Thursday, October 20, 2011

Dr. Fekete, Please Help

Dr. Fekete

I am writing to you in order to bring to your attention the fact that you have at least one very confused disciple – but then I repeat myself.

Please contact Ingo Bischoff. He needs remedial coursework in your “school” of economic thought. While I find myself in disagreement with some concepts for which you are well known (for instance the fallacious monetary theories behind real bills), I often find myself in agreement with you on more traditional topics. It is to these that I refer here.

I quote from the above commentary:

“Many a gold bug has the wrong strategy. He buys high and sells low. He cannot kick the bad habit. He should buy low and sell high.”

In reading this statement (as well as the general tone of your commentary) it seems you are quite comfortable with the idea that gold has a price. Of course, I am also comfortable with this idea as well. I see the price quoted 24 hours a day in such places as, well…this site, for example.

Please sit down before reading the next statement: Mr. Bischoff believes gold has no price. Yes, I too am flabbergasted by his statement. However, approach him with caution on this, as he can turn verbally abusive when he finds he has no logical response to his beliefs of fantasy…but again, I repeat myself.

And to a second point from your commentary:

“At this point the Friedmanite bunk was announced by professors who were the beneficiaries of the purge of old-line economists at American universities that a "weak" currency is boon to the country. It makes exports cheap while making imports dear….to see the Friedmanite bunk in the true light of science we need only recall that devaluation always makes the terms of trade of any country deteriorate. The euphoria of exporting more will last only as long as the stockpiles of imported ingredients used by the exporting industry last. Ever after, the country will have to pay more for the imported ingredients and will also get less value for units of its exports…”

I, course, agree completely with your line of reasoning, and have written so before on this subject here at the pages of DB:

I have extracted my earlier comments here:

I will cite only one exchange from the DB thread:

BM: What good is it to an exporting firm to have a week currency, when most of the inputs to production (commodities) have global prices?

IB: What kind of ridiculous statement is that...??? How can you even try to deal with it...???

You can see, Dr. Fekete, that Mr. Bischoff considers your statements on this subject as ridiculous, as you are today saying nothing different than what I wrote several months ago.

Please help him before it is too late.

Kind regards


Monday, October 17, 2011

Rothbard and Free Banking

From "The Mystery of Banking", Chapter 17, section 3:


Given this dismal monetary and banking situation, given a 39:1 pyramiding of checkable deposits and currency on top of gold, given a Fed unchecked and out of control, given a world of fiat moneys, how can we possibly return to a sound noninflationary market money?

The objectives, after the discussion in this work, should be clear:
(a) to return to a gold standard, a commodity standard unhampered by government intervention;
(b) to abolish the Federal Reserve System and return to a system of free and competitive banking;
(c) to separate the government from money; and
(d) either to enforce 100% reserve banking on the commercial banks, or at least to arrive at a system where any bank, at the slightest hint of nonpayment of its demand liabilities, is forced quickly into bankruptcy and liquidation.

While the outlawing of fractional reserve as fraud would be preferable if it could be enforced, the problems of enforcement, especially where banks can continually innovate in forms of credit, make free banking an attractive alternative.

-----------End of quoted passage----------------

It strikes me that Rothbard is contradictory in this conclusion, at least if free banking is defined in the manner that I understand the term "free." Free, to me, means free. No "shoulds", no "musts". Market participants will decide the manners by which they reach agreement for money, banking, and credit - that is "free" in my book. This cannot be reconciled with Rothbard's item (a) and (d) above. Who will return us to a gold standard? How? By what means? Who will enforce 100% reserves, or alternatively quickly "force" violators into bankruptcy? With what enforcement ability?

I will begin at the end.

"While the outlawing of fractional reserve as fraud would be preferable if it could be enforced, the problems of enforcement, especially where banks can continually innovate in forms of credit, make free banking an attractive alternative."

Setting aside the idea that FRB is "fraud" (if it is known, it isn't fraud; if it is fraud, those harmed can pursue recourse in some manner), 100% reserves cannot be "enforced". Enforced by whom? The little I know of Rothbard, he would not recommend the state be the enforcement arm (nor would I). But if not the state, who?

Absent the state as the enforcement arm, what is left besides market enforcement? And if it is market enforcement, what stops any form of banking and credit to evolve, if it acceptable to the market? Nothing should.

What of bad, or "fraudulent" practices? Cannot the market sort this out? It is true, if a bank is found as untrustworthy in its money and lending practices, cannot its customers go elsewhere? Is this not possible in all other aspects of markets where reasonably free from regulation and government interference?

As to item (b), abolishing the Federal Reserve System, I think it would suffice to remove government from money - no legal tender, no FDIC, no tax consequences for choice of currency. In such an environment, the current Federal Reserve System will cease to exist, as it cannot survive in a free market.

But does this mean there will be no bank cartels formed? I think not. Market efficiencies will likely cause banks to form in such cartels. However, absent the state as enforcement and insurance arm, the market will certainly control excess.

Rothbard's final statement (above) is correct, and is what attracted me to this section. Even if one assumes FRB is bad, it is irrelevant in a free banking environment. Market regulation will suffice, by this I mean regulation by the free choices made by market participants. If participants find a bank is inflating, they are free to move to other institutions that adopt other schemes. Free banking is not just an "attractive alternative", it is the only alternative.

Banking is far less complex than most products brought to market. Individuals are quite capable of deciding which car to buy. They certainly can figure out where and how to bank - without any "shoulds" or musts" thrust upon them by strangers.

Items (a), (b), and (d) in Rothbard's list above are not necessary. Item (c) will suffice. Get the government out of banking and money. The market will resolve the remaining issues.

Monday, October 10, 2011

Hope for Mr. Hultberg?

Mr. Hultberg

Thank you for NOT suggesting that Dr. Paul adopt your dangerous notion of supporting Fed inflation via a constant 4% increase in base money. If this is an indication that you have finally rid yourself of this destructive notion, I applaud you for this. Absent this cockamamie plank, you may yet find Dr. Paul as valuable asset to your cause.

"His [Dr. Paul's] watchword is "steadfast adherence to principle." Compromise if need be on the means of implementation; but never on the principle itself. Never on the Constitution. Never on the rights of man."

Instead of your 4% rule, perhaps you could adopt Dr. Paul's "compromise" on the issue of the Fed: remove legal tender, remove monopoly over money and banking, allow full and free competition in money, remove tax consequences as to choice of use of money and currency, remove government backing of any and all money and banking schemes. Then the Fed will eventually die on its own.

No 4% rule needed on which to pin false hopes (and certainly ensure further economic disaster).

Following is (apparently) Mr. Hultberg's reply to my comments:

Posted by Nelson on 10/10/11 11:26 AM

To: bionic mosquito.

Sorry AFR has in no way abandoned the 4% auto-expansion plan. It is the only way to stop the Fed at this juncture in history from running roughshod over the quality of our currency. The American voters' eyes glaze over when you try to tell them about free-market banking and the monetary intricacies of gold money systems.

I know; I have been at this task for over ten years (check out my articles on the subject). Such reforms will take decades to bring about.

The history of money and economics shows clearly that if left relatively free, an economy will grow its goods and services at roughly 4% annually. History also shows that in a free economic environment (which we had in the 18th and 19th centuries), gold was mined and entered into the economies of the West at roughly 4% annually. Sometimes at 3% and sometimes at 5%, but over the long haul, it averaged 4% annually. When this takes place growth of money and growth of goods balances and brings about a 0% price inflation rate. Thus the Friedman plan's 4% rate for monetary growth.

We certainly support Paul's plan to remove legal tender and eliminate the Fed's monopoly. AFR is working with Edwin Vieira on just such policies. But we are very doubtful that the power elites and their media lapdogs will let 'legal tender' and government monopoly of money go anytime soon. But we are sure that we can convince the people to force the Fed by law to computerize money growth at 4% annually.

No one in the AFR camp has ever said this is a perfect or ideal plan, or a permanent plan. It is, however, a "workable" plan. It will get the issue of money and the Fed's debasement on the table in front of 70 million voters in language they can understand.

This is something that the convoluted monetary explanations of gold money and free-market banking will be hard pressed to do. Gold and free-market banking are definitely the ideals that we need to work toward.

(If you had ever read my works on the subject, you would see that no one is more in support of such policies than I); but they are going to require massive education over a generation to enact. We prefer to save America today with some "imperfect" pragmatism, rather than let her be led into globalist tyranny because the State's libertarian opponents knew nothing more to do than naively talk "instaneous idealism" to the voters.

End of Mr. Hultberg’s reply.

I did not comment further on the DB site – Mr. Hultberg has a knack of turning quite aggressive and alienating, and I didn’t want to start down that path.

Suffice it to say his reply is full of strawman arguments. His complaints about idealistic libertarians can be equally (or more so) applied to those who believe politics can be sustained for the decades necessary to bring about a gradual dismantling of the power of the Fed.

Sunday, October 2, 2011

Tibor Machan at The Daily Bell

TM: We need more judgmentalism when it comes to opponents of the free society and free markets, not less.

BM: Quite true, and we should label those who advocate force in relationships as the immoral beings that they are. It ain’t an ad hominem if it’s true and relevant.

TM: I am disappointed with Reason Magazine adopting the Kantian line since the magazine was founded precisely to counter this trend of thinking.

BM: Long ago, Reason Magazine was one of the principle building blocks of my education regarding freedom and liberalism. I still have the back issues somewhere in the trailer. However, not quite as long ago, the magazine took a turn for the (much) worse.

TM: Unlike government, the private sector demands morality because it doesn't administer coercive laws.

BM: It is quite funny when one considers the accepted wisdom that force should be used to ensure morality. Well, actually not so funny….

TM: Governments can help in keeping the peace and defending society, just as referees at games uphold the rules.

BM: To have government (monopoly of legalized force in a given jurisdiction) so limited is not possible in the sense we use the word “government” today. Of course, in the context of a voluntary anarchic or panarchic society, TM’s statement could be a valid concept.

TM: Those who are government activists don't proclaim it. They disguise what they're after. They have to do so in this country because traditionally American citizens have not been well disposed to government activism, even though there's quite a lot of it.

BM: That it has worked in America despite the traditional disposition against government activism is a tribute to the state funded public education system. Americans are taught that Patriotism equals worship of the state, and supporting state control over many aspects of life.

TM: The idea is that you don't want to use brute force to move people toward a society based on government activism. Instead, you want to nudge people, to move them in tiny increments so they do not find it worth their while to object, or at least not forcefully....Nudging can take place in numerous ways but a lot of it has to do with creating social norms that people will feel they have to conform to.

BM: The most important nudging is the implementation of publicly funded schooling. “Of course it is good that all children have an opportunity for education” they proclaim, when in fact it is the opportunity for proper indoctrination. “The state will educate your children.” Talk about a nudging…right over a cliff.

DB: The thrust of Austrian economics and the freedom movement generally is one that is profoundly objectivist in the Randian sense. It insists that people are perfectly equipped to make sound judgments on their own and to pursue their lives using their senses in a rational way.

BM: I am not sure it can be said that people are “perfectly equipped” for much of anything – people aren’t gods. However, as people aren’t perfectly equipped to make sound judgments on their own behalf, it is therefore certainly true that government bureaucrats and technocrats (being people, after all…well, most of them) CANNOT be better equipped to make sound judgments on behalf of complete strangers than those strangers can make for themselves.

More accurately, I believe the statement can be properly made that no one is better able to make sound judgments for his own well being than the individual himself, and if the individual is physically or mentally incapable, then left to family, close friends, and local institutions.