Posted by: graemebird | February 8, 2007

The Three Killer Arguments Against 100% Backing.

From Gold is money:

I’ve managed to isolate the three most powerful arguments commonly used, but in endless variation, against 100% backing.

They go like this:


The sudden transformation taken by the dishonest bastard who puts this one forward never lasts more then a few seconds at a time.

If your antagonist is NOT AUTHENTICALLY AN ANARCHO-CAPITALIST this must be greeted with powerful abuse and derision.

The next argument is really just a lie and a distraction/filibuster.


This is said when you have never done any such thing once.

The third argument is the response that comes some time after it is been explained to the Macromancer that fractional reserve begins in fraud and embezzlement. That under capitalist conditions it would not normally begin as an open and honest IOU+Redemption Promise but that instead it starts in fraud and by a sort of Greshams-Law process becomes locked into the system.

Now one would hope that after giving such a complex explanation the Macromancer would ask questions and try and understand what you are saying.

But he will not do so for yea you have trespassed upon his religion.

What he’ll do is he’ll wait.

And then maybe a thousand times interspersed with the other two arguments he’ll say……. But fractional reserve ISN’T fraud.

Notice that I’ve high-lighted the word which means ITS THE PRESENT TENSE we are talking about. So this argument is actually a blatant false accusation. And is really a purposeful means of trying to mislead third parties by the Macromancer pretending that you said that the banks AS WE SPEAK, coddled as they are, are in standing violation of the laws of fraud.

Which of course they aren’t since what we have now is socialism. With the printing press at the ready to bail all these guys out should things look shaky.

But anyway. Thats the three arguments. Other then the more standard distractions, lying and filibustering thats their whole case.

Here’s an example from my own blog. Now it might be that it seems I’m being nasty to these guys. But two out of three of them were people I’ve already gone round and round in this circling bullshit of theirs for 100’s of 1000’s of words.

And I’d even been over this a number of times with Terge as well. Though objectively speaking I was probably a bit rude with him.

Having only covered the same ground with him maybe FIVE EFFIN TIMES rather then fifty-five or more.

They never come up with new stuff.

And their dishonesty never bottoms out.

We just have to accept that when the topic turns to money even our near-libertarian friends can take on all the hateful qualities of left-wingers.

One day this will excite the interest of medical researchers no doubt.

Until then be aware of the three nonsense arguments and try and pre-empt them if you can.

But wearing steel-caps that look like sneekers and kicking them in the shins might be more worthwhile and satisfying.



  1. Graeme. We’ve been over this ground before, and I’m sure arguing this will do no good, but I have a little time to kill this morning. So, specifically, lets look at number 3 – that fractional reserve is not fraud. You say that no fractional reserve would emerge without government regulation. I do not understand why this would be so.

    Why would I want to pay someone to wharehouse my money when someone else will pay me for the right to loan my money to someone else? Assuming I am not retarded, and realise there are risks involved with having my money lent, and I am paid a premium for this risk. Also assuming I am aware that different lending institutions will have different levels of risk depending on the policies involved. Why is this fraud? Why, oh why?

    The second point, which I only want to see addressed once the why, oh why first point has been dealt with, is that under my understanding you want to make it illegal to loan money for interest. Tell me why this isn’t so, or confirm that it is. But only after you tell me why,oh why, my voluntary transaction with a money lending firm is fraud.

  2. Supposing e-Gold opened a branch next door to where you lived. And all the banks operated their on-call deposits like e-Gold.

    But then e-Gold made like the other banks and started taking term deposits and lending them out. To be paid back a little bit before they owe you the money.

    Would you really be confident giving your Gold to them in this situation of there were no government backup?

    Well you might be with e-Gold. But we need one rule for everyone. A level playing-field. So supposing we had this idea that all the twenty-million bank-license holders had to abide by the same rule? What rule would that be?

    Ok imagine if the norm was 100% backing. But you enter into this deal with Mom-and-Pop banking whose set up over the road. Under 100% backing size doesn’t really matter. But under fractional reserve it does because a huge bank has a reasonable chance that if they loan gold that they don’t have. Then the borrower will spend the money and the guy who receives the money will redeposit it in that same bank a lot of the time.

    Back to your deal with mom and pop banking. Bear in mind the following:

    1. Nominal interest rates will be very low for on-call money. So its not a good deal for Mom and Pop banking to do this. Since it means they have to keep money aside to back up their on-call promises when they could be making a term loan instead.

    2. Its not a good deal for the customer. You don’t need to go to them except to use your debit-card and perhaps for safety. Most people will be able to take or leave them.

    3. Under this system thousands of changes in the ownership of the gold will need to take place without the Gold moving from where it is. Supposing you have entered into this deal. So you make all these payments, which are just really electrons racing around. But someone receives ownership of gold that isn’t there. He receives, in the form of electrons, ownership to Gold that does not exist.

    By next Wednesday the gold ownership might have changed hands three of four times. People then have claims to gold that doesn’t exist. So we see from here that under free enterprise conditions, you would have entered into a fraud on third parties. You are complicit in fraud with you confederates Mom and Pop.

    3. Since most of the Gold would be held at home…… because the nominal interest rate is likely close to zero for on-call money….. and prices are falling all the time…. People generally would only go to the banks if they truly needed the safe-keeping function. Which means they don’t have the wherewithal to store the gold at home. If they did they would store it for free. This is therefore their personal liquidity. And they can’t afford to let the banks leave them high and dry. Its not a good deal for that person who only has enough gold for their liquid needs and not enough wealth to store that gold safely at home.

    5. Supposing the gold is not for purposes of personal liquidity. If its not their personal liquidity the product they want is a term loan. Because thats the product with the serious interest rate attached to it.

    6. So there’s no real demand for the IOU+ROD product (thats and IOU plus a promise to redeem the money on demand but only if the bank itself is not short.)

    No real demand from a standing start under growth-deflation conditions.

    7. But then supposing two things happen!!!!!

    The government starts spending deficit money…. and there is a sudden increase in gold extraction thanks to some popular new chemical extraction process. Or the government says it will start coining for free or something of that nature. Now if 100% backing is illegal then we’ll likely have a few years of mild price rises and not much other damage done. But the nominal interest rate will go up. This ought to be a sign to do a bit of auditing until growth-deflation is returned and nominal interest rates drop again.

    6. Now I admit. And it is true. That under the latter conditions….conditions which are normally unnatural to the perfect free market……. there will likely be a non-fraudulent demand on the part of customers for the IOU+ROD product.

    But even more there will be a massive temptation on the part of the banks for fraudulent lending. This is the last time imagineable that you would want either of these two developments. Because you already have surplus money creation and the trend will feed on itself. And before you know it you’ll have a boom and a bust and government intervention. During the bust the government will start accepting fractional reserve money at par. And from there you’ll have overwhelming temptations on the part of the government/bank nexus to articficially encourage fractional reserve. This is unlikely to be quarantineable to the private sector only. It will spill over into government action.

    But that means a total unravelling of the system. It means that the effective RAR will reduce over time. From close to 100% down below 40 and on until such time as there is a crash.

    The system will get more and more distorted and it will then distort the rest of the economy. Suddenly people will be calling for business and stock market regulations.

    So while we still have governments it ought to be seen, that this strict clarification of property rights ought to be maintained. As a CONSTITUTIONAL protection, keeping the government sector and the banking sector seperate.

    Once they get together the societal distortion and thieving is never going to end.

    Every other part of our free-market agenda becomes untenable.

    The David Friedman “free” banking approach might theoretically work under as a second-best monetary system under anarcho-capitalist conditions. But you don’t, under this hypothetical scenario have to worry about the banks and the government getting together.

    So I would say that getting to this strict clarification of property rights is a fundamental protection against government depredation. Even if in theory the “free” banking model can work after-a-fashion.

    This amounts to 100% backing as a constitutional protection.

  3. “The second point, which I only want to see addressed once the why, oh why first point has been dealt with, is that under my understanding you want to make it illegal to loan money for interest.”

    No thats not true. Thats Humphreys and SOON lying. They always start telling lies when the discussion turns to money.

    The idea is to determine in absolutist terms who has ownership of the commodity.

    This might be done a thousand times in a day in a robust trading environment. So you want to ensure that people are trading real commodities sitting in a warehouse/bank somewhere…. no matter how many transactions are made. Otherwise its just electrons skirting around the place and a big fat fucking ponzi-scheme. And when it gets that far government overlordship becomes inevitable.

    Our massive trading volumes are only really possible/necessary with government overlordship of the currency. With free market money if you stick with your 100% backing you can do all the trading you want, more cheaply and never have the system careen out of control though there are no greater regulations then just this one measure to clarify property titles.

Leave a Reply

Fill in your details below or click an icon to log in: Logo

You are commenting using your account. Log Out /  Change )

Google+ photo

You are commenting using your Google+ account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )


Connecting to %s


%d bloggers like this: