100% Reserve vs. Fractional Reserve Banking

posted by Nima

July 19, 2009 · Posted in Monetary Economics 

First off, this post assumes that the reader knows how money originated. If this is not the case, then please read the first three paragraphs about the History of Money.

Fractional Reserve Banking:

  • When person A deposits $1000 cash money in a bank account the bank credits his checking account with $1000 (a claim to $1000 in cash) and now has $1000 cash in its vault.
  • It now lends $900 (90% of $1000) to person B in a credit transaction, by crediting his checking account with that amount, meaning he now has a claim to $900 in cash.
  • B will exchange those $900 against goods obtained from C by writing a check over $900, drawn upon his checking account.
  • Now C’s bank employee calls up someone at A’s bank and requests $900 in cash, so $900 in cash are transferred from A’s bank to C’s bank.
  • Now A’s bank has a) vault cash of $100 b) a claim to $900 from B in repayment of the loan , and c) its customer A has a claim to $1000 cash on his checking account. He exchanges this claim against goods as if it were as good as money, and people accept it as if it were money. For all intends and purposes, and  by definition, it thus is actual money.
  • This, multiplied, leads to a situation where all banks hold only 10% of what customers deposited in actual cash in their checking accounts.
  • But as all actions do, this procedure has consequences. The amount of money in circulation increases. A and B act as if they have $1000, and $900 respectively, prices for goods obtained increase, inflation ensues, and speculation increases as a corollary occurrence. Those who obtained the newly created credit money first (mostly investors and speculators) get to buy up goods at lower prices, those who receive the money later (mostly wage earners) lose out as prices have already increased.
  • The correction of these inevitable misallocations only appears at a later point in time. All the well known and undesirable effects of credit expansion and the business cycle ensue
  • At the center of this system is the central bank, which creates new fiat money in the form of banknotes and uses it to buy up assets from different regional central banks which in turn obtain those assets from commercial banks across the country which in turn obtain them from individuals and businesses by making loans, such as the loan made to B by A’s bank as outlined above.
  • Without such a central bank and without the concept of fiat money which provides a backstop for potential liquidity issues, this system, and with it the primary cause of never ending booms, busts, and excessive speculation, would collapse immediately.

100% Reserve Banking:

  • Under 100% reserve banking, a bank would keep 100% of the money deposited into a checking account in its vaults.
  • If it wanted to obtain money to make loans, it would have no other means than to obtain fixed time deposits, paying the depositor interest over time, and only releasing it back to the depositor after the agreed time has passed.
  • This system keeps all the different individuals’ expectations and actions in balance. No inflation would ensue. No additional money could be created by the banks.
  • 100% reserve banking would be the industry standard in banking if no central bank and government intervention in the banking business existed, and if people were left the choice to decide for themselves which money they prefer to use. As the History of Money has shown us, the people voluntarily chose the metals gold and silver for this purpose.
  • Each bank would be fully responsible and liable for its own dealings, no nationwide banking cartel would exist, no central bank could provide a backstop for liquidity shortages.
  • If a bank were to attempt the fraudulent scheme of fractional reserve banking, it would immediately be drained of its money reserves and swiftly be put out of business. In addition to the lack of a liquidity backstop, the lack of a fiat money would allow different banks to independently issue their own branded claims to money deposited. The value of such claims would drop quickly if their issuance were out of step with the money deposited.
  • Only prudent banks could prevail under such system in the long run, and their number one motivation would be to remain prudent so as to maximize their customer base and by extension their profit.

I recently had a discussion on reddit.com with a user regarding the merits of 100% reserve banking. It was in regards to an article on mises.org, called Gold versus Fractional Reserves. He understood the pernicious effects of fractional reserve banking but ironically did not understand how 100% reserve banking would solve its shortcomings. Below please find this discussion which I believe is very relevant to pinpoint some of the major misunderstandings about money, credit, and banking (his statements are in blockquotes):

No one has been able to explain to me what they mean by “100% reserve banking”. By definition, if money is loaned out, you don’t have 100% reserves. You can only have 100% reserves by not making loans.

It’s hard to see how that can be called “banking”.

Some try to make a distinction between demand deposits and timed deposits but that can’t possibly make a fundamental difference, and I’ll provide an airtight proof of that:

With modern technology, I can take any demand account and convert it with no loss of generality, nor any functional difference to the depositor, into a 1 hour (or 1 second) revolving timed deposit account. Tell me again how this causes a magical transformation?

A gold standard is completely orthogonal to fractional reserves.

A short answer to your question

“No one has been able to explain to me what they mean by “100% reserve banking”. By definition, if money is loaned out, you don’t have 100% reserves. You can only have 100% reserves by not making loans.”

  • This is true for Demand Deposits (Checking Accounts). Money in checking accounts should not be loaned out because the depositor treats it as money withdrawable anytime. If they do loan it out it creates an inflationary credit expansion, speculation in assets, and price increases of certain goods.

A timed deposit account such as a CD is one where the deopsitor commits to a specific period for which he will not withdraw his money, so the bank can go ahead and loan it out for THAT specific period.

A 1 hr or 1 second demand deposit account doesn’t make much sense because the borrower would have to pay back the money within 1 hr or 1 second. But this is not what happens under our current banking system by the way. 80% of demand deposits are loaned out in long term loans. Plus it still violates the property rights of the depositor. He has to specifically agree to the terms of how much money is loaned out.

Otherwise we will get into a mess commonly referred to as a “financial crisis”, because there is never enough money in the system to pay off all loans.

I’ve had this discussion at length before. All that timed deposits change is the speed at which this all happens, and that only because people typically (currently) don’t deposit much cash that way since there is no need or reason to do so.

The reason you can have a 1 second timed deposit is the same as the reason we can have a 30 year mortgage today. Timed deposits, the vast majority of the time at least, roll over into an additional timed deposit. Very few people deposit money for 30 year terms. Certainly not enough to make possible mortgages on any useful scale (even if you limit “useful” to “economically responsible”). They do, however, often roll over their 1 year or even 3-month CDs for that long.

Tell you what, I’ll make you a loan on the following terms:

You have to pay it back in 1 second, unless there are still sufficient reserves available in rolled-over 1 second timed deposit accounts, in which case I guarantee that I will reloan the money (minus your 1-second’s worth of principle+interest payments, of course).

Naturally, if my reserves are depleted, I won’t be able to do this and you’d be stuck repaying the loan. But that only happens in a bank run. Furthermore, I (or you) can purchase insurance to cover this eventuality. That’s just a small extra increment of interest.

See… no difference from loaning demand deposits.

The reason it doesn’t help, though, is that money creation happens every time the money is loaned out. Don’t forget that the lender probably bought something with that money (i.e. demand was increased), and the seller now has that same loaned money to deposit at the same (or another bank).

It’s largely by loaning the same money out multiple times that the inflation of the money supply happens. And that happens even with what might be called 100% reserves. Indeed, the concept doesn’t even make sense in the context of a bank.

A deposit is not a loan. A loan is the exchange of present money for future money. A deposit is the exchange of present money for a claim to money, redeemable at any time.

Under fractional reserve banking (20% in the US), someone deposits $100 in a checking account and the bank will loan out 80% of it. The depositor will behave and spend as if he owns $100 in cash, and the recipient of the loan will act as if he owns $80 in cash. But no equivalent production of goods has occurred. Thus inflation ensues.

Under 100% reserve banking, if someone deposits money into a checking account, the bank can NOT loan out 80% of it. It has to keep all the deposited money untouched and available to the depositor. Thus no inflation can occur from this source.

If, under 100% reserve banking someone invests in a 10 yr CD, then the bank will indeed loan it out to someone else, and that someone else will spend it accordingly. But the depositor won’t, because his money is locked into a CD.

Thus, under 100% reserve banking no inflation can occur from these two points.

Before the loan, the depositor didn’t need the money during this time. Therefore, his present demand for goods and services (as pertains to this money) is zero. The borrower obviously does, but didn’t have the money. His present demand for goods and services is therefore (economically) also zero. After the loan, the borrower’s (economic) demand for goods and services has increased. Therefore prices increase.

But that’s not the big problem. At worst, that’s a doubling of the supply of money being actually used. The big problem is that the borrower buys something with that money (typically). The seller now has it… and is free to deposit it in a bank in a 10-year CD. And the bank is free to loan it out again. Over and over and over again. That is the majority of how the money supply is increased.

M1 doesn’t increase nearly as much as M2.

Oh, and BTW, the reserve requirement in the US isn’t 20%. It’s (complicated, but for purpose of discussion is) 10%.

Almost agree, I would only add the following remarks:

  • “Before the loan, the depositor didn’t need the money during this time.” – Not necessarily true, he is free to draw checks upon his checking deposits any time and will treat it accordingly, for example to pay his rent. Therefore his present demand is surely not 0. Even if, for the sake of your argument only, he were to not use this money in transactions, he would still TREAT it as if it was money and spend his remaining money accordingly. I outlined this in http://www.economicsjunkie.com/inflation-deflation-revisited/
  • You pointed out yourself “At worst, that’s a doubling of the supply of money being actually used.” – I agree 100%.
  • The multiplier effects you outlined below are completely accurate and are nothing but a multiplication of the example I used between 2 people. And yes I was wrong on the 20%, I meant 10% for demand deposits.
  • And all the things you outlined above would be completely prevented under 100% reserve banking, which was the point of our discussion I believe.
  • M1 and M2 are both nice approximations, but miss the point, I recommend True Money Supply for an accurate figure: http://www.economicsjunkie.com/true-money-supply/

Sorry, I wasn’t clear. What I meant was that the depositor didn’t need that money that he deposited in a timed account (the example we were using was a 10-year CD). Otherwise he wouldn’t have deposited it that way.

Here’s a comical, but illustrative, example I use to show that timed accounts (and therefore what most people seem to mean when they say “100% reserve banking”) don’t save you from the money-supply multiplying effects of banking:

I deposit $1000 in a 1 year CD. Instantly, someone borrows that $1000 and buys something from me. Instantly, I deposit (that same) $1000 in a new 1 year CD. Instantly, someone borrows that $1000 and buys something from me. Lather, rinse, repeat ad infinitum.

The fact that it’s a 1 year timed account has not prevented the money supply in this example from expanding in zero time quite literally to infinity, resulting in infinite inflation. Amusingly, my interest is also infinite over the next year, so perhaps I can afford that.

Not loaning demand deposits does slow things down a bit, I’ll admit. But that was vastly more true before computer banking, so historical examples don’t really correlate very well.

Good example you posted. It contains only one flaw: You are saying that the money supply is rising from zero to infinity. But it doesn’t, it is $1000 at the beginning and $1000 after you repeat, no matter how many times you repeat :) What you described is a perfectly legitimate chain of exchange transactions. What is being created is lots and lots of debt, claims to FUTURE money. To be sure, interest rates would rise rapidly which would precipitate an end to the borrowing sooner or later. But NO NEW MONEY IS CREATED anywhere in your chain.

If the chain of events you outlined above were to cause inflation, then the following would also create inflation:

  • I use money to buy bread from you
  • You use that money to buy an apple from me, so now I have money again
  • I take that money to buy cheese from Frank
  • Frank uses that money to buy a Frisbee from me
  • Lather, rinse, repeat ad infinitum :)
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28 Responses to “100% Reserve vs. Fractional Reserve Banking”

  1. Bob V on July 21st, 2009 10:46 am

    >>Under fractional reserve banking (20% in the US), someone deposits $100 in a checking account and the bank will loan out 80% of it. The depositor will behave and spend as if he owns $100 in cash, and the recipient of the loan will act as if he owns $80 in cash.<>I deposit $1000 in a 1 year CD. Instantly, someone borrows that $1000 and buys something from me. Instantly, I deposit (that same) $1000 in a new 1 year CD. Instantly, someone borrows that $1000 and buys something from me. Lather, rinse, repeat ad infinitum.<<

    Strange assumption by your interlocutor here: that someone will go into debt for $1000, and then pay that $1000, for something that apparently has $0 cost to its producer. That is, the $1000 revenue from the sale is all profit and thus can be saved.

  2. Nima on July 21st, 2009 10:54 am

    In short: It’s complete nonsense :)

  3. Bob V on July 21st, 2009 11:11 am

    >>Under fractional reserve banking (20% in the US), someone deposits $100 in a checking account and the bank will loan out 80% of it. The depositor will behave and spend as if he owns $100 in cash, and the recipient of the loan will act as if he owns $80 in cash.<<

    But presumably, the $100 deposited came out of some other bank Z. When that happened, Z had to either call in $80 of loans, or borrow $100, or, increase capital by $100. Whichever it does, the total amount of money in the system has not been increased. For every credit there has been a debit.

    Isn't it when the FED, from outside the system, credits money into the system, with no counterbalancing debit of money out of the system, that inflation comes about? When the FED injects money into the system by buying Treasuries from banks, the amount of money within the system increases and the amount of assets within the system decreases: walla, inflation!

  4. Matthew Johnson on July 30th, 2009 12:05 pm

    If the loans which support the business investments, fueling the economy, are now reduced to Certificates of Deposits, how then can are economy go on at its strength? I don’t have the exact numbers in front of me, but I find it hard to believe that our entire economy can be completely based upon a few CDs. Also, even if the numbers are there, how do we know that people WILL invest in mass quantities into certificates of deposits?

  5. Nima on July 30th, 2009 12:32 pm

    When someone makes a loan someone else has to restrict his consumption. Capital has to come from savings. There is absolutely no way around this. It happens either way, either through inflation which increases prices, or through genuine savings. Whether banks use CDs, timed deposits, or whether corporations issue bonds, debentures, and the likes is immaterial. The main point is: People should not be diluted into the perception of having money they don’t have. If they are, then we get into a so called financial crisis, which we could witness all to clearly over the past years.

    “Also, even if the numbers are there, how do we know that people WILL invest in mass quantities into certificates of deposits?”

    How do we know? Who is “we”? You and I? In that case the answer is simple: We don’t. How do we know anything? How do we know that people will buy TVs? How do we know how much rubber needs to be imported from Chile to produce pencils? We don’t. That’s why we have this thing called “the market” which provides a brilliant mechanism of prices and interest rates that express value preferences and time preferences and give entrepreneurs clues to answer a question such as the one you asked above.

  6. Matthew Johnson on July 30th, 2009 10:29 pm

    Ok, I understand your explanation but then what will keep the banks afloat? A bank, like any business, must be profitable, but as it can no longer use its funds to make loans, what will support the running of the bank itself? (i.e. Worker Salary)

  7. Nima on July 30th, 2009 10:43 pm

    I never said that the bank cannot use its funds to make loans. It can take money from people who contractually agree that it will be loaned out for a certain period of time, and then repay it to the depositor after the agreed upon period. This is the purpose of CDs, savings bonds, time deposits, etc. It is actually nothing new or arcane. It is the traditional concept of savings and loan banking.

  8. Matthew Johnson on July 30th, 2009 10:50 pm

    Yes, I understand, but you didn’t answer the question, what is going to make the banks churn a profit?

  9. Nima on July 30th, 2009 10:58 pm

    The same way any business makes a profit: By having more revenue than expenses. Or am I misunderstanding your question?

  10. Nima on July 30th, 2009 11:19 pm

    Bob V :

    >>Under fractional reserve banking (20% in the US), someone deposits $100 in a checking account and the bank will loan out 80% of it. The depositor will behave and spend as if he owns $100 in cash, and the recipient of the loan will act as if he owns $80 in cash.<<

    But presumably, the $100 deposited came out of some other bank Z. When that happened, Z had to either call in $80 of loans, or borrow $100, or, increase capital by $100. Whichever it does, the total amount of money in the system has not been increased. For every credit there has been a debit.

    Isn’t it when the FED, from outside the system, credits money into the system, with no counterbalancing debit of money out of the system, that inflation comes about? When the FED injects money into the system by buying Treasuries from banks, the amount of money within the system increases and the amount of assets within the system decreases: walla, inflation!

    Bob, the Fed injecting money is only part of the entire money created. In my example above, for example, the $100 may have come from the Fed, injected by buying treasuries. But then the bank can loan out $90 out of that money, and then that person will spend it and then someone else will deposit it, and then that bank will loan out $81, and so on and so forth, and before you know it there is $1000 in the system while the Fed only injected $100.

    But from a purely technical standpoint the above chain could also occur when someone just deposits $100 in cash, say gold money that truly emerged on the open market as money. He will treat his deposit as if he had $100 while the bank will lend part of it out and everyone else in the chain will act accordingly. But without the Fed, legal tender laws, and fiat money, there would be no liquidity backstop for this scenario and thus the banks wouldn’t dare think for a second about loaning out money that they have to have readily available.

  11. Matthew Johnson on July 31st, 2009 6:25 am

    No Nima, you are not misunderstanding, I should have clarified. HOW, By what means, will the banks now be able to generate revenue? They will have to pay interest on the savings, checking, and all the other accounts for their costumers along with their worker’s salaries. So What,exactly, is going to be substantial enough to generate this needed revenue and also make a profit?

  12. scott t on July 31st, 2009 7:36 am

    “An institution’s net transaction accounts up to the exemption amount ($7.8 million in 2006) are reserved at 0 percent.9 In addition, net transaction accounts up to the low reserve tranche ($48.3 million in 2006) are reserved at 3 percent, while amounts in excess of this amount are reserved at 10 percent.”

    http://www.federalreserve.gov/reportforms/formsreview/FR2900.FR2910a.FR2915.FR2930.20060510.omb.pdf

    “For net transaction accounts in 2008, the first $9.3 million, up from $8.5 million in 2007, will be exempt from reserve requirements. A 3 percent reserve ratio will be assessed on net transaction accounts over $9.3 million up to and including $43.9 million, down from $45.8 million in 2007. A 10 percent reserve ratio will be assessed on net transaction accounts in excess of $43.9 million.

    These annual adjustments, known as the low reserve tranche adjustment and the reserve requirement exemption amount adjustment, are based on growth in net transaction accounts and total reservable liabilities, respectively, at all depository institutions between June 30, 2006, and June 30, 2007.”
    http://www.federalreserve.gov/newsevents/press/bcreg/20070926a.htm

  13. Nima on July 31st, 2009 7:49 am

    Matthew: Interest on the loans made, fees charged for checking deposits. (by the way most banks do not pay interest on checking deposits, but even if they did this would not change anything substantially)

  14. Bob V on August 1st, 2009 1:39 pm

    @Matthew Johnson

    Matthew, you’ve put your finger on the problem. The banking industry is in a pickle. If it can’t extend credits as it has in the past, it’s going to have to contract, and to change the mix of it’s business model from one where more emphasis is put on interest producing activites (lending) to one where more emphasis is put on fee generating activites (warehousing, transaction facilitation).

    There is now too much banking for the desired amount of borrowing. The banks are scared to death. Which is why they spend every minute of every day trying to sneak one more lump out of Uncle Sugar’s bowl.

  15. Nima on August 1st, 2009 1:46 pm
  16. Joe D on August 3rd, 2009 5:06 am

    The reason we have public share holding of companies is because Banks cannot invest money, investment means there is a risk factor involved. Banks can only lend money for short periods against collateral.

    Anyone with minimum common sense can know that if banks invest money they will end up in bankruptcy. This is what we are seeing now…..

    Above is the reason why as per Islamic laws one cannot lend money at interest to business one can only invest money and become share holder in the business and share the profit or loss of the business.

    The term “Investment Bank” is an oxymoron.

  17. Nima on August 3rd, 2009 10:17 am

    I think the term ‘investment bank’ may be misleading. There is a legitimate role for investment banks, but it is traditionally rather that of a service provider who acts as an intermediate facilitator of new debt issues (’underwriting’), and who provides advisory services during mergers and acquisitions.

  18. revolutionmeow on December 26th, 2011 10:39 pm

    What the Author tends to ignore here in the Austrian quest to prevent !INFLATION! at all costs is what the cost to the borrower would be in a society trying to pursue the absurd 100% reserve banking? Can you imagine how expensive (in interest) it would be to take out a loan in this system? It would return to the olden days of hoarding money (in this case gold or gold certificates) where modern industrial society would collapse. FRB has its faults if unregulated but was and still is an actual boon to commerce and our economy. A 100% reserve system would be so deflationary that no economy/society could survive it. It just needs strict laws around when and how credit can be created rather than the insane financial sector we have at present.

  19. Nima on December 27th, 2011 7:20 pm

    “It just needs strict laws around when and how credit can be created” … which of course we didn’t have AT ALL in the run up to the most recent financial crisis ;)

  20. revolutionmeow on December 27th, 2011 8:35 pm

    Hmm. Don’t know if that was sarcasm because due to the removal of Glass-Steagall and the ability to have assets/liabilities off-balance sheet and the legalization of unregulated derivatives we actually DO NOT have strict laws regarding the creation of credit. There are more examples than this to be certain but I’ll leave it at that. Guess it depends on one’s definition of ’strict’, although I’m never one for trying to redefine the English language to muddy the argument. So, in short: please clarify.

  21. Nima on December 27th, 2011 11:29 pm

    Well, let me ask you: Did you do the research on how many laws have been created affecting the US financial sector over the past 200 years? As far as I can tell and have laid out and argued many times, there are very few other industries out there with that degree of state regulation, involvement, subsidies, privileges, and bailouts.

    You said in your initial response that there is an “Austrian quest to prevent !INFLATION! at all costs” and you’re claiming I’m ignoring some old arguments that have been made and refuted a million times already. The unfortunate part about making such statements is that you’re putting words in my mouth and being a tad bit un-curious about what I’ve been saying for the past 7 years that I’ve been writing this blog.

  22. revolutionmeow on December 29th, 2011 7:58 pm

    Why would I need to know the number or contents of every single law regarding the regulation of the financial sector in the past 200 years? What does that have to do with the repeal of Glass-Steagall, the deregulation of derivatives and other deregulation? My point is that the process of debt creation has been largely deregulated and is happening where nobody has any legal recourse against it. I don’t think either of us are obviously fans of the financial sector, but I’m sure we differ in what needs to be done about it.

    As for the Austrian Quest to Prevent Inflation, for what other purpose would you be arguing in favor of a system of 100% Reserve Banking? For what other conceivable apparent benefit could there be to this system? The sole purpose of it appears to be to prevent an increase in the money supply and therefore inflation or the possibility of it. If there are any other perceived benefits to this proposed system please let me know.

    The reason why I said “Austrian” is because of your obvious leanings, and the links that you have posted on the side of your site. I apologize if you don’t categorize yourself in this manner, but it is a core tenet of the Austrian and Chicago schools to see inflation as a worse evil than basically anything else, you are promoting their ideology in your writing and in your links… so…?

  23. Nima on December 30th, 2011 6:52 am

    You actually have up there an entire article that explains to you what the functional benefits of a peaceful money system are and unless I’ve missed something you haven’t actually given me a single counter argument against what has been written, my friend.

    The moral reason why I favor a peaceful monetary system, aside from all the obvious benefits to the common man that you can pretty easily read up on here or elsewhere in the digital age, is that I believe that the initiation of violence against peaceful people is immoral.

    Cheers and Happy Holidays,
    EJ

  24. revolutionmeow on December 30th, 2011 1:14 pm

    Ah, the Ayn Randian anti-violence ideology, but of course. How anti-surprising. This is something that I’ve refuted and exposed the flaws to on the Bitcoin forums repeatedly, to which nobody had any good responses, so I’m not really looking to do that again at length. It is because that the “anti-violence” mentality (as popularized by Ayn Rand) IS NOT moral philosophy or system of determining what is right, it is a system of cheap ideology where any scenario of morality has a convenient, simple, flimsy solution to it. Does saving thousands of children from starvation involve violence, force or even potential violence on someone else? Then let them starve; surely the inheritance of a 4th generation trust fund baby is more sacred. This philosophy, insofar in my encounters with its adherents give special privilege to money. They give special privilege to the Status Quo. Reform becomes impossible. The popular will is irrelevant. Government can’t function. Non-violent forms of destructive activity or anti-social activity become impossible to forbid with law. The vast majority of laws become impossible to enforce. Human life itself even becomes meaningless in holding to this ideology. The ‘funny’ thing about all of this is that it’s followers are even unaware that they’re doing this, and can only quote vague, nonspecific generalizations about ‘freedom’ and ‘liberty’. Freedom for who to do what is never asked. They are much more interested in man ‘as such’.

    Let’s take something to its logical conclusion shall we? If you had to kill 1 person to save 100,000 would you do it? If you had to kill 1 person to save 100,000,000 would you do it? If you had to inconvenience 1 person to save 100,000,000 would you do it? While answering “no” to the first and second question may be justifiable and make for an interesting discussion about morality, it is evident that anyone answering no to the 3rd isn’t simply indifferent to morality but actively manifesting evil on the planet. As the tenants of the “Anti-Violence” position would assuredly answer “no” to all 3 of these, they are actively supporting evil.

    In short, the anti-violence ideology isn’t moral philosophy, and so is supported and followed by those that believe that making moral decisions is simply too difficult. It is true that making moral decisions is hard, but it is a necessary function of being a human being. If one feels they are not up for it then they might as well give back Zeus the power to make fire, give the forbidden fruit back to the snake, and simply become a beast because that is what they want to be. Unfortunately this isn’t how a society functions or can function. I’m sure that if you have children you don’t follow your own ideology in this regard – indeed, if you did you would of course be an awful parent. Point being, is that power relations exist in society, have existed for time immemorial and are likely to exist as far as we can speculate into the future. Hierarchy and different levels of power and ability are inherent in the aggregation of large groups of people. Saying that we violence can’t be used ignores the entirety of human relations.

    The tenants of classical economics are also fundamental to this Ayn Randian ideal. Please read “Debt: The first 5000 years”. Great book, that obliterates many of the central, fictional pillars of classical economics. A must read.

    If any of this doesn’t apply to you, then fine. I am making a single assumption in all of this: that you didn’t independently invent the idea of “anti violence” and got this idea from the libertarian circles in which it originated, popularized by Ayn Rand. I’m gathering this information by the posts you’ve made and the things you are promoting on your website.

  25. Nima on December 30th, 2011 2:59 pm

    I am making a single assumption in all of this: that you didn’t independently invent the idea of “anti violence” and got this idea from the libertarian circles in which it originated, popularized by Ayn Rand.

    … and there my friend, lies your problem.

    Actually everything you said above shows that you actually haven’t dealt with anything of what I’m saying here.

    I would also, as a courtesy, point out one more time that you haven’t actually refuted a single one of my arguments. All you did was put words in my mouth and then make up scenarios attempting to refute those words.

    Don’t get me wrong, I don’t have a problem with you not having read any of my stuff, it’s totally up to you. I would never use the lazy “go and read book xyz by some other person” response and I actually even try to avoid doing that kind of stuff with my very OWN writings.

    But what I do find annoying is that you pretend to know what my arguments are and then go on and on based upon pre conceived assumptions.

    How about you try out a bit more curiosity?

    What you are doing shows no curiosity at all, just the same old boring stuff that I myself used to believe in and spout out as an econ undergrad, making it sound like you actually believe that you’re adding anything new.

    I always say that I can excuse one’s ignorance, but what I can absolutely not excuse it one’s laziness, for it is a deliberately chosen approach that you are fully accountable for.

    It’s not a very pleasant way to try and debate with people, so you don’t need to be surprised when you turn off other people as well with that approach.

  26. revolutionmeow on December 30th, 2011 5:51 pm

    Hmm, don’t know if you are saying that you simultaneously invented the ideas of “anti violence” or that your ideas are so complex that you can’t summarize them here and basically telling me to read 7 years of you blogging. My apologizes for not believing the first and not wanting to wade through the latter.

    Exactly what ‘arguments’ you’ve posed I don’t know, because you won’t specify, is it: the original arguments in the OP that I refuted with the fact that it would be unworkably deflationary or the non existent questions that you’ve posed in response to my original response?

    Love the irony that is lost on you for claiming that I am not curious and/or lazy for not reading all diary on economics yet you chastise me for referring for you to read a book. It’s true it isn’t on the approved Libertarian reading list.

    Ta ta, can’t spend anymore of my time here.

  27. Nima on December 30th, 2011 5:59 pm

    I didn’t say that you lack curiosity based on not having read all my posts. I said that the lack of curiosity shows in the presumptuous statements you make and lack of questions you ask. Just now again for example when you assumed something about my criticism of your lack of curiosity that I hadn’t said, without actually being curious and asking about what I meant in case something was not clear to you.

    Unfortunately, as you can see, it shows through in virtually everything you do and it takes some will and effort to address, should you at all be interested in virtue and self improvement.

    Good riddance.

  28. Guy on May 14th, 2012 2:26 am

    Give these guys some gloves and a ring, I’ll referee.

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