You first; what’s *your* theory of money? Chartalism? What? Please tell.

I stated this from a previous post. (see above Kaz)
“…banks print more money than specie…” If you accept FRB, it doesn’t matter if money is backed by gold or water bottles. You will create monetary inflation.

I question if free banking will led to sound money.

If I look at the history of banking that doesn’t seem to be the case in the U.S. or elsewhere. If you look at the business model of banking, economics of banking, or the psychology of banking…they all lead to FRB and then demise of the currency.

If you really wanted to twist my arm, you could point out that I am an anarcho-libertarian and that presupposes free banking. You would be right.

But, if free banking leads to FRB by the majority banks (I don’t see how banks can make any money otherwise) then you devalue the currency, you have inflation, malinvestment, a bust and then a whole lot of people screaming for a government to save them.

So, no matter how anarcho-libertarian you and I want our society to be, with out sound money….we end right back where we are today. I question whether free banking and the ensuing FRB will work.

Therefore, Block’s property rights argument against FRB appeals to me as a way to get out this dilemma.

It’s not an assumption, it is a conclusion.

The closest I’ve come to discussing this subject was with Kaz, who is a free banker and has his own site. http://butnowyouknow.wordpress.com/those-who-fail-to-learn-from-history/history-of-economic-downturns-in-the-us/

See (Bernanke’s Solutions Are the Problem 11/5/10) if you wish to review my discussion with him.

Based on Kaz’s historical timeline (and comments) of booms and busts from the 19th and 20th centuries, I concluded that, institutionally speaking, we can’t manage money. Inevitably, banks print more money than specie and Fed banks… just print more money.

Henceforth, my conclusion…Sound money and FRB are incompatible.

A claim on a person is, of course, a form of property, called a chose in action, however it differs from ownership of a physical item such as a coin, which is a chose in possession.

defrauding the customer by giving them one product in place of another

As far as I see, this is just a hypothetical construct. It is not necessarily what happens. Maybe your preception is skewed because cheques are still common in the US. Not so much here in EU. With the minor exception of UK and Ireland, I have not seen a cheque in like 20 years. Banks do not give their customers cheques as a replacement for currency notes, and people do not give other people cheques as a replacement for currency notes either. Rather, the FRB “money” is exchanged via electronic transactions, e.g. debit cards or online banking.

While I see how one could confuse cheque for cash, I find it difficult to believe that one can confuse cash for electronic transactions. I for example prefer paying with debit cards to paying with cash, and I prefer to be paid electronically too. That shows that to me, cash and bank credit are two distinct products.

But you’re right, it’s a very complex topic.

I would differ though in that I think it can be considered fraud – that, with a commodity money in place, people start this ball rolling by intentionally defrauding the customer by giving them one product in place of another that they knew would cause some problem down the line for someone else but would benefit them in the here and now. So now the information is so distorted that we can’t reasonably accuse any individual of fraud – but it should be prohibited nonetheless. A truly ludicrous and lamentable state of affairs.

lack of product differentiation

I see your (i.e. Huelsmann’s) point Kid. One could argue that the lack of product differentiation can mean that fraud is perpetrated. But I still unconvinced that this accurately represents FRB. FRB banks do not issue bank notes or coins, only the central banks (or, in the US, the Treasury) do that. FRB banks extend credit. I think credit and notes are sufficiently distinct, but people use them interchangeably for convenience purposes.

there was a jump from the use of a tangible scarce good to an intangible non-scarce ticket
This is more a problem of fiat money rather than FRB. The issue I have with this is similar to that of FRB: it assumes that because the media of exchange began, historically, as commodity money, media of exchange not based on commodities are fraudulent. That’s a non-sequitur. There are media of exchange which have been fiat from the beginning. Euro, for example, unlike US Dollar, was never based on commodities.

I think this is a very complicated topic and I am not qualified to make final judgements. Nevertheless, so far I have problems with all of the explanations presented to me.

“…I analyze an important case in which the market participants do not distinguish between two inherently different banking products – namely, money titles and fractional-reserve IOUs … I argue that these consequences [booms and busts] result independent of whether their cause – namely, lack of product differentiation – is brought about accidentally or intentionally.”

I think his analysis is correct but requires something more, unravelling this issue is complex and that there is something fundamental missing from the discussion still – and my gut feeling is that at root it is the same thing that is missing in the IP debates, although I don’t quite see it 100% clearly yet. The key problem is: you make an exchange and get a piece of paper which you intend to take down the road and swap for, say, a loaf of bread. You get what you want whether the piece of paper is a money (ie. gold) title or a printed up IOU looking exactly like a money title. So there is an argument that you have not been defrauded, if you are told that this is an IOU and not a money title. There is an argument that you don’t care or need to care what others do, that you have what you need to buy your loaf and you literally cannot determine, from inspection of your ticket, whether it is a real money title or an IOU and so it is just not your problem. Is this, broadly, what you would say?

I have big problems with this though – there was a jump from the use of a tangible scarce good to an intangible non-scarce ticket. It is, quite simply, a totally different good, and the fact that you can use it in the same way as genuine money title for most purposes is immaterial. If I go to buy a paperweight made of gold, then the guy finds out I only want it as a paperweight and tells me he has painted up some tungsten instead, I would pay him less – the fact that it will perform the same function is neither here nor there. And the argument against time preference using ice-creams – saying that I’d prefer an ice-cream in summer rather than now (in winter) is answered by saying it is a different good. The ice-cream itself is identical – its relationship with everything else is different. Same with the ticket – the paper itself might be indistinguishable from the stock of genuine money titles, but its relationship with the world is different. And, crucially, so now is the relationship of the other genuine money titles (the item you copied) with the rest of the world.

Now, if people are genuinely confused about this, ok. People have, say, treated food cooked with microwaves and heated on a hob as the same for many years, but there is growing evidence that it is not the same – that the microwave alters the amino-acids so as to significantly reduce the nutritional value of the food. So, for many people at least, a microwaved soup is not the same good as a hob heated soup. But people selling microwaved soup are not committing fraud – they just don’t understand (assuming this is true). Most people now printing up money are not committing fraud – they just don’t understand. So, to me, it comes down to causation and intent and all the pet-topics discussed to death on the IP threads – an altogether non-trivial problem.

I’ll summarize it like this:

Sound money and FRB are incompatible.

It might be that historically, fractional reserve deposits evolved from full reserve deposits. That does not mean that per se, the action of extending credit without appropriate backing is fraudulent or in general a violation of property rights, even though it causes inflation. You might recall that I consider physical invasion necessary for the violation of rights. Inflation does not physically invade the property, rather it changes the market value of your property (and obligations and liabilities). There are all kinds of services that are offered without 100% reserves, yet libertarians typically do not call them fraudulent. It’s a question of business risk.

The closest explanation I received regarding why such an action is fraudulent is maturity mismatching. But I don’t think that’s a praxeological term.

I am unconvinced by the arguments that extending credit without appropriate backing is, per se, fraudulent. Whether such a definition matches that of FRB I don’t know, but I think that FRB opponents are misled by the historical developments.

http://www.independent.org/pdf/tir/tir_07_3_hulsmann.pdf

Thanks for the reply.

You have far more expertise in the area of finance/accounting than I do and I defer to you on those issues. I will use your site in the future as a counterpoint and reference.

On the issue of convolution…I meant what I said if one defines it as complicated or intricately involved but my context is based on perspective.

In the case of your arguments on FRB, I’m looking for the essence or axiom but you’re presenting a detailed legal argument. In retrospect, the two are not compatible. From my point of view, it’s convoluted, intricate, and complicated but from your perspective, it is simple (because you’re well versed and you give a very detailed explanation.)

In the end, it’s really a point of style, presentation, and line of reasoning…so I’m not sure you need to rewrite anything.