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John Malone
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To me, FRB just makes no sense, none whatsoever. However, i can muster one argument against 100% reserves: you're building a hut complex on a desert island after being shipwrecked, 20 people total on the island say. You need to know if you have enough food to take 10 people from food gathering duty for 1 month, the estimated construction programme. The new daily amount of food being produced during the constructino will be half what it was, but of course the consumption is the same. So say previously there was a large food surplus resulting in 280 man days of food (28 days * 10 people of food) being stored. as the project is about to start. So the amount stored is almost enough to get the 10 men through the 30 day construction time. The original large daily food surplus with 20 men gathering food is now of course not possible. Let's say with 10 men only gathering food (but 20 eating) that the daily surplus is S. The clearly if S is large enough to make up the 2 man days of food that the islanders are missing, they can carry out the project. That is, if when we get to the 29th day, and have eaten the stored food, the islanders accumulated more than 2 days * 10 men's worth over the previous 28, then the project can be completed. If S too small - if S is such that on the 29th day we look at our food storage and we have not over the previous 28 days accumulated 2 days worth of food (**) - then the project was not realisable ever. But if you can only borrow existing funds (ie. we are in 100% reserves) then this means that there are some projects that are actually realisable which will not be undertaken, when they could have been undertaken with fractional reserves. that is, those occasions when S is small enough to mean that the full 30 days of food does not exist prior to starting the project but large enough so that the missing amount would be saved to be usable before it is required during the construction period. I think that every single sensible argument for frb must ultimately boil down to this question - they must show that there are concrete cases when more desirable stuff gets made than does under 100% reserves. Firstly, anyone got any complicating factors i have overlooked here? Secondly, as it is, i don't think this is a very good argument, it doesn't convince me - frb is a joke and I want to say ban it outright. But this bugs me. I can think of ways to get round this argument eg. you could borrow in stages (ie. for periods shorter than 30 days); or you could say that this is all true but the ravaging of the price-system is not a price worth paying for slightly increasing the number of startable projects, and those projects will then just have to wait. But though the latter is absolutely true I'm sure, I'm not entirely happy with either of these rebuttals, they seem a bit weak. Anyone have any thoughts. (**) Smart alecs amongst you: I'm aware on the last (30th) day you can also consume what what gathered on the 29th day so this is not quite right but it only complicates things unnecessarily, the point is still the same.
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May 22, 2010