Thursday, February 16, 2012

Free Money and the Gold Standard


A very concise and enjoyable commentary on the desire for truly free markets in money. I can’t wait for all of the visionaries with their preferred dreams (all requiring government force) to start piping up on this. Somehow free-market money is the desire of the elite (they claim) while government enforced money (the people’s money) would be a terrible blow to the elite. Laughable. But I could use a good laugh today.

On Rothbard and free banking, I have noted a brief snippet here:

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

“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.”

While I have a slightly different view about FRB than does Rothbard, it does seem that he realizes that the market is the only solution for proper enforcement of money and credit practices (what else could Rothbard conclude, after all?).

On Mises and free banking, I offer the following (both from Human Action, Chapter 17 Section 12):

“A lot of nonsense has been written about a perverse predilection of the public for banknotes issued by dubious banks. The truth is that, except for small groups of businessmen who were able to distinguish between good and bad banks, banknotes were always looked upon with distrust.”

It seems until the government got in the business of guaranteeing and requiring the use of dubious banknotes, most every-day people avoided the use of such instruments.

“Free banking is the only method available for the prevention of the dangers inherent in credit expansion. It would, it is true, not hinder a slow credit expansion, kept within very narrow limits, on the part of cautious banks which provide the public with all information required about their financial status. But under free banking it would have been impossible for credit expansion with all its inevitable consequences to have developed into a regular - one is tempted to say normal - feature of the economic system. Only free banking would have rendered the market economy secure against crises and depressions.”

Mises makes clear that free banking is the best check on un-backed credit expansion, yet also in a free market, credit expansion is to be expected, and presumably tolerated within the context of a competitive market environment.

DB: There are those, too, who conflate depressions with deflation.

Interesting, this is from an article at Mises just today:

“The phenomenon that central bankers of the world are so resolutely scared of, and have agreed to fight with all their might — deflation — is a creation of their own hands. Without the period of inflation leading up to the present, there could be no threat of deflation.”

In any case, let the crazies and control freaks come out, and let the fireworks begin. Only crazies can advocate that government force can be used to keep the elites in check and free markets are the desire of those same elites.

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