Next Time, Perhaps I will leave Well-Enough Alone...

Recently I decided to jump into the latest Austrian discussion about fractional reserve banking (FRB).  John Tamny wrote a post critical of those Austrians who regard it as a fraud; Mike Shedlock responded with a rebuttal.  I decided to get in the middle of it – not that I haven’t been clear in the past regarding my position on this matter.

There are some aspects of this topic of which I have thought (and written) about a great deal; there are others that I have not found worthwhile to think very much about.  Unfortunately, I decided to make statements about both in my post – and then followed it up with a more detailed post on the topic upon which I have not spent much time.

What I Know

There are two things of which I am quite confident regarding FRB: first, as it is practiced today it is not fraud; second, markets are well capable of regulating bank leverage.

Once I felt settled on these two points, I decided not to spend any more time thinking or writing about the finer points – there is no violation of property rights, and the market can regulate the business practice: anything else I might have to say about it seems superfluous in the face of this. 

What I Should Have Left Alone

Tamny made a point about the money multiplier.  It resonated with some background-noise-thinking that is always going on in my brain on some topic or another.  Unfortunately, I decided the background noise was developed enough to actually put into words.

More than one person sent me a note, suggesting I do some further research or perhaps that there was some subtle point I was trying to make that didn’t seem so clear on the surface.  That’s when I doubled-down and wrote the second post.

What Changed?

How many times have you had a light-bulb moment?  Even on a topic upon which you feel you have some decent knowledge?  Something is written in a slightly different manner, or in a context not previously considered, or whatever?

My long-time online friend, gpond, sent me the link to a related article – generally in agreement with Tamny’s position (and mine), and generally in disagreement with Shedlock’s.  However, contained in it was a seed – one that in hindsight was so terribly obvious.  The seed was a statement about the distinction of currency vs. other forms of “money.”

While I was in the middle of working through a further defensive response to gpond, I found I was not able to write words that made any sense.  That’s when the light-bulb went on.

So, despite being perfectly aware that – other than cash withdrawals – banking as practiced today is a completely closed-loop system, my analysis was written as if it wasn’t.  I wrote as if every transaction was a cash deposit or withdrawal.  But it isn’t.  Almost every transaction today – and an even higher proportion of the dollar (or Euro or whatever) volume – is done via some form of electronic means – where a withdrawal in one account is an instant deposit in another.

Am I certain that this was the root of my error?  Even now I cannot say that I feel sure about this; I am only certain that my current view is somewhere between “I don’t know” and “I was wrong.” 

Perhaps Next Time…

As mentioned, it is enough for my purposes that I have concluded that FRB is not fraud and that the market is perfectly capable of regulating bank leverage.

Perhaps next time I will leave it at this.  It is enough.

BU2B

All is for the best

Believe in what we’re told

Blind men in the market

Buying what we’re sold

I was brought up to believe…

…King George was a tyrant.

…Americans fought for independence.

…Americans won their independence.

…the founding fathers were selfless.

…Robert Morris was America’s financier.

…government exists to protect my life and property.

…the time during the Articles of Confederation was chaotic.

…a written constitution is a check on government expansion.

…the Constitution protects my rights.

…Thomas Jefferson favored a smaller central government.

…America was never about Empire.

…Lincoln saved the Union.

…Lincoln cared about the slaves.

…Lincoln was honest.

…the West was wild.

…Japan’s aggression in Asia was a shock to the US government.

…Germany started the Great War.

…Wilson made the world safe for democracy.

…democracy represents the best form of government.

…democracies are reluctant to go to war.

…laissez-faire capitalism caused the great depression.

The Rise of the State

This is the title of the second chapter of Martin Van Creveld’s book entitled “The Rise and Decline of the State.”  It should be obvious from the title that I will have difficulty with this period. 

The period covered is 1300 – 1648, and Van Creveld begins with the struggle against the church – a struggle against faith in the church and toward faith in the state, it seems.  He contrasts attitudes toward the church in the earlier periods of the Middle Ages with those that followed – culminating with the major inflection point of the Reformation:

When, in AD 1170, men sent by King Henry II of England murdered the primate of England – Archbishop Thomas Becket – in his own cathedral, the upshot was a sharp reversal for the royal cause…Not only was the king forced to repent in public, but the extent of his surrender is indicated by the fact that England was subjected to a flood of papal decrees dealing with every aspect of government including, in particular, the clergy’s right to be judged solely by men of their own kind.

Competing and overlapping political power offered a good check on abuse throughout much of the medieval period.  This is contrasted with an event about a century-and-a-half later:

In the summer of 1307 Clement, expecting to preside over an ecclesiastical council that was to be held in Tours, traveled to France.  There he had to stand by as the king mounted a spectacular series of show trials in which the Knights Templar were accused of everything from heresy to homosexuality.  What military force the church possessed within the realm of France was destroyed; its commanders were executed, its fortresses and revenues taken away and joined to the royal domain.

Van Creveld identifies the next step as the new humanist scholarship emerging in Italy – and the admiration of everything classical, “which itself implied that an orderly – even flourishing and intellectually superior – civilization was possible without benefit of the Christian faith.”

Next the Reformation:

An even more important turning point in the triumph of the monarchs over the church came in the form of the Reformation.  From the beginning one reason why Luther in particular gained so much more support than previous reformers was precisely because of his instance that the movement he led had no revolutionary overtones….

Clearly why the Ron Paul R3VO7ution failed….

This was not to suggest that Luther played a strictly hands-off role in this transfer of power (and property) from church to state:

Football vs. Fútbol

I have been thinking about this post since the recent World Cup.  While watching the matches, I began to consider how a fútbol match might progress if officiated like (American) football.

Football is a very structured, rigid game.  There is an offensive unit and a separate defensive unit – the only major sport of which I am aware that has such a structure.  The field, 100 yards long, has major markings every five yards, and minor markings for every yard.  After each play – a happening with a definitive start and end – one of the seven officials places the ball on the precise position on the field.  In order to earn continuing ball possession, the offense must move the ball ten yards in four plays; if the spot of the ball is close to this ten yards, two other officials – not part of the seven – bring out a ten-yard long length of chain to measure progress precisely.  A casual observer – someone new to the game – would find the action impossible to follow.

Fútbol, on the other hand, is rather free-flowing.  Kick the ball into the opposing goal.  Don’t use your hands.  The most complex situation for the casual fan to comprehend is the offsides rule – once explained, easy to understand (yet still difficult to apply).  Three officials are on the field, and two of these have rather limited authority.  A first time viewer would understand the game within five minutes of watching.

What if fútbol was officiated like football?  On every penalty or out-of-bounds play, the clock was stopped, ensuring the time of the match to the precise second; on every penalty or throw-in, a video review was employed to ensure precise marking of the spot; on a direct kick, a precise length of chain was brought onto the field to ensure the defensive team did not establish too close of a position.

What if the eleven players were trained to follow precise patterns, with little deviation allowed?  Signals sent by the number 10 to the others on the pitch, such that each player ran a pre-determined pattern?

Rules, precision, order, formation, structured plays, little individuality and creativity.  These define football.  Whatever is the opposite of each of these terms define fútbol.

Football is the most popular sport in America, if one can judge by the passion behind both professional and college football.  Fútbol is the most popular sport in much of the rest of the world.

I am very glad that fútbol is not officiated like football.  Talk about ruining the beautiful game.

I have no insightful conclusion.  I just wonder what the popularity of the rigid, structured, rule and penalty bound sport of football says about American society.  It says something.

Weapons Don’t Kill; People Kill

Obama has ordered a review, after events in Missouri:

Troubled by images of heavily armed police facing off protesters in Ferguson, Mo., President Obama is ordering a review of federal programs that help law enforcement agencies buy military equipment.

Obama wants to know whether the programs are “appropriate” for local policing and whether police are given the training and guidance needed to use military-grade equipment properly, a senior administration official said Saturday.

It would be nice to think that this review will remove military hardware from all of the police and similar forces on US soil, but it won’t.  I suspect it won’t remove much of any of it (a nice false flag about now will take this question off of the table).

But Michael Brown wasn’t run over by a tank; he was shot by a firearm…six times, according to reports.

To my knowledge, none of the 5,000 killed by police since9/11 were gunned down by Apache helicopter.

Remove all of the military hardware and none of this will change. 

It isn’t the weapon; it is the man behind the weapon.  It is this that must change.  You want to ensure that officers have enough “training and guidance”?  Start with the weapon contained between their ears.

But Obama won’t review this, I betcha.

The Price of Being a Pioneer

That Galileo, Kepler, Bacon, Jung, Pascal, and Descartes – all men of the 17C – are better known than their elders in science is the kind of wrong that happens in all fields of culture.  The pioneers, the first who struggle out of the established systems and who form new and useful conceptions, appear only half right, incomplete, and their names stay remote.  But they are perhaps more to be cherished than those who come after, who clear off the debris and offer a neater, more full-blown view.

Jacques Barzun, From Dawn to Decadence

Barzun identifies several 17^th century individuals who built upon foundations that came before, in many cases during the Middle Ages.  Many, but not all, of the pioneers from the earlier time are lost to us, although their work influences us even today.  Barzun suggests that none of these later, more well-known, men of genius stood on their own.

Barzun also recognizes that these earlier pioneers often were not quite right, in some cases incomplete.  I wonder how it could be otherwise – when truly charting a new and unknown course, is it even conceivable that every step, every conclusion, remains valid after subsequent developments in the field?  Yet, there would be no “field” in which to discover error without these pioneers.

This is a post about Murray Rothbard, unquestionably a pioneer.  There is no developed body of libertarian thought without him.  Separately, no one made Austrian economics more readable for the layman than he did.  This is to say nothing of the significant work he did in revisionist history and power-elite analysis.

I will focus on two aspects of his work, the aspects that I believe best fit the description above by Barzun: the development of libertarian thought and the work he did to make Austrian economics accessible to the layman.

Libertarian Thought

I wonder if there even is libertarian thought had Rothbard not existed.  I don’t mean concepts about liberty, natural law, property rights, etc.  These all existed in bits and pieces before Rothbard was born.  I mean an integrated and well-developed philosophy; work that explains the theory, practical application, and how to get there from here.  When are interim steps toward liberty appropriate?  Rothbard offers the answer.  The immorality of nuclear weapons – not only in use but even in possession?  Rothbard applies consistent libertarian theory to answer the question.  Developing a consistent application of the non-aggression principle to a wide variety of circumstances?  Rothbard has likely covered whatever subject you have in mind.

Do you have a question regarding pretty much any libertarian topic?  Odds are high that Rothbard has already addressed it.  Do you want to point someone to a readable book on the topic?  Odds are high that Rothbard wrote it.

Accessible Austrian Economics

Admit it: Mises can be tough to read.  How many people would slog through The Theory of Money and Credit as their introduction to this school?  (I tried; it didn’t work.)

Pick up anything by Rothbard on the subject and it reads about as easily as your favorite novel.  Human Action too tough?  Try Man, Economy, and State.  This is to say nothing about his countless works applying Austrian economics to events of both his time and through history.

I would be remiss to not mention Henry Hazlitt in this regard – he wrote so wonderfully well and also brought Austrian economic analysis to the layman.  But no one offered a meaningful fraction of the output and breadth that Rothbard did.

What’s the Point?

Rothbard is often a favored target, a whipping boy for some in the libertarian and Austrian communities.  In the broad libertarian community, he is derided as a purist, not practical.  To some Austrians, his views on fractional reserve banking are derided – and used to justify marginalizing him as an economist.

I return to the quote from Barzun:

The pioneers, the first who struggle out of the established systems and who form new and useful conceptions, appear only half right, incomplete, and their names stay remote. 

Thankfully (due to the efforts of another pioneer), Rothbard’s name has not stayed remote.  I myself have disagreement with Rothbard on a handful of subjects; I feel quite settled that my conclusions are correct and his are not – of course, I could be wrong.

But they are perhaps more to be cherished than those who come after, who clear off the debris and offer a neater, more full-blown view.

Even with my disagreements, I stand in awe and respect of the man and his work.  He was a pioneer in these two fields – and this says nothing of the work he did to advance the ball on many other subjects.  Rothbard is to be cherished far more than any who have come after – without Rothbard, there would be no “after”; virtually no one to offer criticism. 

I feel on firm ground to suggest that there would be no libertarian movement as we have come to know it if Rothbard did not exist – perhaps, more generously, his four-plus decades of work advanced the science by a century or two.  In other words, our time would not yet enjoy this knowledge.

As to Austrian economics, whatever his critics might offer, what cannot be taken away is that Rothbard has done more to bring more people to this school than any other individual alive or dead. Perhaps this is why they criticize.

We have seen the recent explosion of interest in both Austrian and libertarian concepts, driven by the fortuitous confluence of Ron Paul, the internet, and the financial calamity of 2007 / 2008.  Without Murray Rothbard, while the same events would have transpired, it is easy to imagine there would have been no cohesive message with which to make sense of it.

Bernard of Chartres, in the twelfth century, had exclaimed: “We are dwarfs who have climbed on the shoulders of giants.”  He nonetheless concluded that, thus carried by the Ancients, he could “see farther than they could”.

Is it surprising that aspects of both libertarian thought and Austrian economics have advanced beyond Rothbard, in some cases calling into question some of his conclusions?  To expect otherwise is to defy both progress and logic.  Yet all of the critics are truly dwarfs – many not even able to admit that they are standing on the shoulders of a giant – when compared to this man.  For every possible criticism, there are 100 reasons to be grateful.

The errors or disagreements make the man even more remarkable.  Through these, we are reminded he was merely human.

As Barzun offers, this is why we cherish such pioneers.