The Feketians continue to bombard us with their guru’s rehashed ‘real bills’ fallacy and now seem to think Murray Rothbard was some kind of frustrated gauleiter, as you can read here!
PS All you Gold-bug webmasters out there, please note that ‘real bills doctrine’ is just one more form of inflationism and so hardly in your best interests to promote so avidly!
Source link: http://archive.mises.org/4149/mental-kudzu/
Mental kudzu!
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Sean Corrigan,
Beautifully done! I think, for the first time, I have my mind completely around the issue.
However, the rancorous tenor of the debate is the fault of both sides, in my opinion. The debate should take place face to face. The best forum would be here on Mises.org. It is a pity that it only takes place indirectly.
I have to mildly object to your adverse position on the rancor, Yancey. I think it makes the debate more interesting and puts just enough edge on it to make Corrigan’s humour even funnier. The image of “squads of brutish Austrian storm-troopers” invading banks to intervene in free private contractual banking activity was enough to keep me laughing for quite a while yesterday.
Without the humour, i don’t know if could stand to see such a long since refuted doctrine of the Real Bills clan destroyed once again.
I too liked the “brutish Austrian storm troopers” – but he forgot to say “chinese made wal-mart purchased jack-booted” to the term.
My first observation is that fractional reserve banking usually fails discontinuously and systemically – there is a run on all banks, so a bank with 50% reserves will fail as well as a 20% reserve one in an emergency. Either you get 100% or 0% out when it happens, not 95%, or 80% so you can identify unsafe institutions ahead of time. (ok, maybe after years you might get something back, but people usually can’t pay rent with such future promises – oh, I know, open a secondary market with discounted real bills drawn on rights to collect from bust banks…).
Second, which no one picks up, is that a mutual fund is a lot like a bank, except it can suspend redemptions and it will tell you ahead of time in the prospectus. They have less than 4% cash right now, but I don’t consider it fraud, even though some funds and fund families allow cheques to be drawn on money market funds. So I don’t have a problem with this kind of thing in principle, but when a bank says anyone can redeem any note any time, it can’t do so with a fractional reserve.
But to take their point about the free market, I would sigh and probably say, yes, if someone paid “dividends” out of newly acquired investor’s money, people ought to be allowed to “invest”, even though it is a pyramid or ponzi scheme, and it will fail and you can mathematically calculate and predict the point of failure. The dot-coms weren’t too much different. But the investors need to know what they are getting into. Same with a FR bank.
Strangely, GATA and lemetropole cafe complain about gold leasing, yet feature the “real bills” side. But the gold leases (which are unbacked loans) are exactly “real bills” with all the evils noted by the Mises/Rothbard side.
Or for that matter, retailers could simply lease shelf-space and sales services to vendors to sell their shops, and simply collect a fee – the vendors wouldn’t be paid for the merchandise, the merchant would simply act as a paid agent and take a fee from what the consumer paid. No real bills, no inflation, no arbitrary time limits, yet it doesn’t require multiplying the money supply.
Hi TZ:
I think your point is that a checking account and a checkable money market fund or mutual funds have similarities, and yet the money market account is not fraudulent because of how customers view these accounts. This is exactly right, but it is also exactly the point.
The reason why Rothbard did not include MMF checking accounts as part of the money supply is because customers realize these are investments not redeemable at par on demand, but they are assets which will be sold on the market for money, to cover the checks written. Hence they are not part of the money supply and they are also not fraudulent.
The entire reason why a checking account “deposit” is part of the money supply, and is also fraudulent is exactly because each customer understands it precisely NOT to be of the nature of the MMF. The customer considers his “deposit” to be a deposit, redeemable at par, instantly; not an investment. It is how the account is marketed and perceived that makes it fraudulent. You’ve got a nation out there all thinking they can all write a check against their checking accounts tomorrow, empty their account, cash it all in at par, and the money is there in the bank, or very handy, to do so with.
This is the perception. It is a fraud.
Why do the Feketians dislike calling a MMMF a MMMF and instead insist on calling it a “bank”? The Rothbardians make the distinction and everyone at least know the rules. This disclosure is the difference.
They seem to spend lots of words explaining why the “banks” discounting “real bills” need not explain that they don’t have reserves to meet deposits, or that many would get good or bad reputations (though I pointed out bank-runs tend to be catastrophic and systemic failures, so reputation is irrelevant – if you have 60% reserves and in a run the depositors demand 65% it would still fail – consider a bank in NOLA just before the hurricane where the evacuees wanted to take their cash with them). There could be a “real bill” mutual fund, if one that invests in safe commercial paper isn’t one already.
Insisting on a fraudulent label is insisting on the fraud.
Here is Blumen’s latest salvo. A really wonderful essay, in my opinion.
Also, here is Hultberg’s reply to Corrigan.
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