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Comment by nunb | Hacker News Reader

Yes it's a multiplier scheme and if you squint just right, it's pretty much a ponzi too. But it isn't a pedantic way of restating "lend out".

Discussion of the issue is often fraught with accusations of conspiracy theory. Austrian economists (widely regarded as kooky by the establishment) have a bunch of books related to these issues perhaps the best of which is Rothbard.

_0 https://mises.org/library/mystery-banking _1 http://www.bundesbank.de/download/bildung/geld_sec2/geld2_ge... _2 http://www.bankofengland.co.uk/publications/Documents/quarte... _3 https://www.youtube.com/watch?v=CvRAqR2pAgw

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Austrian economists make a few valid criticisms of mainstream economic theory. The thing is, that's very easy to do. What's not so easy is to offer a superior economic model. Their ideas, last I checked, don't involve any math; that is fine, but it makes Austrian theory unfalsifiable, and therefore it can't really be shown to be a valid alternative.

Remember, fractional reserve banking started when the Rothschildren decided it was OK to tell their depositors their deposits were in the safe, when the bank had actually given it to other people.

Our banking system is founded on a lie.

I suggest a valid alternative is the truth. If someone gives you their money and it's your job to store it safely you should to that. For 100% of that money. Not 10% of it.

There's a banking product for that, it's called a safe deposit box.

No. Those are for jewels and other goods that can't be represented with a number typed into a computer.

That is both historically untrue and stinks of anti-Semitic slander passed as fact - following the age old tradition of blaming the Jews for mismanagement by nobles and royals because that wouldn't get you executed. The Rothschildren were certainly /not/ the first being established in the 18th century. Given that the more reputable central Swedish bank used it in the 15th century - let alone the shadier practices of other banknote institutions that predated them.

As for the 100% retention idea it is like complaining that a car isn't a faster horse. There may be some fringe cases when the horse is better but most of the time the primary use was going fast across paved roads.

To be a good steward involves investment - just any asset sitting stored is a waste of value and will not even preserve it against inflation. It is the red queen's race.

OK i restate. Replace, in my original post, "Rothschildren" with "goldsmithers." I didn't even know they were Jews and that whole bit is ad hominem at best. But my point remains.

My money is not the bank's asset. Neither is the stuff I put in a storage unit at public storage.

Imagine if they were loaning out your stuff while you were away.

If I choose to invest my money that's my right. It's not your right to choose how I invest my money.

Going faster isn't a reason why it should be OK to steal people's money when you're saying you're keeping it safe.

Lies like this brought down the entire world economy. Wars were started. Lives were lost. But you suggest it's better except when it's not?

I don't agree.

I'm not an economist, so I could be wrong.

Austrians say they use praxeology. They approach economic problems through deduction. This should make some of their theories falsifiable. After all, if you can't find evidence for the notion of opportunity cost, then it can't be a valid concept.

I think that the problem with Austrian economics is that relying on praxeology and deduction is like doing theoretical physics - you make assumptions, do logic based on those assumptions and see if it fits the real world. It can work, but it's slow.

> don't involve any math [and so is] ... unfalsifiable

A theory involving math is only better than the alternative if it is also correct. Theories can be falsifiable if they don't have math either.

For example, I might have a theory that water always flows downhill. Then I am confronted with a pump, and my theory is now falsified. Fitting a mathematical model involving gravitational constants and laminar flows will be a better theory because it fits the observations very well.

A theory that I have porridge for breakfast in a way that can be modeled with an iid normal distribution is a terrible theory, because if I find out about it I'll start playing with my breakfast just to spite the modeler. The inclusion of a precise mathematical model just paints a bigger target for me to hit. Economics is much more in that vein of things - the people being modeled can respond to the models themselves.

The mainstream economics theories are all going to be based on non-mathematical assumptions that link reality to a math-y model. Those assumptions are the weak point of economics. We can trust the academics to get the math right once they've finished making assumptions.

Your interpretation of my statement isn't accurate. Austrian theory's lack of mathematical formalization is what makes it unfalsifiable. It's not your water example; if it were, then you would be correct.

Again, it is easy and often valid to criticize the methodologies associated with mainstream econ, but the question is whether one can offer a demonstrably superior alternative. You have not done that here.

> but the question is whether one can offer a demonstrably superior alternative

That isn't the only question. There is also a question "is there something here that we can model?". There is no requirement to provide a better model if the existing model is inaccurate enough.

I've never actually seen an economic model that uses maths beyond accounting balances or basic calculus/timeseries so I'm certainly not qualified to critique them - whatever they are.

But the Austrain critiques seem to be something like that if you blow a credit bubble then manipulating accounting identities isn't enough to avoid having to pay back the credit at some point and taking an economic fall where the credit gave you a boost. That is a falsifiable position. The Americans and others are running a big experiment that has so far provided potentially falsifying evidence. They can still be proven wrong even though they havn't published an equation, so their theories are obviously falsifiable.

>There is no requirement to provide a better model if the existing model is inaccurate enough.

We disagree here. I think this notion is what allows people to arbitrarily dismiss theories that they personally don't like.

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