-on-fractional-reserve.html
bionic mosquito (18 June 2016)


It is an error common to many in the Austrian school.

[blah,blah,blah,blah,blah]

In fractional reserve banking, A lends $100 to B, the bank. B gives A a demand deposit for that $100. B keeps a reserve of 10%. B lends out $90 to C. B gives C a demand deposit for that $90. Thus, both A and C are the “proper” owners of that $90. This is incompatible with libertarian law, since only one person may own one thing at a particular time.​

There are two words in the above that, when properly examined and understood, demonstrate in very simple terms the flaw of the fractional-reserve-banking-is-fraud concept. These are “lends” and “own.” Person A “owns” something. In Walter’s case, he owns $100. He “lends” this $100 to bank B. In this, the flaws of the FRB-as-fraud claims are fully exposed.

[blah,blah,blah,blah,blah]

Depositor A has given up $100 cash from his pocket. He lends this to the bank; this term, lends, should not be overlooked – and unlike many critics of FRB, Block does not overlook it. Depositor A has lent the bank $100 – he did not ask the bank to store $100 as a bailment; he lent the bank $100.

By doing so, he gave up certain aspects of the property – he no longer has the $100 in his pocket. Instead, he has a document from the bank stating that the bank will return $100 on demand.

[blah,blah,blah,blah,blah]

A and C do not own the same property at the same time – Walter is just plain wrong about this. A owns the property but gave up certain rights to the use of his property when he lent it to the bank. The bank gave those rights to C. C does not “own” the $90 any more than a tenant “owns” the house he is renting. The tenant merely has use of the house, as C merely has use of the $90. Both the tenant and C are obliged to return the property under the conditions of the respective contracts.

A doesn’t have use of the $100 cash no longer in his pocket – he has a contract from the bank instead. A gave up $100 cash in exchange for the terms in the contract with the bank. One of these terms (but not the only one, else A would likely not enter into the agreement) is that the bank would return $100 to A on demand (with certain exceptions, again I won’t get into these here). A still owns the property; C does not.

Conclusion

The control, use, and disposition of property is divisible – and can be separated from ownership via agreement of the owner. As Walter states, property can be legally owned by only one individual (or an entity established for property ownership). However, that individual can give up control and use of the property in exchange for something valued by the property owner – the ownership is now conditioned as is the use of the property.

I thank Walter for offering a simple example to demonstrate this point.

People seem to like your post refuting of Walter here.

But this is all semantic gymnastics. The only point anyone is making about anything is whether a deposit is a loan or a deposit.

EVERYONE AGREES that money owned by people can be loaned.

The two sides of this argument disagree on only one thing, whether a deposit transfers ownership of the money to a bank or not.

Summary of argument:
Walter: A deposit doesn't transfer ownership
Others: A deposit transfers ownership

And people keep saying "well, the person should realize..." blah, blah, blah.

Well, yeah, they should NOW, since the 1800's when this was decided by the courts, as wizardwatson pointed out.

Which MEANS then, that before this point, some people felt they still OWNED IT, and that the banks had no right to be lending it out.

And if bankers were honest, they would call a deposit a loan, since that's the legal reality now.

But they aren't honest because....

FRACTIONAL RESERVE BANKING IS FRAUDULENT.

People are really ignorant for the most part about money and banking. Even in this thread enlightened Ron Paul supporters have indicated they think depository institutions are the magical loan fairies.

A place to keep your money and facilitate payment to third parties is completely separate from the act of loaning your money out. But the FRB supporters want to fuse this in people's minds, and it is certainly fused in the vast majority of people's minds. Like 95% + of people who vaguely understand it.

But the service of storing money for safe-keeping and payment has no inherent or dependent technical relationship to the act of loaning, other than historical habit.

Bitcoin, though an imperfect currency, demonstrates this fact absolutely.

 

[heavenlyboy34]

People seem to like your post refuting of Walter here.

But this is all semantic gymnastics. The only point anyone is making about anything is whether a deposit is a loan or a deposit.

EVERYONE AGREES that money owned by people can be loaned.

The two sides of this argument disagree on only one thing, whether a deposit transfers ownership of the money to a bank or not.

Summary of argument:
Walter: A deposit doesn't transfer ownership
Others: A deposit transfers ownership

And people keep saying "well, the person should realize..." blah, blah, blah.

Well, yeah, they should NOW, since the 1800's when this was decided by the courts, as wizardwatson pointed out.

Which MEANS then, that before this point, some people felt they still OWNED IT, and that the banks had no right to be lending it out.

And if bankers were honest, they would call a deposit a loan, since that's the legal reality now.

But they aren't honest because....

FRACTIONAL RESERVE BANKING IS FRAUDULENT.

People are really ignorant for the most part about money and banking. Even in this thread enlightened Ron Paul supporters have indicated they think depository institutions are the magical loan fairies.

A place to keep your money and facilitate payment to third parties is completely separate from the act of loaning your money out. But the FRB supporters want to fuse this in people's minds, and it is certainly fused in the vast majority of people's minds. Like 95% + of people who vaguely understand it.

But the service of storing money for safe-keeping and payment has no inherent or dependent technical relationship to the act of loaning, other than historical habit.

Bitcoin, though an imperfect currency, demonstrates this fact absolutely.

Have you actually read the fine print in the agreement you made with a bank? I'd bet there's at least one clause dealing with this. I'll have to dig up my paperwork to see, but I use a local CU instead of a bank, so it's going to be slightly different.

 

[wizardwatson]

Have you actually read the fine print in the agreement you made with a bank? I'd bet there's at least one clause dealing with this. I'll have to dig up my paperwork to see, but I use a local CU instead of a bank, so it's going to be slightly different.

Well, I've already said numerous times in this thread that currently any bank you do business with, a "deposit" is a loan.

And a bank could exist where a deposit was not a loan.

But like I pointed out with my Bastiat quote, this isn't something that came about because the regular mass of people were like, "I think I would like to contract with this fine establishment and loan my money at interest. It will good for me and my posterity as it will provide a convenient storage place to protect from thieves and other rapscallions, and also provide adequate liquidity and credit for my dear countrymen."

Poor people don't have no money to loan. Poor people today need a checking account because McDonalds told them they only do direct deposit now.

No, this is just how "banking laws" fell out. The system has been fraudulent for CENTURIES.

Magna Carta, the printing press, the Bill of Rights. These are new things, that when the peasants got ahold of went:

"Hey, you can't imprison me just because you are a King? You need a reason!"

"Hey, you said priests can't marry! Jesus didn't say that!"

etc. etc.

So all these "banking laws" that people are referencing, these definitions of what we're doing when we put our money in a bank, were simply codes and regulations our Masters had to enact, basically because people started reading and thinking about how they are being screwed over.

And the fact that this red tape is vomited out into a "Terms of Service" that no one reads, so that when you object someone can say, "Well, you agreed to it, so it's a legitimate contract." is probably the weakest appeal to "the law" I can think of.

 

[wizardwatson]

With that, I'm going to go ahead and call it:

wizardwatson, still undefeated, is thread winner.

 

[Jamesiv1]

With that, I'm going to go ahead and call it:

wizardwatson, still undefeated, is thread winner.

You might want to do some research before you embarrass yourself again.