tag:blogger.com,1999:blog-5806884.post7311104929400883416..comments2023-10-31T03:18:26.963-07:00Comments on Great Guys Weblog: Free BankingBrethttp://www.blogger.com/profile/15063508651955739056noreply@blogger.comBlogger34125tag:blogger.com,1999:blog-5806884.post-29815803138750060642015-07-05T15:31:32.831-07:002015-07-05T15:31:32.831-07:00Clovis wrote: "I guess the free banking crowd...Clovis wrote: "<i>I guess the free banking crowd will need to do a better job of defending those ideas.</i>"<br /><br />I agree with that. Thanks for your questions, I've made a list and will endeavor to get them answered over the next few months.Brethttps://www.blogger.com/profile/15063508651955739056noreply@blogger.comtag:blogger.com,1999:blog-5806884.post-32825506624885265232015-07-05T11:36:27.646-07:002015-07-05T11:36:27.646-07:00Thank you Clovis, that is indeed good advice, but ...Thank you Clovis, that is indeed good advice, but the money is no longer in the safe deposit box. Now it's under the mattress -- just kidding :-)erphttps://www.blogger.com/profile/09826044412670324694noreply@blogger.comtag:blogger.com,1999:blog-5806884.post-38801787396427542752015-07-05T11:15:10.254-07:002015-07-05T11:15:10.254-07:00Erp,
The best advice I can give you is, don't...Erp,<br /><br />The best advice I can give you is, don't announce to the whole internet that you have a safe box full of cash. Really, there are things more dangerous than your confiscatory govt out there.<br /><br /><br />Bret,<br /><br />---<br />You're looking only on the consumer side. Consider the investment/loan side and the implications for the fractional reserve concept.<br />---<br />There are reasons to look closely at the consumer side: it only works if people actually believe it.<br /><br />Now, looking to the other side (investment and fractional reserve), and glancing at Selgin's arguments (only glancing, I did not get them completely), things look a bit iffy.<br />He defends the whole system would be, ultimately, more stable because competition and dynamical equilibrium.<br /><br />IOW, he thinks the "good banks" would survive while the "bad banks" not, so excessive inflation and fraud, as feared by Milton Friedman for example, wouldn't be so much of an issue in the long run.<br /><br />The problem is, (i) how long would it take for that to happen?, (ii) How frequent would be deviations of that equilibrium, and what would happen in such?<br /><br />For the picture I have is that a lot of people, for some unknown (and possibly long) time, would need to lose all their assets in the bad banks until everyone figured out the good ones. And no one would know how long the good ones would stay sober either.<br /><br />Anyway, I guess the free banking crowd will need to do a better job of defending those ideas. Not everyone has the time and will to go through obscure books to figure that out.Clovishttps://www.blogger.com/profile/08921327103613284595noreply@blogger.comtag:blogger.com,1999:blog-5806884.post-7997043811163343502015-07-04T18:39:58.888-07:002015-07-04T18:39:58.888-07:00Harry wrote: 'now apparently cash can be summa...Harry wrote: 'now apparently cash can be summarily confiscated'<br /><br />Yes, <a href="http://www.forbes.com/sites/instituteforjustice/2014/03/12/cops-use-traffic-stops-to-seize-millions-from-drivers-never-charged-with-a-crime/" rel="nofollow">apparently</a> <a href="http://www.cnn.com/2015/01/21/us/asset-seizures/" rel="nofollow">it</a> <a href="http://www.cnbc.com/id/102679948" rel="nofollow">can</a>.<br /><br />Erp is absolutely right not to hold a significant amount of money in cash in this country.Brethttps://www.blogger.com/profile/15063508651955739056noreply@blogger.comtag:blogger.com,1999:blog-5806884.post-69446028579038802862015-07-04T12:26:49.098-07:002015-07-04T12:26:49.098-07:00You're right Harry, my fears were so mild comp...You're right Harry, my fears were so mild compared to what has been realized, I realize I was far too naive in my fearfulness.erphttps://www.blogger.com/profile/09826044412670324694noreply@blogger.comtag:blogger.com,1999:blog-5806884.post-2169898633240879332015-07-04T11:46:49.489-07:002015-07-04T11:46:49.489-07:00'now apparently cash can be summarily confisca...'now apparently cash can be summarily confiscated'<br /><br />How else will the Kenyan finance the death panels, FEMA camps and gun confiscations?<br /><br /><br />Does it ever bother you, erp, that none of your fears are realized?Harry Eagarhttps://www.blogger.com/profile/04196202758858876402noreply@blogger.comtag:blogger.com,1999:blog-5806884.post-85202680276493899722015-07-04T05:40:03.352-07:002015-07-04T05:40:03.352-07:00What a notion! Problem is people like GGG (I add ...What a notion! Problem is people like GGG (I add the third 'G' for geniuses) don't run for office. In fact, I don't think scientists, mathematicians, engineers, etc. make good political leaders because what you jokingly propose for Bret's campaign slogan probably seems perfectly reasonable to them -- the general public not so much.erphttps://www.blogger.com/profile/09826044412670324694noreply@blogger.comtag:blogger.com,1999:blog-5806884.post-63564230838999518782015-07-04T05:03:36.014-07:002015-07-04T05:03:36.014-07:00I assure you, erp, I don't have a one-size-fit...I assure you, erp, I don't have a one-size-fits-all solution. I'm simply pointing out that Bret seems to assume people put money in their banks in order to maximize their returns, when many people, if they are "buying" anything, think they are buying safety and security.<br /><br />I assume we have some interest in whether our wonderful ideas crafted on Great Guys Weblog could be sold to the public? So far, I can't see it, although I do have this fantasy of Bret running for office on a platform of unregulated banking and telling folks "The primary purpose of money is to convey information via the price mechanism in order to match production and demand which then leads to i and ii. Vote for me!"Peterhttps://www.blogger.com/profile/15836910211382887430noreply@blogger.comtag:blogger.com,1999:blog-5806884.post-81199994923037370892015-07-04T04:52:59.488-07:002015-07-04T04:52:59.488-07:00Peter, you are right that trust is the major ingre...Peter, you are right that trust is the major ingredient in banking as in most things in life. Boring staid old banks run by crusty old curmudgeons are notoriously trustworthy, but don't usually provide the thrill of gambling.<br /><br />There's plenty of opportunity for people who want to take a chance on bigger rewards for greater risk. We humans aren't all the same, so why do you like to assume that there's a one-size-fits-all answer to every question?<br /><br />Asking for more regulations is like holding a career day for foxes in the hen house.erphttps://www.blogger.com/profile/09826044412670324694noreply@blogger.comtag:blogger.com,1999:blog-5806884.post-43833794187835343602015-07-04T04:25:25.340-07:002015-07-04T04:25:25.340-07:00If your Apple stock goes down, then tough luck...
...<i>If your Apple stock goes down, then tough luck...</i><br /><br />Bret, old swot, if you are going to try and make the case for unregulated banking, you really should bone up on the difference between a bank shareholder and a bank customer. My bank reported record profits last year and I'm still waiting for my dividend as a loyal customer with a low-interest savings account. Maybe I'll just flog my account on the market instead.<br /><br />Trying to fit banking into free-market fundamentalism runs up against three problems: The first is that it's absolute nonsense to talk about "informed consumers" deciding whether their bank will be solvent in the medium or long term. How could they possibly know? The second is there is no voluntary assumption of risk like there is in the stock market. The third is that, in the event of a bank failure, a typical customer will find his bank loans are secured and survive but his savings accounts (or pension funds) disappear, which tends to put the public off its biscuits.<br /><br />The banking system operates on trust, which implies a trust relationship with customers. Granted regulation has been woefully incompetent at enforcing this at times, but I think you have to propose something to replace it. If your only answer is "the discipline of the market", why would people put their savings in banks at all? Your advice to keep your money in multiple small accounts in different banks indicates to me you don't have as much confidence in that market discipline as you say.<br /><br />People(and institutions like charities, pension funds etc.)put their money into banks at low interest because they do not want it exposed to the inherent risks of an investment portfolio. That's why they forgo the potential for higher gains. You seem to want to force them to assume the risks without holding out the promise of the gains.Peterhttps://www.blogger.com/profile/15836910211382887430noreply@blogger.comtag:blogger.com,1999:blog-5806884.post-13676701884039559252015-07-03T13:46:51.254-07:002015-07-03T13:46:51.254-07:00Clovis wrote: "To which I ask myself, what...Clovis wrote: "<i>To which I ask myself, what's the difference to the credit cards then?</i>"<br /><br />You're looking only on the consumer side. Consider the investment/loan side and the implications for the fractional reserve concept.<br /><br />Clovis wrote: "<i>I tend to think of money fulfilling two rules: i) defining units of value (to which we give value in itself) and ii) providing for medium of exchange...</i>"<br /><br />The primary purpose of money is to convey information via the price mechanism in order to match production and demand which then leads to i and ii. From reading the various articles, I can certainly see why you're focusing on the consumer side, they sure do focus a lot on banknote issuance. Because of that, I'm actually less confident on the concept now, but I had previously thought that the idea was that then deposits, loans, investments, etc. as well as transactions were all made in terms of specific banknotes instead of the underlying reserves (whether that was gold or dollars). Then the total money supply was determined by free bank actions as opposed to the federal reserve and, in theory, would provide a better medium for price information because the money supply, under the competitive scenario, would better reflect the underlying needs.<br /><br />Anyway, now I'm more confused than I was before I posted, so I have to go back and study it some more.<br /><br />Clovis wrote: "<i>if Free Banking is all that thrill, why is it that Scotland and Australia gave up on it?</i>"<br /><br />Off the top of my head I recall that the Bank of England decided that it wanted the money monopoly for all of the British Isles, so the government took over the Scottish banks.<br /><br />It's sort of like asking why the communists took over various economies if free markets could work. Because they wanted the power and because they could. It didn't end up meaning that communism worked better than free markets.Brethttps://www.blogger.com/profile/15063508651955739056noreply@blogger.comtag:blogger.com,1999:blog-5806884.post-5440906971496572582015-07-03T13:28:29.472-07:002015-07-03T13:28:29.472-07:00Bret, we thought to put a substantial amount of ca...Bret, we thought to put a substantial amount of cash in a safe deposit box, but now apparently cash can be summarily confiscated, so we are removing it a bit at a time and using it to buy stuff, even groceries just like we did in the good old days before credit cards.<br /><br />Can any of you youngsters picture it. Cash or walking around with a check book. On trip, bank checks -- a really colossal pain in the neck.<br /><br />Oh, how we suffered. :-(erphttps://www.blogger.com/profile/09826044412670324694noreply@blogger.comtag:blogger.com,1999:blog-5806884.post-42172951005979509332015-07-03T13:18:35.945-07:002015-07-03T13:18:35.945-07:00Clovis wrote: "Zimbabwe is much closer to a f...Clovis wrote: "<i>Zimbabwe is much closer to a free banking system than us, yet somehow it doesn't look much inspiring.</i>"<br /><br />Well, compared to the previous money regime where the non-free banking government controlled fiat currency suffered one of the most impressive hyperinflations of all time, it looks pretty damn good.<br /><br />Also, I'm not sure how free the Zimbabwe free banking system is. They don't issue their own notes and it may well still be pretty regulated.Brethttps://www.blogger.com/profile/15063508651955739056noreply@blogger.comtag:blogger.com,1999:blog-5806884.post-76954591896972186542015-07-03T13:12:58.575-07:002015-07-03T13:12:58.575-07:00Peter wrote: "If I buy a GM product and then ...Peter wrote: "<i>If I buy a GM product and then GM fails, I still have my car. Not so when my bank fails.</i>"<br /><br />I don't think that comparison makes much sense. One is a consumer item, the other an investment. If your Apple stock goes down, then tough luck. If interest rates rise and your bond portfolio loses value, oh well. Indeed, if one of the bond issuers goes bankrupt, too bad for you. The bank is essentially a bond issuer.<br /><br />Oh, and, nobody says you can't insure a bank account. That would be like a put option. Like all other insurance, it cost money but reduces risk. Another way to reduce risk is don't put a huge amount of money in a single checking account; use multiple checking accounts.Brethttps://www.blogger.com/profile/15063508651955739056noreply@blogger.comtag:blogger.com,1999:blog-5806884.post-86956745427928009802015-07-03T10:38:43.053-07:002015-07-03T10:38:43.053-07:00Currency system? Do you mean printing, etc. Then ...Currency system? Do you mean printing, etc. Then yes, but otherwise it's merely a convenience as are credit cards -- gold is heavy. <br /><br />Knows economics -- more sarcasm?erphttps://www.blogger.com/profile/09826044412670324694noreply@blogger.comtag:blogger.com,1999:blog-5806884.post-81579406298891261852015-07-03T10:03:46.084-07:002015-07-03T10:03:46.084-07:00Erp,
On the "right" quote, I guess you&...Erp,<br /><br />On the "right" quote, I guess you've lost my hint at sarcasm.<br /><br />And bridges, roads, etc, are indeed "paid for by taxpayers" - guess what, the currency system is also built on taxpayers back. As Bret rightly mentioned, "The only thing that makes them [stable] is that taxes have to be paid in the currency."<br /><br />---<br />Stick to physics. The natural world is far less unfathomable than the minds of our betters intent on our destruction.<br />---<br />Oh, I'll stick to Physics, don't worry, I do not intend to publish anything in Economics so soon. For me, it is only feasible if I par with someone who really knows Economics, so I get to worry more about the mathematics.Clovishttps://www.blogger.com/profile/08921327103613284595noreply@blogger.comtag:blogger.com,1999:blog-5806884.post-79113897446917019432015-07-03T07:01:26.590-07:002015-07-03T07:01:26.590-07:00Clovis, right? No and your faith in governments i...Clovis, <i>right?</i> No and your faith in governments is puzzling since you are well aware of their failures over time and place.<br /><br />Stop asking yourself. I'll tell you. Credit card companies provide a service for a fee. Banks did the same before they were co-opted into providing services at the behest of the redistributionists. <br /><br />Bridges, roads, schools, parks and other public services are part of the government's portfolio bought and paid for by taxpayers. They are in no way comparable to currency.<br /><br />BTW - Instead of the "Dismal Science," economics should be called the "Dismissible Science." To call them crackpots is to tarnish pots with cracks in them. :-)<br /><br />Stick to physics. The natural world is far less unfathomable than the minds of our betters intent on our destruction.erphttps://www.blogger.com/profile/09826044412670324694noreply@blogger.comtag:blogger.com,1999:blog-5806884.post-65243729842196388282015-07-03T06:23:12.510-07:002015-07-03T06:23:12.510-07:00Peter, ah but if the feds take over to avoid bankr...Peter, ah but if the feds take over to avoid bankruptcy aka General Motors and others, that may not be possible. What then?erphttps://www.blogger.com/profile/09826044412670324694noreply@blogger.comtag:blogger.com,1999:blog-5806884.post-43244144307786097102015-07-03T06:09:50.213-07:002015-07-03T06:09:50.213-07:00Here we go:
1) Please notice Erp - and anyone el...Here we go: <br /><br />1) Please notice Erp - and anyone else who thinks it was a bad idea to substitute gold for colorful paper - the actual proposal here is to substitute govt paper for many different bank issued papers. Looks a lot more safe than gold, right?<br /><br />2) The same way you enter in a store or supermarket and look for stickers of "Visa", "Mastercard", "American Express" to check if your plastic works here, the idea above, as far as I understand it, is: you'd enter in a store and look for stickers like "We Accept Citibank Money", "We accept Bank of America greens!", or "We Prefer Donald Trump Notes"...<br /><br />To which I ask myself, what's the difference to the credit cards then?<br /><br />To make my point, some economists point out that "shadow banking" was partially to blame for the 2008 crisis - that a lot of debt was unaccounted for and out of control under credit cards and other kind of cards (like retail stores cards). So there we have again a "freer banking system" taking the blame.<br /><br /><br />3) It may be just ignorance by my part, Bret, but I tend to think of money fulfilling two rules: i) defining units of value (to which we give value in itself) and ii) providing for medium of exchange, where the value of money itself is absolutely irrelevant, it only serves the purpose of transfering one kind of value to another kind.<br /><br />Free banking looks to be all about item (i), while item (ii) looks to be much, much more important. As it happens, it also looks like that govt centralization is way more effective to fulfill (ii) than a free banking system (I am not sure about it, I did not read the book to see all his counterarguments).<br /><br />To take an analogy: govt many times is necessary to provide for another medium of exchange of goods, other than money, that we use a lot: highways and roads. We had this discussion here before. We could just wait for the free market to provide for all the highways and roads a country need to prosper, yet it rarely happened to be the case, right? <br /><br />4) Also, if Free Banking is all that thrill, why is it that Scotland and Australia gave up on it?Clovishttps://www.blogger.com/profile/08921327103613284595noreply@blogger.comtag:blogger.com,1999:blog-5806884.post-91085500391307714202015-07-03T06:09:21.859-07:002015-07-03T06:09:21.859-07:00Bret,
---
However, if you haven't heard of it...Bret,<br /><br />---<br />However, if you haven't heard of it before, I was hoping you might find it interesting or even intriguing.<br />---<br />To the extent I've heard about it before, it was often in not so good terms.<br /><br />To take an example you just cited, Zimbabwe is much closer to a free banking system than us, yet somehow it doesn't look much inspiring. <br /><br />Or to take a citation on Selgin's book [Chapter 11]:<br /><br />"Elsewhere various Chicago economists-especially Milton Friedman<br />(1959, 4-9)-have criticized free banking on the grounds that it<br />leads to unlimited inflation, involves excessive commodity-money<br />resource costs, and encourages fraud." <br /><br />To be fair, he then goes on to argue why that is not necessarily the case. He first ponders on the two contrary views, Discretion X Fixed Rules, to conclude that:<br /><br />"Thus monetary policy has reached an impasse. Under a strict<br />monetary rule, and especially in the case of the base-freeze proposal,<br />the really desirable end of monetary policy-achieving monetary<br />equilibrium-has to be sacrificed to the much lower, cruder end of<br />merely preventing the authorities from introducing more instability<br />into the system than might exist in the absence of any intervention,<br />capricious or otherwise. Is such an inflexible arrangement the best<br />that can be hoped for? So long as one clings to the assumption of<br />centralized control and centralized currency supply, there is reason to<br />believe that it is. We have seen, in chapter 7, why discretion, even in its<br />best guise, is likely to hurt more than it helps."<br /><br />He then offers that, once you de-centralize control, it is all good:<br /><br />"By supplying an alternative form of<br />pocket and till money-competitively issued bank notes-to accommodate<br />changing public demands, free banking reduces the public's<br />reliance upon base money as currency for use in everyday payments.<br />In this way base money is allowed to remain in bank reserves to settle<br />clearing balances. Fiat base money can thus be made to play a role<br />similar to the one played by commodity money in the "typical" free<br />banking system which has been given prominence through most of<br />this study. Base money never has to move from bank reserves to<br />circulation or vice-versa, so that, in such a system, there is no question<br />of any need for reserve compensation to offset the ebb and flow of<br />currency demand."<br /><br />He further argues:<br /><br />"For most of the 20th century the only claims allowed (we are as usual<br />considering ones redeemable on demand only) have been checkable<br />deposits. What is proposed, therefore, is that commercial banks be<br />given the right to issue their own notes, redeemable on demand for<br />Federal Reserve Dollars, on the same assets that presently support<br />checkable deposit liabilities. Once the public becomes accustomed to<br />using bank notes as currency, the stock of high-powered money can<br />be permanently frozen according to a plan such as Friedman's without<br />negative repercussions due to changes in the relative demand for<br />currency. This simple proposal does not involve any interference whatsoever<br />with the dollar as the national monetary unit. Yet, it would make it<br />possible for Federal Reserve high-powered money to be used exclusively<br />as bank reserves, for settling interbank clearings, while allowing<br />bank notes to take the place of Federal Reserve Dollars in fulfilling<br />the currency needs of the public."<br /><br /><br />For lack of space, I'll follow with a few points in the next comment...<br /><br />Clovishttps://www.blogger.com/profile/08921327103613284595noreply@blogger.comtag:blogger.com,1999:blog-5806884.post-15392361868331109162015-07-03T05:42:21.452-07:002015-07-03T05:42:21.452-07:00You continue making the payments you agreed to pay...You continue making the payments you agreed to pay to the bank's trustee in bankruptcy. Peterhttps://www.blogger.com/profile/15836910211382887430noreply@blogger.comtag:blogger.com,1999:blog-5806884.post-80693237196841195902015-07-03T05:33:11.503-07:002015-07-03T05:33:11.503-07:00Peter, what do you think happens to your car when ...Peter, what do you think happens to your car when the bank holding your car loan fails?erphttps://www.blogger.com/profile/09826044412670324694noreply@blogger.comtag:blogger.com,1999:blog-5806884.post-56657860803766139242015-07-03T05:31:34.814-07:002015-07-03T05:31:34.814-07:00Bret:
If I buy a GM product and then GM fails, I ...Bret:<br /><br />If I buy a GM product and then GM fails, I still have my car. Not so when my bank fails.Peterhttps://www.blogger.com/profile/15836910211382887430noreply@blogger.comtag:blogger.com,1999:blog-5806884.post-27287120675799363732015-07-03T04:54:57.439-07:002015-07-03T04:54:57.439-07:00Harry, you seem to have trouble with your vocabula...Harry, you seem to have trouble with your vocabulary words. <br /><br />Look it up. Intrinsic does not mean static.erphttps://www.blogger.com/profile/09826044412670324694noreply@blogger.comtag:blogger.com,1999:blog-5806884.post-34454366596845595662015-07-02T20:35:39.707-07:002015-07-02T20:35:39.707-07:00'it still has a sort of intrinsic value'
...'it still has a sort of intrinsic value'<br /><br />About one-third less (compared to dollars) than a couple years ago. It is not so easy to account for that if it has intrinsic vale.Harry Eagarhttps://www.blogger.com/profile/04196202758858876402noreply@blogger.com