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Full Reserve vs "Real Bills" with Philipp Bagus - SLP600

Full Reserve vs "Real Bills" with Philipp Bagus - SLP600

Stephan Livera Podcast vor 2 Jahren

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1:28:34

Philipp Bagus rejoins me to discuss his newest book, ‘Full
Reserve Banking versus The Real Bills Doctrine’. This is his
response to Juan Ramón Rallo, and in it we discuss:

The currency school and the banking school

The problem of ‘double availability’

Why the creation of fiduciary media is a problem

The correct categorization of goods and money

Full Reserve in a Bitcoin world?

Milei’s work in Argentina

Summary:

In this conversation, Stephan interviews Dr. Philipp Bagus about
the full reserve banking versus the real bills doctrine. They
discuss:

The importance of the fractional reserve banking system and
its impact on the monetary system and society as a
whole.

The historical context of the currency school versus the
banking school debate in the 19th century.

The concept of double availability and its implications for
the stability of the money supply.

The real bills doctrine and its justification for fractional
reserve banking.

The categorization issues surrounding money and financial
assets.

In this conversation, Philipp Bagus discusses the flaws of
fractional reserve banking and the importance of understanding
the distinction between stock and flow of savings. He explains
that holding fiduciary media, such as government bonds, does not
count as real savings because it involves credit transactions and
does not free up consumer goods. Bagus also explores the
potential for banking systems to evolve on top of Bitcoin,
highlighting the need for full reserves and the importance of
legal enforcement to prevent fraud. He concludes by discussing
the economic and political challenges faced by Argentina's
President Javier Milei.

Takeaways:

Fractional reserve banking, where banks create new money out
of thin air, is a major problem in the monetary system and
has far-reaching ramifications.

The debate between full reserve banking and fractional
reserve banking has historical roots and has been a topic of
discussion among Austrian economists.

The concept of double availability is crucial in
understanding the distinction between loans and deposits, and
the potential for credit expansion and business cycles.

The real bills doctrine, which justifies fractional reserve
banking, is based on the idea that banks can issue short-term
loans backed by goods, but it fails to address the inherent
problems of credit expansion.

Money is not a financial asset, but a present good that
facilitates exchange and reduces uncertainty. It is distinct
from financial assets and should be categorized separately.
Understanding the distinction between stock and flow of
savings is crucial in evaluating the flaws of fractional
reserve banking.

Holding fiduciary media, such as government bonds, does not
count as real savings because it involves credit transactions
and does not free up consumer goods.

The evolution of banking systems on top of Bitcoin should
prioritize full reserves and legal enforcement to prevent
fraud.

President Javier Milei of Argentina faces economic and
political challenges in his efforts to reform the country's
monetary system.

Timestamps:

(00:00) - Intro

(01:05) - Why care about full reserve banking?

(03:18) - Currency school vs the Banking school and the role of
Mises

(09:15) - Free banking vs Fractional Reserve banking - the issue
of double availability

(17:17) - What is the Real Bills Doctrine?

(31:50) - Sponsors

(34:27) - The issue with the desire for a ‘stable money’

(41:20) - “Everything is either a real asset or a financial
asset.” - J.R. Rallo; monetary substitutes

(46:42) - Is money a financial asset?; Cash holdings (Stock) vs
Savings (Flow)

(55:21) - Sponsor

(56:51) - Why does holding fiduciary media not count as ‘real
savings’?

(1:00:30) - Summarizing the critique

(1:03:56) - Bitcoin substitutes - Ecash, Ark, L-BTC, Custodial
bitcoin

(1:13:27) - Potential for Bitcoin to evolve as a Full Reserve
banking system

(1:18:45) - Positive & negative assessment of Javier
Milei

(1:26:07) - Implication of stablecoin use in Argentina

Links:

https://x.com/PhilippBagus

https://mises.org/profile/philipp-bagus

https://mises.org/library/book/full-reserve-banking-versus-real-bills-doctrine

Sponsors:

Bold Bitcoin

mempool.space/accelerator

CoinKite.com (code LIVERA)

Stephan Livera links:

Follow me on X: @stephanlivera

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