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Topic: Fixed supply, really? (Read 3494 times)

legendary
Activity: 1246
Merit: 1011
March 06, 2014, 04:35:04 PM
#49
I am more of a minarchist, perhaps classical liberal or something between liberal and libertarian.

Thanks.
sr. member
Activity: 475
Merit: 255
March 06, 2014, 12:55:38 PM
#48
The problem is that insurance can be set with wrong parameters. Eg. too high insurance for too low risk. And it is everybody's task to decide what the right balance is. Not for some central "right balance" to be enforced (either by dictator, commission or democratic vote).

Yes, this is certainly one issue.  I think un_ordinateur is accepting this setback as being outweighed by the benefit of reducing the risk of civil unrest.

By the way ZephramC.  May I ask: Are you an anarchist or more of a minarchist?


I am more of a minarchist, perhaps classical liberal or something between liberal and libertarian.
legendary
Activity: 1246
Merit: 1011
March 06, 2014, 07:32:58 AM
#47
I believe your objection might lie somewhere along these lines?

Not really; I just didn't express myself well.  I would actually object to "forcing people not to pollute the sea" (I'm an anarchist).

I'd like to end this on a side note. It's a really interesting talk. I like debating with people of different opinion of mine. The Bitcoin community is interesting in that it provides an interesting sample of right-leaning people that have smarter arguments than I'm used to.

Thanks.  May we both continue to learn and grow.
full member
Activity: 157
Merit: 100
March 05, 2014, 11:49:53 PM
#46
As I said earlier, the fact that the majority decides something is good for everybody does not gives, by itself, that majority the legetimity to force something onto everybody. Only when it is both done in the for the common well being, AND that people opting out is detrimental for the succes of the measure then it might become legetimate to enforce it.

This seems pretty reasonable to me.  I'd give an example as something like "forcing people not to pollute the sea".  I believe that this is not legitimate myself but the argument is subtle and would take us too far astray.  Perhaps we can just agree to disagree on this.

There is a subtle difference between "forcing people not to pollute the sea" and "forcing people to take insurance". One is to force people to not do something, and the other is to force people to do something. I believe the first is a lot more easy to justify that the second; ones argument to justify to force to do something must be a lot damn stronger that ones that to justify to not do something.

Why? Because forcing somebody to do something he dissagrees with is a lot more "painful" to him than to not do something he'd like to.

I believe your objection might lie somewhere along these lines?

One question:  What happens in a society composed entirely of democrats that accept your "common-good + common-tragedy" axiom but where the majority don't believe that bank insurance follows this axiom.  Would it still be a legitimately democratic matter?

If the society was entirely made of democrats, then I'd believe that choosing if something is democratic or not is itself a democratic choice. (Which exactly is a Bill of Rights/Charter of Freedom: A democratic choice in which democrats decided to specifically exclude some choices as being democratic.) Thus if the majority decides that bank insurance is not a democratic choice, then it isn't until they decide otherwise.

(Also, in the case of bank insurance, it is not even forcing individuals to take an insurance. It is the government that takes upon itself to ensure deposits.)

You're letting yourself down here.  Government forcing individuals to pay for their own bank insurance would be less objectionable (still not good).  The original proposal implies government forcing people to pay for other people's bank insurance.


Ahhh! Hmm. I guess you believe that the least government the better? I guess that's why you dissagree strongly here; because I do not have such objections. In fact, I believe that in every case the state decides, by a tragedy of the commons argument, that everybody should take/subscribe/use something, then the only "fair" way to do this is if the government takes the job itself. Because giving it to the private sector is essentially granting them a "free" monopoly, and letting the unavoidable profits (I'ts difficult to fail with a monopoly) end in the hands of a few, wheras the whole point of this was for the common good. So then the government should run the thing and use the profits for the common good. (I'm of course assuming the governemnt does a -good- job at managing those assets. Which it doesn't always do. But it is not impossible that it did, and in any case, that a give implementation of an idea is flawed does not undernmine the idea itself)

I'll take for example Hydro-Quebec, the power company from where I live. It is almost run as a private company, but the government owns all the shares. Hydro-Quebec is really efficient with it's assets, produces huge profits, (so huge that a lot of people pressure the government to pressure the company to reduce the cost of electricy even if it already costs us about 60% of the price of electricity elsewhere), and all those profits goes to the government.

A second point of view, specific to the bank insurance, was more what I tought when I said "Also, in the case of bank insurance, it is not even forcing individuals to take an insurance. It is the government that takes upon itself to ensure deposits." -> If the governement forces everybody to take their own insurance, that's one thing. If the governement provides insurance to banks, without forcing anybody to pay anything, except the usual taxes, then I might be seen not as "the government provides insurance to the people", it might be seen as "the government takes insurance for itself against civil unrest". The difference is subtle, and the end result, exactly the same. It's not just the same moral footing.



Anyway, I think you're arguing well here.
Well thak you! Smiley I'm happy to see that my arguments are clear, because English is not my first language.



I'd like to end this on a side note. It's a really interesting talk. I like debating with people of different opinion of mine. The Bitcoin community is interesting in that it provides an interesting sample of right-leaning people that have smarter arguments than I'm used to. I've have interesting arguments with the left two years ago during the Quebec student strike. I myself see myself as moderately left-leaning liberal-democrat. (I'm using these words in an "absolute" political sense, not in reference to any party that might have these words in their name)

In that, I'm not specifically excited by some of the features of bitcoin that excites most of it's early adopters. But I don't dissagree with those features eighter; I understand how some might like them.
-I don't really care about anonymity. (On the contrary, the ability to track funds troughout the blockchain will, someday, be very useful to law enforcement I believe. Bitcoin does help "small" crimes (drug transaction), but it makes impossible to launder huge amounts of money. Both things I like.)
-I don't really care about fixed supply. (in fact, I believe that a small but know inflation might be better. But it's just an intuition. In any case, if the fixed supply ever gets a problem, then this can be changed by concensus).
-I don't really care about the fact that it is not government issued.

What I -do- care a lot about is that it is trustless system that enables people to send money all over the world. No intermediates like VISA, paypal that take huge fees and get to chose who gets to use their service or not. Just that makes Bitcoin revolutionary.

I also like that it gives back to the people some power over the monetary policy. The fact that we are currently all dependent upon banking institution for our money gives them way too much power. If something gets too big to fail, It should be dismantled. (I did say earlier that "I don't really care about the fact that it is not government issued" -> I don't see contradiction here as I believe that a (good) government expresses the will of the people. But currently, government prints money, but banks dictates money policy.)

legendary
Activity: 1246
Merit: 1011
March 05, 2014, 06:57:51 PM
#45
The problem is that insurance can be set with wrong parameters. Eg. too high insurance for too low risk. And it is everybody's task to decide what the right balance is. Not for some central "right balance" to be enforced (either by dictator, commission or democratic vote).

Yes, this is certainly one issue.  I think un_ordinateur is accepting this setback as being outweighed by the benefit of reducing the risk of civil unrest.

By the way ZephramC.  May I ask: Are you an anarchist or more of a minarchist?
legendary
Activity: 1246
Merit: 1011
March 05, 2014, 06:42:28 PM
#44
As I said earlier, the fact that the majority decides something is good for everybody does not gives, by itself, that majority the legetimity to force something onto everybody. Only when it is both done in the for the common well being, AND that people opting out is detrimental for the succes of the measure then it might become legetimate to enforce it.

This seems pretty reasonable to me.  I'd give an example as something like "forcing people not to pollute the sea".  I believe that this is not legitimate myself but the argument is subtle and would take us too far astray.  Perhaps we can just agree to disagree on this.

Anyway, I think you're arguing well here.

In the topic of insurance, then, as I said earlier, some people are more wreckless that other. So some people do not see a clear and indisputable advantage to that. It is fully their right. But in the unfortunate event that a bank collapses, if not enough people (the vast majoryty of them) are insured, then it will lead to social chaos that it is in the interest of the whole society to prevent from happening. Now, if not enough people are willing to voluntary subscribe to such insurance, how do you determine who shall be forced to take it? It is a lot fairer to just ensure everybody.

I would debate several of your assumptions but see how, under these assumptions, bank insurance becomes a tragedy of the commons and therefore fits your criteria for being legitimately democratic.

One question:  What happens in a society composed entirely of democrats that accept your "common-good + common-tragedy" axiom but where the majority don't believe that bank insurance follows this axiom.  Would it still be a legitimately democratic matter?

(Also, in the case of bank insurance, it is not even forcing individuals to take an insurance. It is the government that takes upon itself to ensure deposits.)

You're letting yourself down here.  Government forcing individuals to pay for their own bank insurance would be less objectionable (still not good).  The original proposal implies government forcing people to pay for other people's bank insurance.
full member
Activity: 157
Merit: 100
March 05, 2014, 05:48:52 PM
#43
If it is really everybody's well-being which is in stake, why do not leave insurance voluntary? All will insure themselves in a moment when they see the "clear and indisputable advantage." in insuring

... The problem is that insurance can be set with wrong parameters. Eg. too high insurance for too low risk. And it is everybody's task to decide what the right balance is. Not for some central "right balance" to be enforced (either by dictator, commission or democratic vote).
Should smoking ban, drugs ban, suicide ban, etc. also be enforced "for the well-being" of all?

As I said earlier, the fact that the majority decides something is good for everybody does not gives, by itself, that majority the legetimity to force something onto everybody. Only when it is both done in the for the common well being, AND that people opting out is detrimental for the succes of the measure then it might become legetimate to enforce it.

To take your smoking example, I do not think banning smoking (wether it be tobacco of pot) should be forbidden. However, forbidding to smoke in public places is could be, because it causes inconvenience to other people.

In the topic of insurance, then, as I said earlier, some people are more wreckless that other. So some people do not see a clear and indisputable advantage to that. It is fully their right. But in the unfortunate event that a bank collapses, if not enough people (the vast majoryty of them) are insured, then it will lead to social chaos that it is in the interest of the whole society to prevent from happening. Now, if not enough people are willing to voluntary subscribe to such insurance, how do you determine who shall be forced to take it? It is a lot fairer to just ensure everybody.

(Also, in the case of bank insurance, it is not even forcing individuals to take an insurance. It is the government that takes upon itself to ensure deposits.)
sr. member
Activity: 475
Merit: 255
March 05, 2014, 04:28:09 PM
#42
If it is really everybody's well-being which is in stake, why do not leave insurance voluntary? All will insure themselves in a moment when they see the "clear and indisputable advantage." in insuring

... The problem is that insurance can be set with wrong parameters. Eg. too high insurance for too low risk. And it is everybody's task to decide what the right balance is. Not for some central "right balance" to be enforced (either by dictator, commission or democratic vote).
Should smoking ban, drugs ban, suicide ban, etc. also be enforced "for the well-being" of all?
legendary
Activity: 1246
Merit: 1011
March 04, 2014, 06:59:38 PM
#41
May I ask: Do you believe that bank insurance (as you outlined earlier) is largely just or more of a necessary evil?

I'm not judging; I'm genuinely curious.


Well, I may see this questions on two sides.

The first doesn't even need to see it as a "necessary evil" or not. Insurance, in general, exists because there are certain events that, albeit unlikely, can be very catastrophic to those caught in it. Someone's home burning up is an example. Someone's bank going bankrupt in another. Someone having cancer is a third. Insurance offers protection to that; in that you pay a small fee over time, but if something bad happens, then it'll pay for you.

If you're "lucky", and nothing bad happened to you, then you'll have payed for nothing. So you lost money with this deal. but a lot of people pay for insurance instead, because we cannot know beforehand if it will happen to us, and we prefer to be slightly less rich, but safe, than risk losing everything.

But all insurance program rely on the fact that most (or at least, some) members will be "lucky" and that nothing bad will happen to them; and that therefore the payments of these members will subsidise those who are unlicky, because, otherwise, insurance would not exist; it would just be advanced payment for the eventual catastrophe.

But insurance is a "special" product that does not behave normally: for a given monthly payment, has "more" value the more people use it. It does not behave like a standart "free market" service where only offer and demand drive the value.

Therefore, if a majority of the people decide that they'd be better off being insured than not, then they have the incentive to make everybody subscribe to that insurance.

And because it is a matter of collective well-being, then it is somewhat legetimate to bypass the individual freedom of not subscribing to insurance. (Especially since the reasoning here is that you are better off being insured, so your "right" to not be insured is only a "right" to be stupid. Because in the first place, if most people believed insurance was bad, then they wouldn't vote for such law to begin with. It is a completely different case of your example where "two wolf and a sheep cannot democratically chose what's for dinner", because, in that example, the democratic "majority" choses to vote to considerably diminish one of the members of the group's well being, wereas, in mandatory inusrance, in theory, the honest will of the majority is to increase everybody's well being)



The other point of view does view it as a necessarely evil. A major bank collapsing would financially ruin a LOT of people. It would necessary lead to civil unrest, which is usually seen as a bad thing. (see: the Great Depression) Therefore, the government insuring the people's deposits in banks is a simple and effective way of preventing that from happening. It is less an an insurance for individual persons against bad banks, but an insurance for the society against the bad banks.

Thanks for the detailed response.
full member
Activity: 157
Merit: 100
March 04, 2014, 06:30:07 PM
#40
Anyway, it's getting side topic, but I do agree what matters should not be decided democratically can be the subject of disputes. I believe that banks insurance is a democratic matter, but I conceive that you may not agree on that.

May I ask: Do you believe that bank insurance (as you outlined earlier) is largely just or more of a necessary evil?

I'm not judging; I'm genuinely curious.


Well, I may see this questions on two sides.

The first doesn't even need to see it as a "necessary evil" or not. Insurance, in general, exists because there are certain events that, albeit unlikely, can be very catastrophic to those caught in it. Someone's home burning up is an example. Someone's bank going bankrupt in another. Someone having cancer is a third. Insurance offers protection to that; in that you pay a small fee over time, but if something bad happens, then it'll pay for you.

If you're "lucky", and nothing bad happened to you, then you'll have payed for nothing. So you lost money with this deal. but a lot of people pay for insurance instead, because we cannot know beforehand if it will happen to us, and we prefer to be slightly less rich, but safe, than risk losing everything.

But all insurance program rely on the fact that most (or at least, some) members will be "lucky" and that nothing bad will happen to them; and that therefore the payments of these members will subsidise those who are unlicky, because, otherwise, insurance would not exist; it would just be advanced payment for the eventual catastrophe.

But insurance is a "special" product that does not behave normally: for a given monthly payment, has "more" value the more people use it. It does not behave like a standart "free market" service where only offer and demand drive the value.

Therefore, if a majority of the people decide that they'd be better off being insured than not, then they have the incentive to make everybody subscribe to that insurance.

And because it is a matter of collective well-being, then it is somewhat legetimate to bypass the individual freedom of not subscribing to insurance. (Especially since the reasoning here is that you are better off being insured, so your "right" to not be insured is only a "right" to be stupid. Because in the first place, if most people believed insurance was bad, then they wouldn't vote for such law to begin with. It is a completely different case of your example where "two wolf and a sheep cannot democratically chose what's for dinner", because, in that example, the democratic "majority" choses to vote to considerably diminish one of the members of the group's well being, wereas, in mandatory inusrance, in theory, the honest will of the majority is to increase everybody's well being)



The other point of view does view it as a necessarely evil. A major bank collapsing would financially ruin a LOT of people. It would necessary lead to civil unrest, which is usually seen as a bad thing. (see: the Great Depression) Therefore, the government insuring the people's deposits in banks is a simple and effective way of preventing that from happening. It is less an an insurance for individual persons against bad banks, but an insurance for the society against the bad banks.
legendary
Activity: 1246
Merit: 1011
March 04, 2014, 03:40:41 PM
#39
Anyway, it's getting side topic, but I do agree what matters should not be decided democratically can be the subject of disputes. I believe that banks insurance is a democratic matter, but I conceive that you may not agree on that.

May I ask: Do you believe that bank insurance (as you outlined earlier) is largely just or more of a necessary evil?

I'm not judging; I'm genuinely curious.
legendary
Activity: 2114
Merit: 1040
A Great Time to Start Something!
March 03, 2014, 04:54:47 PM
#38
One of the main feature of Bitcoin is that the supply of 21 million BTC is know and cannot be changed. Indeed it is.

But imagine a world where bitcoin is mainstream. Banks will still exist! People will have extra money on hand, and will want to lend it in exchange of interest. Banks will be an intermediate to offer that service. I know a lot of Bitcoiners hate fractionnal reserve, but if it ever gets mainstream, not everybody will be against that. So even thoug the "real" bitcoin supply is fixed, the effective supply will grow.

Also, governments could, and will, hold significant bitcoin reserves they can release, of increase, depending of the market factors, to affect economy to their liking.

I seriously believe that the purported benifit of the 21million cap are overrated.

Some of the better alt coins will add to the supply of digital currency
full member
Activity: 157
Merit: 100
March 03, 2014, 04:51:08 PM
#37
But claiming that, by design, Bitcoin's higher goal is to get rid of fractionnal banking seems like a stretch to me. If anything, I believe that the first and foremost design goal of Bitcoin is to give back to the people the power to hold their money and the freedom to deal with it as they see fit. Remove that power from banks and governments. Bitcoin cannot prevent people from operating fractionnal reserve buisnesses (but I makes more difficult for a buisness to claim that it doesn't when it does).

Well put.

I fully support the freedom of people to engage in fractional reserve banking.  All I object to is the government confiscating my money and using it to guarantee such deposits.


I agree. Not only government but also any other group, NGO, corporation, public referendum, common good, criminal organization, ... (Shall not have the power to guarantee such deposits. And Bitcoin makes this much more possible.)

What do you make of the will of the People? If a majority of the citizens of the United States (for example), wishes that their deposit be guaranteed by their government, if
a) Only deposits made at an US based company shall be guaranteed;
b) The company is required to always keep at hand 10% of its deposits ready for withdrawal;
c) They are ready to pay some taxes for that service.

I'm not saying that the -current- government cares about the will of the people. I have not a real opinion on that; I'm not from the US. I'm more interested by the theorical possibility that a majority of the people dissagree with you; and be absolutely willing of something you seem to consider stupid.

The way I see it, my opinion or your opinion is one of many. I might disagree with it, but I'll always accept that the will of the People trumps my will. (If that will is legitimately expressed in a fair vote) I need not to be idle about it either: I can spend time convincing people why I believe the current policy is wrong, and why it should be changed, hoping it will be in 10-20 years.

Well. There are some things which should remain "unenforcebale" even by popular vote or "will of the People". Of course there will always be discussion which things this should be. Common example is that two wolves and a sheep can not vote "what is for dinner?". Some believe that by the same logic you can not have 100 people voting if 95 of them will (steal and) redistribute wealth of the remaining 5. Even if it is will of the (majority of) people. Some believe that you can not have (even "perfectly democratic") referendum about killing innocent man.
If the majority of people wishes that their deposit to be guaranteed by their government they can do that. But this guarantee should not use money of the ones disagreeing. If I wish my deposit NOT to be guaranteed (perhaps because I believe that this offers greater profit with acceptable risk) and there is a company which will grant me this wish and provide me this service then by what right do other people force us to change this.

Yes. That is why there are charter of freedoms/bills of right/etc... It's a kind of a paradox though since those charters were decided democratically, so democraty has decided to put a limit on itself.

Anyway, it's getting side topic, but I do agree what matters should not be decided democratically can be the subject of disputes. I believe that banks insurance is a democratic matter, but I conceive that you may not agree on that.
sr. member
Activity: 475
Merit: 255
March 03, 2014, 03:51:34 PM
#36
yes limited supply, besides theres always litecoin for back up

Reports about gold being limited supply are greatly exaggerated, there is plenty of silver for back up (and copper and iron and aluminum).  Wink
hero member
Activity: 686
Merit: 500
March 03, 2014, 03:47:47 PM
#35
yes limited supply, besides theres always litecoin for back up
sr. member
Activity: 475
Merit: 255
March 03, 2014, 03:43:08 PM
#34
But claiming that, by design, Bitcoin's higher goal is to get rid of fractionnal banking seems like a stretch to me. If anything, I believe that the first and foremost design goal of Bitcoin is to give back to the people the power to hold their money and the freedom to deal with it as they see fit. Remove that power from banks and governments. Bitcoin cannot prevent people from operating fractionnal reserve buisnesses (but I makes more difficult for a buisness to claim that it doesn't when it does).

Well put.

I fully support the freedom of people to engage in fractional reserve banking.  All I object to is the government confiscating my money and using it to guarantee such deposits.


I agree. Not only government but also any other group, NGO, corporation, public referendum, common good, criminal organization, ... (Shall not have the power to guarantee such deposits. And Bitcoin makes this much more possible.)

What do you make of the will of the People? If a majority of the citizens of the United States (for example), wishes that their deposit be guaranteed by their government, if
a) Only deposits made at an US based company shall be guaranteed;
b) The company is required to always keep at hand 10% of its deposits ready for withdrawal;
c) They are ready to pay some taxes for that service.

I'm not saying that the -current- government cares about the will of the people. I have not a real opinion on that; I'm not from the US. I'm more interested by the theorical possibility that a majority of the people dissagree with you; and be absolutely willing of something you seem to consider stupid.

The way I see it, my opinion or your opinion is one of many. I might disagree with it, but I'll always accept that the will of the People trumps my will. (If that will is legitimately expressed in a fair vote) I need not to be idle about it either: I can spend time convincing people why I believe the current policy is wrong, and why it should be changed, hoping it will be in 10-20 years.

Well. There are some things which should remain "unenforcebale" even by popular vote or "will of the People". Of course there will always be discussion which things this should be. Common example is that two wolves and a sheep can not vote "what is for dinner?". Some believe that by the same logic you can not have 100 people voting if 95 of them will (steal and) redistribute wealth of the remaining 5. Even if it is will of the (majority of) people. Some believe that you can not have (even "perfectly democratic") referendum about killing innocent man.
If the majority of people wishes that their deposit to be guaranteed by their government they can do that. But this guarantee should not use money of the ones disagreeing. If I wish my deposit NOT to be guaranteed (perhaps because I believe that this offers greater profit with acceptable risk) and there is a company which will grant me this wish and provide me this service then by what right do other people force us to change this.
full member
Activity: 157
Merit: 100
March 03, 2014, 11:15:58 AM
#33
But claiming that, by design, Bitcoin's higher goal is to get rid of fractionnal banking seems like a stretch to me. If anything, I believe that the first and foremost design goal of Bitcoin is to give back to the people the power to hold their money and the freedom to deal with it as they see fit. Remove that power from banks and governments. Bitcoin cannot prevent people from operating fractionnal reserve buisnesses (but I makes more difficult for a buisness to claim that it doesn't when it does).

Well put.

I fully support the freedom of people to engage in fractional reserve banking.  All I object to is the government confiscating my money and using it to guarantee such deposits.


I agree. Not only government but also any other group, NGO, corporation, public referendum, common good, criminal organization, ... (Shall not have the power to guarantee such deposits. And Bitcoin makes this much more possible.)

What do you make of the will of the People? If a majority of the citizens of the United States (for example), wishes that their deposit be guaranteed by their government, if
a) Only deposits made at an US based company shall be guaranteed;
b) The company is required to always keep at hand 10% of its deposits ready for withdrawal;
c) They are ready to pay some taxes for that service.

I'm not saying that the -current- government cares about the will of the people. I have not a real opinion on that; I'm not from the US. I'm more interested by the theorical possibility that a majority of the people dissagree with you; and be absolutely willing of something you seem to consider stupid.

The way I see it, my opinion or your opinion is one of many. I might disagree with it, but I'll always accept that the will of the People trumps my will. (If that will is legitimately expressed in a fair vote) I need not to be idle about it either: I can spend time convincing people why I believe the current policy is wrong, and why it should be changed, hoping it will be in 10-20 years.
sr. member
Activity: 475
Merit: 255
March 03, 2014, 02:49:31 AM
#32
But claiming that, by design, Bitcoin's higher goal is to get rid of fractionnal banking seems like a stretch to me. If anything, I believe that the first and foremost design goal of Bitcoin is to give back to the people the power to hold their money and the freedom to deal with it as they see fit. Remove that power from banks and governments. Bitcoin cannot prevent people from operating fractionnal reserve buisnesses (but I makes more difficult for a buisness to claim that it doesn't when it does).

Well put.

I fully support the freedom of people to engage in fractional reserve banking.  All I object to is the government confiscating my money and using it to guarantee such deposits.


I agree. Not only government but also any other group, NGO, corporation, public referendum, common good, criminal organization, ... (Shall not have the power to guarantee such deposits. And Bitcoin makes this much more possible.)
legendary
Activity: 1246
Merit: 1011
February 28, 2014, 02:30:49 PM
#31
But claiming that, by design, Bitcoin's higher goal is to get rid of fractionnal banking seems like a stretch to me. If anything, I believe that the first and foremost design goal of Bitcoin is to give back to the people the power to hold their money and the freedom to deal with it as they see fit. Remove that power from banks and governments. Bitcoin cannot prevent people from operating fractionnal reserve buisnesses (but I makes more difficult for a buisness to claim that it doesn't when it does).

Well put.

I fully support the freedom of people to engage in fractional reserve banking.  All I object to is the government confiscating my money and using it to guarantee such deposits.
legendary
Activity: 1246
Merit: 1011
February 28, 2014, 02:06:18 PM
#30
Maybe I fail to understand something (I'm not an economist, I'm a physicist), but what I understood from my introduction to economics class in high school was that deposit/loan banking = fractionnal reserve banking.

Kind of.

Deposit banking is to "hiding your money under the bed" as loan banking is to "lend money to someone that promises to pay back more".  These are both ways of storing your wealth with different upsides.  With deposit banking, you have instant access to your money and no investment risk; with loan banking you get interest.  These are both sound forms of banking.

Fractional reserve banking is an attempt to get the best of both worlds.  A bank that practices fractional reserve banking does not balance the maturities of its assets with its liabilities.  Consequently, it's vulnerable to a "bank run" (where it is called upon to fulfil promises its made but can't keep).

If I go to a bank to deposit my money, and then the bank lends that money to somebody else, then two people have some "claim" to that money. Of course, the lended does not "own" the money; he'll have to reimburse later, but he has it on hand, and may use it do do economic activity. On my side, by having lent money to the bank, I may legitimately claim I own that much money, especially if there's is a guarantee on my deposit, which I believe is the case in all western country for checking/saving accounts.

Of course, my money in that bank is not real cold hard cash (they don't have it, they lent it), but because it is guaranteed by governement, it has almost the same value. (To most people at least) The bank IOU for one dollar has the same value that a one dollar coin. I can transfer that IOU to somebody else (exactly what happens when I write a cheque, or use my debit card), in exchange for a good or a service. These are the same "virtual BTC" others have talked about.

Thus, for a given "amount" of $ deposited in the bank, twice as much economic activity has happened. Which is exactly what happens in a fractionnal banking reserve.

I guess the only way to prevent that would be that when people deposit a certain amount in a bank, it should always be locked for a number of years/equivalent to the duration the bank will lend it, so that it can never finds itself in a situation of a bank run, where people withdraw their money faster that loans are repayed. (But I'm not quite sure how this would work with bad loans). But I'm quite sure that even in a world ran by BTC, people would still like to have their money available at all time, even if this implies slightly higher risk/lower intersts, especially if the deposits are guaranteed by the government.

Yes, I think money in the bank has a similar value to money in one's pocket in most western nations.  The primary differences are in convenience and the risk of theft; consequently, most people put almost all of their money in the bank and carry around a little in cash as well as a bank card.

With bitcoin, everything is different.  A government guarantee can't mean the same thing (because the government can't print as a last resort; sure they can hold a treasury of bitcoins, but even this strategy I believe will ultimately fail, just as it has several times with gold).  Banks can't offer the same boost to convenience (as people can send bitcoins around the world cheaply and easily themselves) and I feel it's likely that they will be unable to offer much additional security.

All around, while the potential for fractional reserve banking is certainly there with Bitcoin, the extent to which it could develop is far more limited.
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