I haven't watched the video, so I hope I'm not just repeating ...
My understanding is that the numerous crises during that period were a direct result of the invention of fractional reserve banking. Fractional reserve banking is a way to get around a fixed money supply, and those crises were actually caused by the resulting variable money supply and the associated risks that were introduced.
The Federal Reserve was an attempt to maintain the benefits of fractional reserve banking (liquidity, etc.) and create a common note (as opposed to different ones for every bank), while reducing the pitfalls (bank runs, default risk, and out-of-control money supply). Thus far, its performance has been poor at best.
I'm wondering what will happen when fractional reserve banking is implemented with Bitcoin.
Topic: No central bank + fixed money supply == banking crisis? (US between 1834 - 1913) - page 2. (Read 4883 times)
October 13, 2012, 03:49:24 PM
October 13, 2012, 03:10:12 PM
Again neither I nor Dr. Salgin are raising the Canadian model as some kind of ideal or a role model that a market regulated strictly by it's consumers i.e. a free market would come up with, just that a banking system without a central bank can work reasonable well when there are no regulations that would fatally flaw such a system.
But there was nothing remotely close to a fixed supply of money, either. Nor will there realistically be with Bitcoin, either. Banking competition may end up with who has more reserves, or who holds a higher percentage of reserves, or who has a higher capital asset to liability ratio, etc. There is no such thing as a fixed supply of money. If people don't want to accept bitcoin-backed notes, then perhaps they have moved on to other cryptocurrencies. If they accept bitcoin-backed notes, that means we are in the same situation all over again where banks have the power to control money. If they move on to other cryptocurrencies (or include them), then bitcoin has failed to supplant fiat currency, at least on its own. The scarcity of bitcoins will ensure that banks will devise ways to get people to accept substitutes. Or people simply won't acquire them or any claim on them.
October 13, 2012, 02:46:52 PM
Btw I'm not trying to hold the Canadian model before 1935 as some hallmark of how free banking is done,
I understand that, but you are trying to make the argument that the free market had something to do with it, which it did not.
Not so at all. I'm trying to show that a system can perform ok when there isn't a specific kind of government intervention that would cause otherwise.
Quote
it's just an example of a system that didn't have the same futile regulation as the US but also had no central bank that performed better, although far from the best.
Quite debatable.
http://faculty.marianopolis.edu/c.belanger/quebechistory/encyclopedia/BankinginCanada-CanadianBanks-CanadianHistory.htm
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All the charters were alike and, therefore, the Bank of Montreal charter may be taken as typical. A study of this charter shows clearly that it was taken directly from that of the first Bank of the United States , which had been planned by Alexander Hamilton, the first secretary of the Treasury of the United States . Thus the Canadian banking system is a direct descendant - the only surviving one of the first Bank of the United States.
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You also failed to mention:
Meaning this "effective central bank" instantly got competition and in no way resembled a central bank of the European model.
Meaning this "effective central bank" instantly got competition and in no way resembled a central bank of the European model.
I didn't fail to mention it, the Bank of Kingston quickly failed and was irrelevant. There were others, though:
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Through the collapse of the private Bank of Upper Canada at Kingston and the inability of the Bank of Kingston to get going within the period of its charter, the Bank of Upper Canada obtained a monopoly of banking within the province and hoped to keep it. With its control of the Legislative Council it could have thwarted all efforts to obtain new charters, but a financial crisis in 1821-2 made it necessary for the bank to apply to the legislature for a reduction in its capital and for other considerations. This gave the Assembly an opportunity to protest the monopoly, but it was not until 1832, however, that another charter - that of the Commercial Bank of the Midland District - was granted to the financial interests of Kingston whose first charter had lapsed. The Bank of Upper Canada had its charter extended in the same year.
The point is that there were very, very few of them and they all had central bank-like charters. No, they were not central banks per se, but it is much more difficult for a national bank to fail than a regional one. Reserves can be re-allocated to areas that need it whereas regional banks have no choice but to fail under pressure. And once some regional banks start failing, panic generally ensues.
And the supply of money was hardly fixed under this system, but that is another topic, I suppose.
Yes it's quite important that we are exact. They didn't have a central bank, this is non debatable. Because what they really had was a private competitive banking system comprised of a just a few by the state allowed banks, a system that in no way was the result of a free market. Again neither I nor Dr. Salgin are raising the Canadian model as some kind of ideal or a role model that a market regulated strictly by it's consumers i.e. a free market would come up with, just that a banking system without a central bank can work reasonable well when there are no regulations that would fatally flaw such a system.
October 13, 2012, 02:24:40 PM
Btw I'm not trying to hold the Canadian model before 1935 as some hallmark of how free banking is done,
I understand that, but you are trying to make the argument that the free market had something to do with it, which it did not.
Quote
it's just an example of a system that didn't have the same futile regulation as the US but also had no central bank that performed better, although far from the best.
Quite debatable.
http://faculty.marianopolis.edu/c.belanger/quebechistory/encyclopedia/BankinginCanada-CanadianBanks-CanadianHistory.htm
Quote
All the charters were alike and, therefore, the Bank of Montreal charter may be taken as typical. A study of this charter shows clearly that it was taken directly from that of the first Bank of the United States , which had been planned by Alexander Hamilton, the first secretary of the Treasury of the United States . Thus the Canadian banking system is a direct descendant - the only surviving one of the first Bank of the United States.
Quote
You also failed to mention:
Meaning this "effective central bank" instantly got competition and in no way resembled a central bank of the European model.
Meaning this "effective central bank" instantly got competition and in no way resembled a central bank of the European model.
I didn't fail to mention it, the Bank of Kingston quickly failed and was irrelevant. There were others, though:
Quote
Through the collapse of the private Bank of Upper Canada at Kingston and the inability of the Bank of Kingston to get going within the period of its charter, the Bank of Upper Canada obtained a monopoly of banking within the province and hoped to keep it. With its control of the Legislative Council it could have thwarted all efforts to obtain new charters, but a financial crisis in 1821-2 made it necessary for the bank to apply to the legislature for a reduction in its capital and for other considerations. This gave the Assembly an opportunity to protest the monopoly, but it was not until 1832, however, that another charter - that of the Commercial Bank of the Midland District - was granted to the financial interests of Kingston whose first charter had lapsed. The Bank of Upper Canada had its charter extended in the same year.
The point is that there were very, very few of them and they all had central bank-like charters. No, they were not central banks per se, but it is much more difficult for a national bank to fail than a regional one. Reserves can be re-allocated to areas that need it whereas regional banks have no choice but to fail under pressure. And once some regional banks start failing, panic generally ensues.
And the supply of money was hardly fixed under this system, but that is another topic, I suppose.
October 13, 2012, 02:06:33 PM
Btw I'm not trying to hold the Canadian model before 1935 as some hallmark of how free banking is done, it's just an example of a system that didn't have the same futile regulation as the US but also had no central bank that performed better, although far from the best.
Voila, an effective central bank exists.
You also failed to mention:
Meaning this "effective central bank" instantly got competition and in no way resembled a central bank of the European model.
Quote
In 1817, Montreal bankers were granted a charter by the British government to open the first formal bank in Canada. This was the Bank of Montreal. Under its charter, the Bank of Montreal was given a monopoly on the right to issue promissory notes on the model of the army bills. Because of its monopoly rights, the Bank of Montreal essentially acted as a central bank for both Upper and Lower Canada.
Voila, an effective central bank exists.
You also failed to mention:
Quote
In the years after 1817, Britain granted several new bank charters, including a charter to the now-defunct Bank of Kingston, which was to act as a competitor to the Bank of Montreal in Upper Canada. The new chartered banks were required under the terms of their charters to recognise one another's currency, a practice that allowed for the development of long-distance trade within British North America. However, banking remained in private hands, which meant that the issue of currency was at the discretion of private bankers. This frequently led to high inflation when the infant Canadian economy was in recession.
Meaning this "effective central bank" instantly got competition and in no way resembled a central bank of the European model.
October 13, 2012, 01:31:35 PM
The reasons why Canada had fewer problems are very clear, and IIRC Selgin tends to gloss over these subjects (but I watched this video some time ago when it was posted here).
https://en.wikipedia.org/wiki/Early_Canadian_banking_system
The government was issuing fiat at least until 1817 when...
Voila, an effective central bank exists.
That also caused inflation.
It had to do with the fact that banks were national whereas US banks were very regional. Yes, this was due to some piss-poor regulation on the US's part, but the central bank "fixed" the problem. It most certainly was not that "canada was unregulated and free" though as you conclude in your post.
https://en.wikipedia.org/wiki/Early_Canadian_banking_system
Quote
The British administration under Isaac Brock introduced what became known as army bills in 1812, in order to finance the War of 1812. The total value of these bills was 250 000 pounds. These were promissory notes issued directly by the government. They came into wide usage during the war (1812-1815) to make up for the lack of bullion in Upper and Lower Canada. Unlike the card money used in the late 17th century, army bills could be and were in fact exchanged for gold coin once the war had ended. The army bills had thus proven themselves reliable, eradicating any real stigma against paper currency.
The government was issuing fiat at least until 1817 when...
Quote
In 1817, Montreal bankers were granted a charter by the British government to open the first formal bank in Canada. This was the Bank of Montreal. Under its charter, the Bank of Montreal was given a monopoly on the right to issue promissory notes on the model of the army bills. Because of its monopoly rights, the Bank of Montreal essentially acted as a central bank for both Upper and Lower Canada.
Voila, an effective central bank exists.
Quote
However, banking remained in private hands, which meant that the issue of currency was at the discretion of private bankers. This frequently led to high inflation when the infant Canadian economy was in recession.
That also caused inflation.
Quote
After Confederation, Canada developed a banking system very different from that of the United States. Whereas the United States was served a large number of small banks serving just one town or, at most state, Canada's banking sector came to be dominated by a few banks with transcontinental branch networks. The Canadian system promoted stability and produced far fewer bank failures than either the contemporary United States or Australian banking systems. The downside of the Canadian banking system was that it was much less competitive that the United States and Australian systems, which meant that consumers paid more for banking services. The legal foundation of the Canadian banking system consisted of a series of laws passed in 1870 and 1871.
It had to do with the fact that banks were national whereas US banks were very regional. Yes, this was due to some piss-poor regulation on the US's part, but the central bank "fixed" the problem. It most certainly was not that "canada was unregulated and free" though as you conclude in your post.
October 13, 2012, 04:54:37 AM
Except that even if we went by the terrible and almost worthless statistic of market cap it most certainly hasn't. I live in this reality: http://blockchain.info/charts/market-cap?timespan=all&showDataPoints=false&daysAverageString=1&show_header=true&scale=0&address=
Wait, so 122 > 188? That's an interesting and unsurprising reality you've created for yourself.
October 13, 2012, 04:16:27 AM
The comparison between countries with a central bank (lender of last resort) and countries without a central bank during this period is revealing.
http://www.rich.frb.org/publications/research/economic_review/1990/pdf/er760103.pdf
That is all.
http://www.rich.frb.org/publications/research/economic_review/1990/pdf/er760103.pdf
That is all.
Of course, when government's regulation causes banking crisis and panics then there's no doubt banks do better with a lender of last resort.
That is all.
October 13, 2012, 03:53:34 AM
The comparison between countries with a central bank (lender of last resort) and countries without a central bank during this period is revealing.
http://www.rich.frb.org/publications/research/economic_review/1990/pdf/er760103.pdf
That is all.
http://www.rich.frb.org/publications/research/economic_review/1990/pdf/er760103.pdf
That is all.
October 13, 2012, 03:30:49 AM
Interesting theory. The only problem with it is that it doesn't match reality.
Nice try though.
Nice try though.
Except that if we go by market cap (lol) it most certainly has. What reality do you live in?
October 13, 2012, 02:52:04 AM
This possibly is the reason that BTC economy can not grow fast, since holding BTC is much more profitable than invest BTC to generate new business, everyone will just hold BTC
Assuming that Gresham's Law applies to BTC in this manner. If everyone acts in their "self-interest" to hoard all their coin, this leads to the Nash equilibrium where their coin possesses no intrinsic value. But this has not happened in Bitcoinworld.
The coin will never possesses 0 intrinsic value, because of it's usage, popularity and scarcity. It's the same as people using silver as transaction medium while they hoard gold, people will still use USD for transactions and hoard BTC for investment
As an investment target, BTC is much better than gold and house, it is easy to move across globe, it has stable and limited supply (gold supply can increase a lot if it is profitable enough for mining companies), and it is backed by mathematics and network
October 12, 2012, 07:30:26 PM
Darn you! You're 1 hour is quickly becoming 3. Good series though.
October 12, 2012, 06:28:21 PM
This possibly is the reason that BTC economy can not grow fast, since holding BTC is much more profitable than invest BTC to generate new business, everyone will just hold BTC
Assuming that Gresham's Law applies to BTC in this manner. If everyone acts in their "self-interest" to hoard all their coin, this leads to the Nash equilibrium where their coin possesses no intrinsic value. But this has not happened in Bitcoinworld.
October 12, 2012, 06:20:29 PM
The problem with a fixed money supply:
When economy grows and generated more goods and services, the money are not enough to trade all the new goods, so the value of money increased, and that value increasing caused higher interest rate and hoarding, which further decrease the available money for transaction
And this will hit those with a debt very hard, they could not afford higher and higher interest due to the continuously rising value in money. And those who have a lot of saving are not willing to invest, since the return of just hoarding the money is much higher than investing those money and take business risk
As a result, the economy growth will be stopped and turn to negative, the number of tradable goods and services will reduce, until they become so scarce that their value against money rise again
This possibly is the reason that BTC economy can not grow fast, since holding BTC is much more profitable than invest BTC to generate new business, everyone will just hold BTC
Of course if BTC is not mainly used as a currency but as an investment target, then that is a totally different logic
When economy grows and generated more goods and services, the money are not enough to trade all the new goods, so the value of money increased, and that value increasing caused higher interest rate and hoarding, which further decrease the available money for transaction
And this will hit those with a debt very hard, they could not afford higher and higher interest due to the continuously rising value in money. And those who have a lot of saving are not willing to invest, since the return of just hoarding the money is much higher than investing those money and take business risk
As a result, the economy growth will be stopped and turn to negative, the number of tradable goods and services will reduce, until they become so scarce that their value against money rise again
This possibly is the reason that BTC economy can not grow fast, since holding BTC is much more profitable than invest BTC to generate new business, everyone will just hold BTC
Of course if BTC is not mainly used as a currency but as an investment target, then that is a totally different logic
October 12, 2012, 04:36:25 PM
Thanks, I am glad to have watched.
October 12, 2012, 12:04:32 PM
Money is a market phenomenon (or at least it would be if the government got out of the way). If you don't think 21 million coins (really 2.1 quadrillion units) is "enough," create a fork. "Problem" solved.
October 12, 2012, 08:34:49 AM
Very interesting video, thanks.
October 12, 2012, 08:02:38 AM
Hello everyone,
As I ponder the heated discussion I had after the Tuesday presentation of Bitcoin here in Slovenia presented by Nejc Kodrič (bitstamp.net), his programer and developer Damian Merlak, another enthusiast programer they met in London Matija Mazi and me, where one audience member just couldn't be convinced that a fixed supply of money is a good thing and actually the best form a money can have..
..I'd just like to call attention to this most often grossly misunderstood issue surrounded with myths that a fixed supply of money with a banking system without a central bank and no regulation will lead to devastating banking problems and economic crisis. Myths that are most often spread without really doing any research on the matter. And when one actually does look at history and look at what the circumstances really were that did undoubtedly lead to pretty bad problems one finds that yet again it wasn't a market regulated strictly by it's consumers i.e. a free market coupled with no government regulations/no central bank the cause of these problems but that the truth is that there were regulations and that it was precisely those (big surprise, not) that lead to all those problems. Meanwhile in that same period of time a not perfectly free but much much better system in Canada worked problems free that barely gets mentioned or remembered.
How I know all of this? Well I don't know, but I do trust Dr. George Selgin, Professor of Economics at the Terry School of Business at the University of Georgia and author of a number of books on money and banking ("Bank Deregulation and Monetary Order" and "Good Money."), does and I'd invite you to lend him an hour of your time and listen to a lecture on this specific and for understanding the facts of history very important issue.
http://www.youtube.com/watch?v=JeIljifA8Ls
And please, if at all possible, stop spreading these ugly myths. Thank you!
----------------------------------------------------------------------------------
Rules for this thread:
1) the subject of this thread is the false accusation of no regulations + a fixed supply of money as the cause of banking crisis and panics - all posts must stay on this topic
2) any opinion not substantiated with a verifiable fact(s) of history is not allowed
3) sophistry and logical fallacies not allowed
Any post violating my rules for this thread will get deleted as an off topic post. If you want to spread BS you can do so in your own thread.
As I ponder the heated discussion I had after the Tuesday presentation of Bitcoin here in Slovenia presented by Nejc Kodrič (bitstamp.net), his programer and developer Damian Merlak, another enthusiast programer they met in London Matija Mazi and me, where one audience member just couldn't be convinced that a fixed supply of money is a good thing and actually the best form a money can have..
..I'd just like to call attention to this most often grossly misunderstood issue surrounded with myths that a fixed supply of money with a banking system without a central bank and no regulation will lead to devastating banking problems and economic crisis. Myths that are most often spread without really doing any research on the matter. And when one actually does look at history and look at what the circumstances really were that did undoubtedly lead to pretty bad problems one finds that yet again it wasn't a market regulated strictly by it's consumers i.e. a free market coupled with no government regulations/no central bank the cause of these problems but that the truth is that there were regulations and that it was precisely those (big surprise, not) that lead to all those problems. Meanwhile in that same period of time a not perfectly free but much much better system in Canada worked problems free that barely gets mentioned or remembered.
How I know all of this? Well I don't know, but I do trust Dr. George Selgin, Professor of Economics at the Terry School of Business at the University of Georgia and author of a number of books on money and banking ("Bank Deregulation and Monetary Order" and "Good Money."), does and I'd invite you to lend him an hour of your time and listen to a lecture on this specific and for understanding the facts of history very important issue.
http://www.youtube.com/watch?v=JeIljifA8Ls
And please, if at all possible, stop spreading these ugly myths. Thank you!
----------------------------------------------------------------------------------
Rules for this thread:
1) the subject of this thread is the false accusation of no regulations + a fixed supply of money as the cause of banking crisis and panics - all posts must stay on this topic
2) any opinion not substantiated with a verifiable fact(s) of history is not allowed
3) sophistry and logical fallacies not allowed
Any post violating my rules for this thread will get deleted as an off topic post. If you want to spread BS you can do so in your own thread.
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