“I have no fear that the result of our experiment will be that men may be trusted to govern themselves without a master.” – Thomas Jefferson
The process of legal reform–say, of tax law, or patent or copyright law–by which the law ebbs and flows, and continually changes, provoking cries of doom and disaster from biased special interest chicken littles, calls to mind an analysis by Llewellyn H. Rockwell, Jr., in his book The Left, the Right, and the State (Auburn, Ala.: Mises Institute, 2008), pp. xiii-xiv (emphasis added):
What is the state? It is the group within society that claims for itself the exclusive right to rule everyone under a special set of laws that permit it to do to others what everyone else is rightly prohibited from doing, namely aggressing against person and property.
Why would any society permit such a gang to enjoy an unchallenged legal privilege? Here is where ideology comes into play. The reality of the state is that it is a looting and killing machine. So why do so many people cheer for its expansion? Indeed, why do we tolerate its existence at all?
The very idea of the state is so implausible on its face that the state must wear an ideological garb as means of compelling popular support. Ancient states had one or two: they would protect you from enemies and/or they were ordained by the gods.
To greater and lesser extents, all modern states still employ these rationales, but the democratic state in the developed world is more complex. It uses a huge range of ideological rationales—parsed out between left and right—that reflect social and cultural priorities of niche groups, even when many of these rationales are contradictory.
The left wants the state to distribute wealth, to bring about equality, to rein in businesses, to give workers a boost, to provide for the poor, to protect the environment. … The right, on the other hand, wants the state to punish evildoers, to boost the family, to subsidize upright ways of living, to create security against foreign enemies, to make the culture cohere, and to go to war to give ourselves a sense of national identity. …
So how are these competing interests resolved? They logroll and call it democracy. The left and right agree to let each other have their way, provided nothing is done to injure the interests of one or the other. The trick is to keep the balance. Who is in power is really about which way the log is rolling. And there you have the modern state in a nutshell.
Ron Paul visited Loyola University-New Orleans last week–here is a picture of him (center) with Bill Barnett II (left, seated), Walter Block (seated, right), Dan D’Amico (left, standing) and John Levendis (right, standing). As Michael Barnett told me, “Heroic — the greatest living libertarian [Block], the greatest political figure of all time [Paul], and the greatest living economist [Barnett II] all together at one place!” Okay, he’s a little biased maybe, but each of these contentions is arguably true. What an amazing assembly!
Treehugger.com is thrilled at the effects of the recession: Amazon Deforestation Drops 46% In One Year reports that “2008-2009 was a better year for the rainforests, with logging rates dropping 46%. The lowest it’s been since these groups started monitoring in 2004.”
As a friend said, this just underscores the very real fact that environuts hate prosperity. And they hate energy too. As environut Paul Ehrlich infamously said, “Giving society cheap, abundant energy would be the equivalent of giving an idiot child a machine gun.”
And this is the real reason the alleged environmentalists oppose nuclear energy, even though it is an obvious way to combat “global warming” and pollution. (See Green Nukes, where some greens actually admit it; Nuke Me; Nuclear Spring; Re: Nuclear Spring; Dam Nukes; Greenpeace to advocate nuking the earth?; Access to Energy.)
These fake “environmentalist” misanthropes basically believe humans are a cancer on the earth. These anti-human, anti-industrialist sickos are the real enemies of humanity.
Some good pieces:
- Rockwell’s Anti-Environmentalist Manifesto, by Lew Rockwell
- The Toxicity of Environmentalism, by George Reisman
- Environmentalism Refuted, by George Reisman
- George Reisman’s Capitalism, chapter 3B, “The Ecological Assault on Economic Progress”
- Environmentalism or Individualism?, by Robert James Bidinotto
By me. From here (slightly edited):
Hey, I know–let’s trust the same government that imposes FDA costs, taxes, and regulatory roadblocks to set up a patent office to hand out patents to give you partial ownership of others’ property to incentivize you just enough to overcome the costs they imposed on you on the first place with the FDA and taxes and regulations. Beautiful! And if that’s not “enough” incentive, establish a government panel of “experts” to give you “enough” of a reward paid by taxpayers. Beautiful! I like it!
[On the latter point see See Libertarian Favors $80 Billion Annual Tax-Funded “Medical Innovation Prize Fund”; $30 Billion Taxfunded Innovation Contracts: The “Progressive-Libertarian” Solution.]
I’ve ranted before about conspiracy theorists — see, e.g., On Conspiracy Theories. I have several problems with such views.First, they are usually not needed; and they are usually maintained by people who have a naive view of the state. For them, if we can just get rid of the bad guys (and often they are Jews, bankers, capitalists) and elect good ones, things return to normal. Second, the state is evil on its face. It kills hundreds of thousands of people in the open. It is able to do this because it has succeeded in deceiving the people as to its legitimacy (see Hoppe’s Banking, Nation States and International Politics: A Sociological Reconstruction of the Present Economic Order). Third, it ignores the fact that the state has internal rules (see Alfred G. Cuzán‘s classic paper “Do We Ever Really Get Out of Anarchy?, apparently “revisited” by Cuzán in 2007 [see draft]). People who rise inside the state are good at following these rules; and you can be sure opponents inside the state would latch onto violations of them (remember Clinton being impeached for someting minor?). Fourth, the ‘toids usually have no evidence.
Anyway, Vijay Boyapati brought to my attention this priceless reaction by Rothbard (in a 1989 Q&A after a speech) to a questioner’s suggestion that “the government” is trying to spread AIDS.
This starts about about 49:50:
Rothbard: I never heard of that.. I don’t know anything about that
‘toid: It sounds far out.
Rothbard: Yeah it sounds far out. I don’t see any evidence to that effect. My favorite story about the government medicine was the swine flu caper if anyone remembers that – (interrupted)
‘toid: – what’s the difference?
Rothbard: well that was documented.
As previously noted here, I presented a speech in July at Mises University 2009 on “Intellectual Property and Libertarianism.” The audio is available here and the video was just made available. It’s below. As previously noted, this presentation was different than others I’ve done in the past on IP, partly because, as it for students, I tried to start from the ground up, and also to integrate the proper approach to IP with the essential principles of libertarian political philosophy. Thus part of the talk summarized my view of what libertarianism is, and then applied it to IP; this summary view of the libertarian framework was distilled from a more elaborated version, contained my chapter What Libertarianism Is, which appeared in the Hoppe Festschrift, Property, Freedom and Society. An article based on my speech is forthcoming in Liberty magazine.
[Against Monopoly cross-post]
I was talking with Kevin Carson about the problems with the “contractual” model of IP “that so many people grab at in desperation” (for more on this see here and here). Carson said:
As Cory Doctorow put it, a computer is a machine for copying bits. If you put a cultural artifact into bits, it’s going to get copied. And anybody whose business model depends on stopping people from copying bits is f*cked, plain and simple. As horrifyingly accurate a prediction as Stallman’s “Right to Read” is of the copyfascists ideal world, I think it’s about as plausible a threat as Khrushchev’s plan to catch up with the West by 1970.
See A very long talk with Cory Doctorow, part 1; also Cory Doctorow, Microsoft Research DRM talk and Copying Is What Bits Are For.
[Against Monopoly cross-post]
As reported here:
AP: Speaking of technology, how has the band been affected by the digital turn the music industry’s taken?
Cray: Not too many people get the million-selling plaques anymore and all that stuff like that. And a lot of bands survived just on selling records and didn’t think about touring so much. And a lot of bands based their whole careers on just getting that one hit. But it has affected a band such as ours, but only in a different way. I mean, it would nice to have had the same kind of sales more recently as we had in the past, but we started playing in bars and as long as it’s fun, we’ll continue to do so.
[Against Monopoly cross-post]
Stephan (or is it Stephen? 🙂 ),
Easy part first: I think your summary of the economic issues in the 4th paragraph is pretty much right on. Not sure I’d say “market failure” but I understand what you’re getting at (it’s only “mf” if one holds perfectly flexible prices as your ideal market, which I would think good Mengerians would not). Those are the crux of it though.
As for the first part: a fractional reserve bank deposit is indeed a loan as well as a deposit. The contract one signs upon getting a checking account should say that (as I believe they generally do). I will note, though, that my own experience with students and friends is that almost everyone understands that not all of their money is literally “in” the bank and that it’s being lent out. Even so, the contract should make this clear.
And yes, the contract should make no stronger claims about the bank’s obligation to redeem on demand being fulfilled than any other contract should about its terms being fulfilled. If you agree to hire me to perform a task, I can’t “guarantee” that I will perform it, I can only promise or agree to. If I break it, then I’m in breach and legal remedies should be applied. Same with demand deposits. If there’s a suspension clause, it’s gotta be there too.
I object to 100% reservers claiming “fraud” for what is really “breach of contract” given that checking account agreements do provide the requisite information.
In short: the notion that fractional reserves are fraudulent has always been absurd to me. Demand deposit contracts should (and do) spell out the terms clearly. If we agree on the “capitalist acts” point, then the dispute is indeed an economic one over the issues you raise.
Posted by: Steve Horwitz | September 04, 2009 at 11:54 AM
Steve:
“Not sure I’d say “market failure” but I understand what you’re getting at”
Right. I am critical of the freebankers’ very view that there is a problem that needs a solution; akin to the false problem of “market failure” that many statists point to. (On this see Salerno’s comments ( http://thinkmarkets.wordpress.com/2009/08/25/auction-markets-and-optimally-sticky-prices/ ) about “sticky” prices, arguing that this notion is an illusion and can’t be invoked as an argument for adjusting the supply of money to variations in its demand.)
“As for the first part: a fractional reserve bank deposit is indeed a loan as well as a deposit.”
? Do you mean the reserve part is a deposit? I suppose so but the problem is that in a straight deposit, the funds of depositors would be pooled as an “irregular deposit” (see Huerta de Soto on this, p. 4 http://www.mises.org/books/desoto.pdf ). But in this case the sum of things depositied is sufficient to cover the entire total of deposits, since it stays in the vault. So as a customer I am indifferent to having, say, ownership of 1 oz coil in a safety deposit box, or 1% ownership of a 100 oz. fungible sum–except that the cost of the former is higher.
But in your case if you say there is a 10% reserve ratio, then 10% of the money handed over is kept in an irregular deposit, but my 1% interst in it is not worth 1 oz. but only 1/10 oz. I mean I am not indifferent, as I would be in the case above. Unless you say the part that is a deposit is only for the 10% of my account value. But the problem with this is if I ask for all of my money you will use the gold to satisfy it. So it’s very confusing to regard it as part deposit. I think it is not part deposit. It’s misleading to say so.
“The contract one signs upon getting a checking account should say that (as I believe they generally do). I will note, though, that my own experience with students and friends is that almost everyone understands that not all of their money is literally “in” the bank and that it’s being lent out. Even so, the contract should make this clear.”
Good. But I do not think most people understand exactly what is going on. They seem to want to have it both ways (no offense, freebankers :)–they want it to be “in” the bank and to get interest too.
“And yes, the contract should make no stronger claims about the bank’s obligation to redeem on demand being fulfilled than any other contract should about its terms being fulfilled. If you agree to hire me to perform a task, I can’t “guarantee” that I will perform it, I can only promise or agree to.”
I agree with this, unless by your choice of words you mean to imply that even a depositary can’t “guarantee” it either. I mean I agree with you, so long as you recognize the categorical distinction between the ability of the depositary-custodian in the case of an irregular deposit, to repay, and the ability to guarantee it in the case of fractional reserves. They are similar only in that in both cases it’s possible for the bank to be unable to meet its promise–but in the case of the irregular deposit this can happen only if there is a violation of the depositary contract (embezzlement), or some kind of random accident (fire) that could be insured against.
“I object to 100% reservers claiming “fraud” for what is really “breach of contract” given that checking account agreements do provide the requisite information.”
Well in my view the 100% reservers have a point given their (in my view justified) view that the origins of fractional reserve are mired in fraud and confusion (I think Huerta de Soto is good on this), and also, based on their economic view of the futility and indeed instability of freebanking, in their suspicion that it’s highly prone to fraud. But I do agree with you that so long as the nature of the arrangement is spelled out, there is no fraud. But I will say that I have sensed many times in the people on your side of this debate a reluctance to agree to the freebanks giving complete and clear disclosure, as if you guys are afraid that too much disclosure will make it impossible for the FRB to get off the ground. I coudl be wrong about this, but I have sensed it and think I could dig up quotes … but anyway, glad you don’t object to this and would be willing to put your system to the test of full disclosure.
“In short: the notion that fractional reserves are fraudulent has always been absurd to me.”
It’s not so absurd if you understand the opponents view of the history of it, the state’s involvement with banking and the origins of frb plus its current involvement with centralized state-run frb; and with their view that freebanking is so inherently unstable and rickety that for it to ever exist there pretty much had to be fraud involved somewhere–I don’t agree with this compeltely, but their reasoning is sufficient to give cause for suspicion and hard scrutiny of the potentially fraudulent nature of this arrangement. But in the end, just as I do not think a ponzi scheme is fraudulent, I do not think FRB (inherently) is.
Further, on the face of it, there is a colorable charge of fraud: you are calling something a “deposit” that is NOT a deposit.
Jake:
“I still don’t understand the economic argument in favor of 100% reserves. How are loans made? Through CDs and mutual funds?”
Basically, through a promissory note. A mutual fund is more like an irregular deposit: you own a pro-rata share of the assets of the fund, which include securities such as stocks and bonds. I don’t think anyone thinks you can’t have loans without fractional reserve banking. The libertarian question is whether handing out frbnotes in exchange for “deposits,” and loaning out 90% of this money, and the customers then circulating these notes “as money” is unlibertarian; it is not, in my view. The economic question is whether this system addresses a real problem, or whether it’s nothing but an unstable shell game.
Posted by: | September 04, 2009 at 01:56 PM
Stephan:
I’m not going to debate the legal questions with you because I think DeSoto has it all messed up as George notes in the other thread and as Larry has argued in his review of the book (and his wonderful FEE lecture this summer). His language is all question-begging and ahistorical (in my view), so what we’ll end up doing is arguing over definitions, which will get us nowhere.
Rather than do that, let’s just agree that the crux of the debate is over the economic issues you noted in your first comment. And, to be honest, I’m really burned out on debating those issues after doing so for much of my week at FEE this summer, not to mention on the blogs over the last few months.
Your summary of the issues at stake is good enough for me and now I’m happy to turn the debate over to others for awhile – if for no other reason than I’m headed out for a departmental party in about an hour.
Steve, sounds good–but don’t be bummed. Look on the bright side–people who care about truth and ideas things this stuff is important enough to debate in peaceful fashion.
As for de Soto, I haven’t read the whole book, and from what I gather, I would not agree w/ some of his conclusions (if he has the per-se fraud view) but I do think some of his legal classifications and history of how the legal classifications changed or were manipulated over time, are useful. But I agree we should not debate by semantics, a tactic that drives me bonkers.
Let’s just agree for now that I am magnanimous enough to let you try to be a ponzi-scheming huxter in our free market, and will even try to help you out when your burned customers try to tar and feather you. 🙂
Stephan,
Thanks for the response but it was more of a rhetorical question. My point is that I see the causality in regard to the evolution of FRB in a different way than Rothbard does. In Rothbard’s account, as you know, banking was originally just a money warehouse business. Only later did banks realize they could loan out their deposits and earn a return for both themselves and the depositors.
The way I see it, it is the opposite. Anyone can store their own money but not everyone can make loans by themselves. Banking may have begun in some cases as a way for individuals to make collective loans. In this view, it is demand deposits (modern checking accounts for example) that come later when banks compete to provide liquidity to their depositors. I don’t have any historical evidence for this and I don’t know if it is a widespread view but if it is true it would seem to invalidate the case for 100% reserve banking.
In your example of promissory notes, the notes themselves could begin circulating like money and then the system would be no different from FRB. I don’t see any reform, other than a strict ban on the circulation of these types of instruments, that could prevent this.
Jake: “In your example of promissory notes, the notes themselves could begin circulating like money and then the system would be no different from FRB. I don’t see any reform, other than a strict ban on the circulation of these types of instruments, that could prevent this.”
I don’t think anything could or should prevent it other than economic reality. In my view the notes could not serve as money or money substitutes, and if there was a fractional reserve aspect to them then the system would be prone to runs. But who knows.
You can’t make this stuff up.
As reported on Patently-O,
Earlier this week, the USPTO issued a design patent to Google that covers the “ornamental design for a graphical user interface [GUI] … as shown and described.” Pat. No. D. 599,372. Design patent coverage is essentially defined by the images include in the issued patent. Here, the image looks roughly the same as the company’s ubiquitous Google.com homepage. (See image below.)
To be clear, many patent professionals would argue that it is misleading to ever simply call this “a patent.” Rather, it is a design patent. Design patents have severely limited scope, only cover ornamental designs rather than technological advances, and are very frequently found invalid when challenged in court. The USPTO has been granting design patent protection for screen shots and icons for many years. However, to my (limited) knowledge, none of those design patents have ever been enforced in court. …
Dashed or “ghost” lines in the drawing indicate features that are not claimed. Thus, patent would be infringed by someone using an identical layout even if they replaced the “Google” mark with their own mark. You can note at the bottom that the design patent drawing is marked with a circle-c ©. That indicates that Google is also claiming copyright protection for this layout. In addition, in the design patent, Google indicates that it is also claiming trademark protection for portions of the layout and – perhaps – for the layout as a whole.
[Against Monopoly cross-post]
From Horwitz’s post “Mises and His (Apparent) Call for 100% Reserves” at “Coordination Problem” (formerly The Austrian Economists).
Steve,
Putting aside what Mises thought, it seems to me clear on libertarian principles that as capitalist acts between consenting adults are not aggression and are thus permissible, fractional reserve banking is fine on libertarian grounds so long as there is no fraud. Do you agree with this?
However, given the immense potential for confusion–customers are told they are “depositors” and they often think their money is “in” the bank; while most of it is lent out and thus they get interest–deposit should be distinguished from a loan. The customer should be apprised that he is receiving a credit instrument. Do you agree?
Any claims that he is “guaranteed” to be able to get his money out at any time are also problematic since a run is at least possible. So the “guarantee” language should not be used; this is especially so if the frbnotes contain a suspension clause. Do you agree?
If so, then the only dispute remaining is a purely economic one. You think frbnotes, credit instruments, can circulate as money; some Rothbardians do not (I am not sure). You think it’s possible to have a stable freebanking system that is able to arrange its affairs so as to avoid runs; some Rothbardians do not (I do not). You think the ability of freebanks to expand the supply of money in response to increased demand for money is economically useful, for “stickiness” and similar “market failure” [or so I perceive this argument] reasons; Rothbardians do not (I do not; it seems to me that there is no stickiness problem that needs a solution; and that the freebankers implicitly and fallaciously equate fiduciary money created out of thin air with wealth).
Do you agree that the economic issues in the last paragraph are the basic crux of disagreement between freebankers and 100% reservers? It seems to me that in a free society freebankers would be free to try to set this up; and we would see what happens. (Yes, I know some of you think we have historical evidence already; but the point is the libertarians ought to have no real dispute here; and the economists can either debate on apriori grounds, or on empirical ones–on the latter, one approach is to just try it and see what happens.)
By the way I gather at least some of you freebankers would prefer a 100% reserve gold standard to the current federal reserve fiat money fractional reserve system; and I know I would prefer your private freebanking fractional reserve system to the current centralized statist version of fractional reserve system.
Posted by: Stephan Kinsella | September 04, 2009 at 11:27 AM