a thread in which ilx interprets economics and finance, sometimes linen by linen*, and disagrees a lot (probably)

You may already be clear on this, but FWIW, in the case of 2, you "decide" this when you fill out the direct deposit paperwork with your employer.

Certainly I make an agreement that the money should be paid into the bank. "For safe keeping", as I would imagine it.

But my impression is that it's my money. Not that it's loaned to someone else before I ever have it.

Well, you're wrong then! :)

I've been reading, and trying to understand, this long post above.

you can imagine the world's first bank, where somebody said, instead of keeping your cowrie shells at home, which we have established is burdensome and detracts from your quality of life, give your cowrie shells to me and I will keep them safe

The character here doesn't say "lend me your cowrie shells". Their statement, rather, implies the idea of "safe keeping" that has already been mentioned.

The story also implies that the bank pays money (in this case shells) to its customers. But my bank doesn't do that.

Many banks do pay their customers. I get some interest on my current account, albeit only a fraction of a percent. Even if your account doesn't pay interest you're getting something for 'nothing', in that it has buildings, employees to help you and complex and hopefully secure IT systems to allow you to set up direct debits, standing orders and make withdrawals form cash machines etc.

I'm sure you don't think banks are doing this out of altruism, this infrastructure doesn't come cheap. It's a pact in that if you deposit money with them, they can use it for mortgages, business loans, currency speculation etc, in return you get cheap or free banking unless you have an unauthorised overdraft.

At the very least pinefox you should look to switch to an account which does pay interest.

That post makes sense.

I agree, I don't seem to be getting enough out of having my money in a bank. Whether there are better alternatives, I don't know.

pinefox, perhaps you could switch to one of these banks?

https://www.moneysavingexpert.com/savings/savings-accounts-best-interest/

It's also worth saying that if you need access to a physical bank e.g. for depositing cash etc the Post Office allows you to do so at their branches for several banks. https://www.postoffice.co.uk/everydaybanking

These ones?

Top-pick savings accounts
Easy-access savings: allows withdrawals
Aldermore – 2.75%
Skipton BS – 2.65%
Notice savings: give notice to withdraw
OakNorth Bank – 3.07% for 90 days
OakNorth Bank – 3.2% for 120 days
Fixed-rate accounts: must lock cash away
Atom Bank – 3.95% for nine months
Kent Reliance – 4.45% for one year
RCI Bank – 4.85% for two years
Tandem – 4.9% for three years

I haven't heard of them. Don't know if that matters.

as established previously, it shouldn't matter if you haven't heard of a bank so long as that bank is covered by your country's deposit insurance regime. in the UK, it looks like that is the FSCS https://www.fscs.org.uk/ which covers up to £85,000 per person.

if one of those accounts looks pleasing to you, let us know and perhaps we could walk you through the pros and cons of it?

The character here doesn't say "lend me your cowrie shells". Their statement, rather, implies the idea of "safe keeping" that has already been mentioned.

― the pinefox, Tuesday, November 15, 2022 8:14 AM (one hour ago)

yes, the construct of the world's first bank was meant to show how a bank built around safekeeping, rather than borrowing money from its customers, would go out of business

pinefox you are very wisely aren't saying online where you bank but i will say that i am 99% certain your bank offers more than one kind of account besides a current account (the others are usually called savings accounts)

while a current account doesn't always offer any kind of interest growth to speak of (tho dan worsley's apparently does), a savings accounts generally will -- so you will not have to switch away to some obscure bank to access such a feature. the interest is how the bank "pays you" to bank with them.

there can be drawbacks with the savings accounts offered (for example you sometimes don't get speedy access). generally you have read the fine print (no one does this) or speak to someone at the bank (risk of being subtly misled; possibly less than it was in the 90s in the UK)

there is much competition between high street banks so they all offer various nice-sound things and switch them up all the time -- which can be both confusing and annoying

i bank with the co op and here's why: https://www.mirror.co.uk/news/uk-news/former-co-op-chairman-paul-flowers-3016064

pour one out for the crystal methodist

Mark S -- thanks for your helpful comments. Basically I have a current account and a savings account with the same bank and they are connected, ie: money from one flows into another - thus, in theory, a little bit of my income (less than I would like, no doubt) goes into the savings account. Except that, from today (!!), it doesn't. They have turned off that feature, for some reason, which was the main feature that made this account somewhat useful to me.

But AFAIK the savings account doesn't really pay me any interest either!

You are correct, I think, that I should talk to a banker and say: I want an account that pays me some money, or I will take it elsewhere. But do I really feel able to take my money elsewhere, with the upheaval involved? No.

"yes, the construct of the world's first bank was meant to show how a bank built around safekeeping, rather than borrowing money from its customers, would go out of business"

I don't think I comprehended this.

Transferring to a new bank should be a painless process and there's several websites which will do it for you e.g. https://www.currentaccountswitch.co.uk/ or https://www.uswitch.com/

to compress that long post into a few sentences, a bank that does nothing with the money you've deposited to it will need to charge you money to cover its expenses and to make a profit, which means it will lose out to the bank that doesn't need to charge you anything because it is loaning out the money you've deposited with it on the side and generating profit from the interest it charges. why would you bank with bank #1 that charges you money and doesn't pay you anything when you could bank with bank #2 that doesn't charge you anything and in fact may pay you interest?

I see. That seems to make sense.

So do you state that when I use them, I am not loaning money to the first bank, but am loaning money to the second bank?

correct, pretty much all banks now are in the vein of bank #2! the system has a fancy name, 'fractional reserve banking' - https://en.wikipedia.org/wiki/Fractional-reserve_banking

Do you agree that banks do not state that customers loan money to them?

So, if this is indeed what we, the customers do, a massive amount of dissembling has been going on for a very long time?

I have never even heard of this concept before this thread began.

Re UNDERSTAND THE ECONOMY's claim about banks: "the money in your bank account is loaned to the bank"

it's true that this is an unusual formulation but it remains a fact: the money that you deposit in an account is money you can get back -- and (except in certain emergency circumstances) you can make trouble if they don't give it back. well that's a loan.

so why don't ppl routinely *describe* it as a "loan"? one possible reason (ie i'm guessing) is that within banking loan has become a technical term of art with legally relevant specific characteristics and requirements attached (which aren't attached when you PF loan me MS a tenner to fritter away at the dog track)

so despite being a subset of the ordinary-usage meaning, the technical-professional term has – by virtue of advertising and the financialisation that runs our lives – has swamped and perhaps even ended ordinary-usage term (which ppl now don't use bcz it seems confusing and even inappropriate)

is something shady going on here? well it's banking so possibly yes i guess! but i feel its more of a structural pressure towards sales clarity than a wicked plot (like how ppl purse their lips when you call every vacuumcleaner a hoover! it wasn't made by hoover! but in a deeper and more accurate sense be serious yes it's a hoover)

plus as i've said several time before i think there are two language-use worlds at work here with a subtle but firm barrier to understanding between them. ppl on this very thread (the estimable tracer hand for one) have used the term "loan" in the sense that alarms you.

I would think that the reason is: the idea of me giving the bank my money for safe keeping is appealing. The idea of me loaning the bank my money is not. So, in their own interests, they have dissembled for many decades.

I agree that a barrier to understanding exists.

You are also trying to compress 500+ years of history of the development of the banking system into a couple of paragraphs. There were developments that lead to a second development that lead to the present arrangements/terminology. Just because no one uses a term today doesn't mean it was for nefarious or obfuscating purposes. I would also point out from the wiki link above:

Fractional-reserve banking predates the existence of governmental monetary authorities and originated with bankers' realization that generally not all depositors demand payment at the same time. In the past, savers looking to keep their coins and valuables in safekeeping depositories deposited gold and silver at goldsmiths, receiving in exchange a note for their deposit (see Bank of Amsterdam).

money/valuables for a note = a loan

silversmiths seething at the lost trade

when i was a kid i got a Kid Account at a medium-sized local bank and they gave me a lil cartoon pamphlet w lil cartoon kids "letting the bank use" their money for loaning out to lil cartoon adults who wanted houses and things, in dutiful return for which the bank then dispensed to the cartoon kids interest in comic-book vocabulary bold, big smiles all round, from all the organs of civilization's diverse and harmonious corpus. the truth (this one anyway) has been out there

they have dissembled for many decades

it's still a loan whether or not they refer to it as loan?

i agree that "we will keep you money safe for your convenience!" is a cheerier sell than "lend us your money!" but you ARE lending them your money whatever they call it

a rose by any other name etc

pinefox, you're right that banks do not disclose upfront what they do with your money. but consider also - and I fully realize that banks are to be kept at arm's length, perhaps at a polearm's length, can't be trusted farther than you can throw them, etc. - that from a customer's perspective, what the bank does with the money deposited with them has absolutely no effect on the customer. banking products are designed so that you, the customer, can withdraw your entire account, or move it to another bank, or whatever you want, at a moment's notice, without any impact on the bank's activities. the bank doesn't need to call in any loans, because the bank keeps enough in reserve to pay out customers who do request this. furthermore, as discussed upthread, if you are worried that your bank is acting irresponsibly with your funds, that is definitely a valid worry, but one that the government solves for by providing deposit insurance. so that, even if the coop bank goes down in flames because the CEO has spent it all on K, you, as a customer of the coop bank, can be fully guaranteed to receive at least up to £85,000 of your account back.

another way to put it: other than the principle of it all, what bothers you about the fact that you are lending money to your bank?

"but you ARE lending them your money whatever they call it"

hence my suggestion that they are dissembling, by referring to one thing as another thing.

"the CEO has spent it all on K"

what is K?

k is the drug ketamine (龜 is referring to the story i linked abt the CEO of the co op where i bank)

it's both things (looking after your money and a loan)

this is the same as the table story in marx's commodity chapter -- something is two things at once which pull in different directions and also read very differently

Poster ― 龜, Tuesday, thanks for your contributions, which are interesting and appreciated, to me.

"what bothers you about the fact that you are lending money to your bank?"

Do you feel good about lending money?

If I lend Mark S £10 for his chocolates, I don't mind because I know I have more money than that, it's not such a big amount. (I'd like to add "I know he will pay it back soon" but I don't know whether that's true. I have an idea that he now lives in a different town from me. But some people, I think, would pay it back soon.)

If I lend him all the money I have, I don't feel so good about that. Just as I wouldn't feel so good about lending him all my books. Lending things is sometimes a good and generous thing to do, but it creates a precarious situation.

Mark S, actually I didn't look up your story and thought it was a beneficial story about why the co-op was good !!

Mark S: as we have noted before, I have read the commodity chapter several times, very closely, and ultimately I did not comprehend it. A worrying thing (probably also stated before) is that I have an idea that the rest of CAPITAL is *harder* than that chapter.

I do feel good about lending money to a bank, since as discussed before, the government has my back in case the bank fails.

lending to mark s is very different than lending to barclays!

Unlike you, I don't feel good about lending money to a bank. I didn't know I was doing it till about 3 days ago.

As for the government -- well, the UK government is corrupt, and I would not feel confident about getting any money out of it for anything.

Perhaps your government is better.

If it’s reassuring at all if the government didn’t make good on its deposit insurance commitments the money you didn’t get back would probably not be worth much anyway

For the bank, it is functionally a loan. For someone with a personal account, it functionally isn't a loan. Government regulation makes both of these statements true. The modern world is full of these matters of incommensurate perspective. If you truly want to use a bank to safely store your money and have it not be a loan, rent a safe deposit box and fill it with cash. But that strategy doesn't even simplify the transaction, really. Money isn't real. You're really just buying a different kind of risk.

re KAPITAL: i am not convinced that the rest of the book *is* harder that that chapter -- but i have only read small sections of it. it's a famously poetic chapter, which some may see as making it the hardest? personally i feel that the chapters preceding it (which are largely definitional) are *much* harder. they're certainly more boring.

there are later chapters that are both more entertaining and more straightforward as storytelling (albeit of pertinent examples in political economy and so on)

re governments: there's an ongoing story right now in south korea about the governor of a prefect who decided unilaterally not to pay for something his predecessor promised to pay for -- it has caused immense chaos and collapse in trust in governmment bonds!

https://foreignpolicy.com/2022/11/10/legoland-south-korea-bond-market-crisis/

One might gloss that with the advent of fiat currency “money” as such ceased to be a “thing” you can “have”, on some level money is all debt. (This may not be orthodox economics.)

"For the bank, it is functionally a loan. For someone with a personal account, it functionally isn't a loan."

Interesting statement! Might actually clarify things (... by ... making them less clear).

"The modern world is full of these matters of incommensurate perspective."

Can you give any more examples? Are they all about money?

what was money before the advent of fiat currency?

Mark S: I agree that it's very rhetorical, at least. I'm not sure that's why I find it incomprehensible. I think it's just the concepts. After reading it very closely I didn't know what it said.

This makes me think that Marx, in translation, as I have read him, is not a very clear writer. Though nor were any of the philosophers before him.

big sacks of precious-metal specie I guess xp

silby: yes, sorry, i was being dumb

forgot what fiat referred to