The State: Detestable to the Lord

Proverbs 6: 16 – 19

There are six things the Lord hates, seven that are detestable to him:

haughty eyes,

a lying tongue,

hands that shed innocent blood,

a heart that devises wicked schemes,

feet that are quick to rush into evil,

a false witness who pours out lies

and a person who stirs up conflict in the community.

That pretty much sums up every activity taken on by government today.

A Simple Property Rights Question for FRB Critics

I return to the subject of fractional reserve banking and my recent post in response to an article by David Howden, entitled “A Simple Math Question for Bankers.”

Well, I have a simple question as well – a question about property rights:

Are property rights divisible?

Now I don’t mean divisible as in shares of stock in a commercial enterprise – I own 50%, you own 50%.  In this case, our property rights are identical (assuming the same class of stock); the ownership of the enterprise is certainly divisible.

I mean divisible as in two different people have dissimilar interests in the same property.

The answer is likely so obvious that it seems like a purposely misleading question – what trick is BM trying to pull?  Does he think I’m an idiot?

The most obvious examples of divisible rights in property can be found in rental or leasing agreements.  Think of the typical landlord / tenant relationship.  Each party has a right to the property – a nice 3 bedroom, 2 bath home with a white picket fence.  Typically, the landlord has rights associated with ownership; the tenant has rights associated with occupancy and peaceful enjoyment.

They each have property rights, yet the rights of each party in the home are different.  For brevity, I will assume that a further explanation of this landlord / tenant relationship is not necessary.

But, at its root, those who criticize FRB (for reasons other than its inflationary consequences), do not accept or recognize that property rights can be so divided or do not accept that today’s deposit contract does, in fact, divide property rights in the digits commonly referred to as money (and today’s deposit contract most certainly does divide the rights in the deposit).

As it relates to the concerns by critics of FRB, the point is captured well in Howden’s statement:

The conflict depositors and bankers are subject to should be apparent. They each have a claim to the deposit, but there is only one deposit available to satisfy each claim.

They do each have a claim to the deposit.  But, like a landlord and a tenant, the claims are different – divisible rights in the property, if you will.  This is explained in detail in my previous post (and embedded links in that post).

This concept is so simple that my mind cannot grasp why it is missed.  I am willing to accept that I am the one missing something, yet I am yet to read a statement or argument that addresses this directly.

I have asked others to point me to definitive statements.  Where does Rothbard best make the case that fractional reserve banking is fraud (as he seems to be where this idea was born)?  I read the recommended passages, and to my surprise I find this in the same book!

It was recommended to me to read the most comprehensive work by Jesús Huerta de Soto, “Money, Bank Credit, and Economic Cycles”; all my questions would be answered.  Instead, I conclude this.

Again, the issue is not inflation – and if anyone is interested as to why I say this, let me know.

The issue is directly found in Howden’s statement (and in those who hold and support a similar view) – and he is wrong, because he does not recognize (or will not admit) that two parties can have different rights in the same property.

My head hurts.  Perhaps more scotch….

Enough Already

This will come across as an angry post – I fit Horwitz’ view of an angry libertarian on this one, but it is one subject where I agree with him.  The subject is tiring for me; whenever I raise these points, two things are certain: 1) none of my points are addressed directly, and 2) straw man arguments come out of the woodwork.

Please, please, please – I will be quite content if my points are addressed directly and I am shown to be in error, especially on the one key question of contract (coming shortly).

Sadly, my critique is opposed to the position of many people who I hold in high regard.  In no way do I mean to attack the person; only the position on this issue.

I beg of someone to deal directly with the points raised – I have read and written as much on this topic as any; I have participated in countless online (and one tragic in-person) discussions; let’s just say I am still waiting for a direct (meaningful and substantial) response.

Speaking of someone that I hold in high regard….

From Walter Block:

Dear Redmond, Dave:

This is just about the best critique I have ever read about fractional reserve banking, and I've read a lot of them. That bit about the trains is magnificent!

Dear Larry, George:

I'd love to see your critique of this beautiful attack on your position.

Best regards,

Walter

What is the substance of this “magnificent” “best critique”?

Think back to your high-school math class, and reminisce about this question:

“Train A departs from Union Station at noon travelling eastward to Halifax at a speed of 80km/hr. Train B departs three hours later from the same station travelling in the same direction at a speed of 100 km/hr. When and where will they collide?”

We strained our minds, and most came up with the conclusion that 15 hours and 1,200 kms from where train A set off, the carefree conductors would face a rude awakening.

Most of us were just glad to be done with the question, and probably didn’t think of it much further. But consider what was going on at one minute past midnight in this imagined world.

There were two conductors each told that they could depart Union Station at a certain time and speed towards their destination. Each had done exactly what they were told, with the predictably disastrous results. There was probably a track-side argument, with each side blaming the other. Possibly the conflict spilled back to Union Station, with blame being attributed to whoever was in control of the train schedules that fateful day.

One way to look at this is that there was a conflict. Each conductor was told to do something, and when they did the disaster struck. Laying blame at the end is difficult, as neither side did anything wrong. As outsiders to this problem we can see that if blame does lie somewhere, it is with the Union Station scheduler.

There is the train analogy.  Here is the fractional reserve banking part:

Regulation is Futile

By that, I mean government regulation.

Bart Chilton is apparently spouting off… a little:

After almost 30 years in Washington, Bart Chilton will soon be taking his leave. For the past 6 1/2 years, he has been an outspoken member of the Commodity Futures Trading Commission, one of the financial industry’s most important regulators.

Chilton leaves behind a sobering message: As we long suspected, Wall Street continues to use every trick in its playbook to do whatever it can to eviscerate numerous post-financial-crisis rules.

Duh.

Chilton adds:

“The Wall Street firms have tremendous influence, and they can impact policy to a greater degree than any one regulator or a small group of regulators can.”

To say nothing of the desire of many of those regulators to later become employed by the same firms they were previously unable to regulate.

Chilton knows why Wall Street always seems to win. Financial-industry executives contribute more money “in every election, than any other sector, and they have made more profits in every single quarter since the fall of 2008 when many of them helped crash the economy,” he explains. “So while the rest of the nation is suffering still, and trying to get a leg up to get out of the ditch, the financial sector didn’t miss a beat.”

William Cohan, the author of this short Bloomberg post, concludes:

In case you didn’t catch Chilton’s meaning, here is the shorter version: Unless and until Wall Street’s disproportionate ability to bully Washington is curtailed, the rest of us will be held hostage to its agenda.

There is only one way to end this bullying – remove Washington from the ring.

Get the Treasury Department, the SEC, the CFTC, the Fed – all of them- out of the way…totally, including no backstops for too big to fail.  Then watch how effectively these firms will be regulated.

The market can regulate just fine.

Police Cause Crime

And the evidence can be found in the strangest of places….

Gilligan’s Island was a 1960s television comedy in the United States.  The show ran for three seasons; it had a fairly basic storyline:

The two-man crew of the charter boat S. S. Minnow and five passengers on a "three-hour tour" from Honolulu run into a tropical storm and are shipwrecked on an uncharted island somewhere in the Pacific Ocean.

The shipwrecked castaways want to leave the remote island, and various opportunities present themselves. They typically fail owing to some bumbling error committed by Gilligan [the first-mate of the S.S. Minnow] (with the exception of "The Big Gold Strike", where everyone except Gilligan is responsible for their failed escape). Sometimes this would result in his saving the others from some unforeseen flaw in their plan.

The castaways have made it through almost two-and-a-half seasons without government of any kind – they lived in a state of anarchy.  No president, no military, no police, no jails.  They managed their affairs as you might expect – amongst them.

With no one in command, they always found ways to work things out – even on the countless occasions that Gilligan cost them a chance at rescue, there were no calls for any significant punishment, imprisonment, three-strikes-you’re-out, or the death penalty.  Typical of the punishment doled out – Gilligan once had to write “SOS” 100 times. 

Despite numerous attacks by cannibals from neighboring islands, never once did they form a standing army.

Sadly, they decided this condition of peaceful anarchy had to end.

"Gilligan Goes Gung-Ho"

The castaways decide to establish law and order on the island, with the Skipper as the island Sheriff and Gilligan as his deputy.

More precisely, they already had law and order on the island; what they decided to do was to give a couple of their compatriots a badge (well, a starfish in this case). 

It seems a few of the castaways were playing with a gun, loaded with blanks.  When a shot rang out, a discussion was held between the Captain and one of the passengers – “the professor.”  The two of them decide that the firing of the blank was a sign – a sign that their island with all of seven inhabitants needed formal law and order.

Leave it to a captain (representing military order) and a professor (representing academia and the intellectual class) to come to, and agree to, such a decision.

In any case, they decide that Gilligan would be the deputy; just as in the real world, he takes his job a bit too seriously:

Unfortunately Deputy Gilligan takes his new responsibility too seriously, and, as a result, everyone ends up in jail...including, eventually, himself!

Well, that last detail never happens in the real world…but as to suddenly turning previously cordial and friendly compatriots into criminals?  This is what Gilligan the deputy, like his real world counterparts, does best.

Gilligan decides, one at a time, that each inhabitant of this previously self-governing community has violated some crime – actions that previously were either unnoticed or handled informally.  One by one, he throws them in jail (they never had need for a jail before, either – if you build it they will come).

All-in-all a humorous and cute portrayal of a real world nightmare – police causing crime.

More on What Comes Next

I have written before about the possibility of a future world with alliances that look far different than those we are familiar with today.  Today, global power is centered on an Anglo-American pole, with institutions built primarily after the Second World War and driven by the victorious US government.  As an aside, a war culminating a fifty-year effort to transition the central tool of elite control from Great Britain to the United States.

In the intervening years, various actions have taken place with the intent of bringing further regions under this control.  Wars in Southeast Asia, central Asia, and the Middle East; moves to expand the EU and NATO into Eastern Europe; a formal US military presence in Africa.

However, Russia and China do not seem to be playing along.  It has long struck me that political and elite leaders in these countries would much prefer plucking their own sheep as opposed to sharing that pleasure with the west.  Most recently, Russia seems to have pulled one over on the west regarding Ukraine.  Further, Putin seems like a voice of reason on issues such as Syria and government spying (Snowden).

For various reasons, it seems to me a shift is quite possible – and in the not-too-distant future, “a new alliance – one that includes Russia, China, Germany, Japan, and possibly Australia.”

To prevent this shift, many see war as possible – although most commentaries are presented in terms of war as a distraction from the financial-calamity-that-cannot-be-solved-and-will-only-worsen.  Ultimately, this means a war between the United States and China (as any lessor war will not prove to be a distraction from the financial calamity, nor will a lessor war make possible the integration of China under western control).

Paul Craig Roberts recently wrote one such piece (h/t Ed Steer):

The fatal war for humanity is the war with Russia and China toward which Washington is driving the US and Washington’s NATO and Asian puppet states.

This would certainly be a fatal war for humanity, as it runs the risk of becoming a nuclear war – and any one of the three major players has an arsenal powerful enough to turn the earth’s surface into an uninhabitable moonscape for countless centuries.

And it is precisely for this reason that I do not envision such a possibility – an overt war between and among such nuclear super-powers – except by accident.  The elite of the west gain nothing by this and stand to lose everything.  Of what good is it to the elite to either a) be dead, and their bloodline with them, or b) live in a fallout-proof bunker for the next few centuries?

The elite will take a step back from their grand schemes before they make this choice of overt war amongst nuclear armed super-powers.

But this is secondary to my main point; in the very last paragraph of the aforementioned Paul Craig Roberts piece is found the following gem:

Germany alone could save the world from war while simultaneously serving its own interests. All Germany has to do is to exit the EU and NATO. The alliance would collapse, and its fall would terminate Washington’s hegemonic ambition.

This will eventually happen, along with Germany turning to the east for alliance; there are too many reasons for this to happen, and not enough reasons for it not to happen.  In the meantime, German politicians don’t want to take the brunt of the blame for the occurrence of one of the first necessary steps – the breakdown of the EU and the Euro.  They know that time is on their side; this will break down from its own weight soon enough.

After this?