The hater strikes again

Gerry Jackson says that he supports the free-market, but he spends a lot of time attacking other free-market writers as ignorant, arrogant, selfish, incompetent, dishonest, cowardly and a “bloody disgrace”. He then whinges about being insulted and ignored.

He claims that he is “Australia’s only Austrian economist” when in reality he is neither trained in economics and nor does he understand basic economics. He then mocks real economists by saying they are “self-appointed”.

In his latest hit-piece, Gerry attacks Des Moore, Sinclair Davison, Chris Berg, Ron Manners and my paper on the carbon tax (a paper he clearly didn’t understand). But that is to be expected, so we can continue to ignore the personal attacks in his hate-filled rants. But the article is interesting for how it exposes Gerry’s ignorance of basic economics.

Gerry complains that Australian monetary policy has kept our exchange rate too high, and this has lead to the demise of our manufacutoring base. He also complains that the monetary policy has been too inflationary. But the poor sod doesn’t seem to notice that these two complaints contradict each other.

The only way for the reserve bank to drive up the exchange rate with a floating currency is for them to run a contractionary monetary policy. That is the opposite of inflationary monetary policy. So Gerry is simultaneously complaining that the reserve bank is printing too much money and they aren’t printing enough money. The only consistent theme is that Gerry is complaining.

Of course, one of the reasons that Australia’s manufacturing is in relative decline is that the comparative advantage of different nations is changing. This happens consistently as economies evolve over time. As some developing countries are able to exploit their advantages in manufacturing, other countries (like Australia) are diversifying into new opportunities. No problem.

Sinclair was nice enough to explain this to Gerry… but Gerry shows his continuing confusion by dismissing the theory of comparative advantage as “conceived within the framework of a gold standard”, as if this somehow stops it from working in today’s environment. No Gerry. We still have specialisation, and we still have gains from trade. After that, Sinclair wisely decided to give Gerry the respect he deserved, and started ignoring him.

I should probably do the same. But while he is out there preaching bad economics and insulting good economists it is occasionally necessary to give him the slap-down he deserves.

108 thoughts on “The hater strikes again

  1. Don’t you think that economic policy has driven away some of our manufacturing base?

    Not only is corporate tax far too high but inappropriate deprecation policies relating to tax is one example.

  2. I would also add that high, fixed centrally guided wage rates have also worked to wreck our manufacturing base.

    I really don’t think we could simply say that comparative advantage has moved us away from making things as I really don’t believe that’s true.

    Inflexible work practices have played their part forcing us to specialize in things where we have an absolute advantage.

    Criticisms in this area shouldn’t be taken lightly.

  3. Gerry seems to spend too much time on petty politics of the “he said, she said, I said” variety. It would be better if he devoted column inches to fleshing out the concepts and ideas he is advocating. One of the unpolitical bits from the article is:-

    The process is fundamentally simple. There always exists at any point in time a structure of relative prices. When undisturbed by bad monetary policy these prices effectively allocate resources to their most valued uses. However, should a country’s currency become persistently overvalued its price structure will be distorted with the result that exports will become more expensive and imports cheaper.

    If the optimal value for our currency is X, whether X is 50 US cents or 40 milligrams of gold or whatever, then if our currency is consistently valued at 1.5 times X then eventually I think prices will simply adjust to the new level. Along the way however I have no doubt that our domestic industries will suffer. Some prices won’t adjust properly for decades. This is pretty much the whole point of seeking monetary stability. If Gerry is suggesting that a gold standard is a superior approach to monetary stability then he’ll get a very sympathetic ear from me.

    I don’t think it is helpful to say that these processes are “fundamentally simple”. It would be better to explain to people how these processes work. Or how he thinks they work.

  4. jc — government policy is certainly hurting some Australian producers, but Gerry is just talking about the monetary policy. He is saying that having excessively high exchange rates has hurt our manufacturing base. And then he’s complaining that monetary policy is too loose (ie contradicting himself). And then, after that atrocious economics, he’s spending half his article insulting good economists.

    Terje — do you think the government should print more money and less money at the same time? This issue of this post is not whether monetary policy & monetary stability matters. We all agree it does.

  5. Terje – do you think the government should print more money and less money at the same time?

    I presume this is a rhetorical question.

  6. It would be worth linking to Sinclair’s and my original paper (which Jackson does not do when he writes about it) just to get an idea of how far off his critique actually is.

    Thumping the Table: Key Questions for the Labor Party’s ‘Industry Policy’

    We wrote a paper about how Labor’s industry policy was ill-considered and not evidence based. Jackson would have preferred we wrote about the interaction between between monetary policy and manufacturing. Those are two different topics.

    Although it does beg a few questions: when I wrote about the Olympics last year, or poker machines last week, what would have Jackson preferred I wrote about?

  7. Why not just sic the Austrian School onto him? Can you call yourself anything you like, if you want to?

  8. Economic policy has driven away our manufacturing base. The PC and IC have wrote about this for years in reports and studies on Australia Direct Investment Abroad.

    Australia might face loss of comparative advantage in labour intensive, assembly line work – but not the manufacture of advanced machinery or high end consumer goods. Elaborately trasnformed manufactures have been a high earner of export revenue in recent years.

    We can conclude however that our tax and IR policies have driven some of this away.

    Income, corporate, payroll and other direct taxes and imposts to labour costs are a primary reason.

    Like John, I cannot fathom the contemperaneous lamentation of loose monetary policy an artifically high exchange rate.

  9. And the phrase of the day goes to Mark for “contemporaneous lamentation”… 🙂

    nicholas — Gerry sometimes does good Austrian economics. The fact that he makes a few mistakes here and there wouldn’t be much of an issue, except for the fact that he links it with spiteful attacks on other good free-market economists.

  10. Wouldn’t it be far better if we tried to get along, as we are after all on the same side I presume.

  11. JC – we are not all on the same side. Some people stb their enemies in the front, while others stab their enemies in the back. Your friend does the latter – he is not on our side.

  12. Terje:

    Who on he free market side of things do I give a hard time to?

    Sinc:

    You and John H are my friends too, you know 🙂

  13. John and I don’t agree on everything (he is often wrong 🙂 ) but we don’t go around slagging each other – we have open and frank debate in the comments threads.

  14. Yes of course, who could ever agree with John H on everything. That boggles the mind….:-)

  15. JC — I agree it would be better if we could all get along. I’m happy to treat Gerry with respect as soon as he agrees to do likewise with others.

    Unfortunately, without provocation he continues his personal attacks, and works to undermine free-market writers and the CIS/IPA.

  16. There, you see, John’s wrong again. 🙂 More seriously John, why are you bothering?

  17. The Austrian case against the carbon tax is well known. Some good papers/articles have been written by Robert P. Murphy of the Mises Institute on the topic (PhD New York University, a top 25 uni, in case anyone doubts his mathematical credentials).

    Gerry obviously isn’t the most polite or informed proponent of Austrian economics. So I agree he should be ignored.

    Plus, Gerry is a neo-con on foreign policy, which means he hasn’t understood some of the fundamental insights of Mises on war – but that’s another story. However it does undermine his argument that he’s Australia’s “only Austrian economist”. In fact, there are four others in Australia who are far more proficient than him: Frank Shostak, Chris Brown, Ben O’Neil and Chris Leithner.

  18. It’s not important whether a person calls themselves “Austrian” or not. Jason Soon, Oliver Hartwich, Jason Potts, Sinclair Davidson, Wolfgang Kasper, Alex Robson, myself and plenty of other free-market economists would cite an Austrian influence. The four authors you mention mainly publish at misis.org, which is nice, but is only one small sub-section of libertarian literature.

    I haven’t read Murphy’s critique of a carbon tax, but the standard free-market position against any tax is fairly obvious. But Gerry was very confused about the issue, as I showed in detail in the link above.

  19. Plus, Gerry is a neo-con on foreign policy, which means he hasn’t understood some of the fundamental insights of Mises on war – but that’s another story.

    Sukrit,

    Many of us in the libertarian movement are not [beep]

    The idea that you can’t support Austrian economics because [beep]

  20. Plus, Gerry is a neo-con on foreign policy, which means he hasn’t understood some of the fundamental insights of Mises on war

    In other words, if you don’t agree with everything Mises wrote, then you can’t describe yourself as Austrian. What horseshit, you [beep]

    but that’s another story. However it does undermine his argument that he’s Australia’s “only Austrian economist”.

    So, if you’re not a dogmatic non-interventionist, you can’t be an Austrian economist. What horseshit. You’ve confused Austrian economics with the other philosophical concerns shared by Austrian economists.

    Sukrit’s view is typical of the pop-Austrians whose exposure to Austrianism is entirely through the LvMI/Rothbard/Rockwell axis, so they naturally muddle everything together.

  21. John –

    If you get your work peer-reviewed by people who spent much of their life studying Austrian economics, and then you work in that tradition in your professional life, you’re going to be more of an Austrian economist than someone who merely “would cite an Austrian influence”.

    I’m thinking of people such as those at austrianeconomists.typepad.com, for example.

  22. I’m not sure what “more of an Austrian” means. Either you hold certain opinions or you don’t. What matters is the quality of your argument, not whether you hang around the right people.

    People — please skip the personal attacks. You can insult all you like over at catallaxy, but on the ALS blog we try to keep things a bit more friendly. Pretend you’re actually in the same room with the other person, and your mum is there too.

  23. Sukrit – we don’t want to spend our lives studying ‘austrian’ economics, we want to practice good economics.

  24. Essentially you can be an Austrian Economist, yet politically or as a “citizen” you make value judgments. For eg. You’re a Nazi supporter. You realise price and rent controls destroy, so you support Israel’s govt implementing them.

    That’s the oldschool Mises view of “value-free” Laissez Faire. Which largely fails and generally always loses against the moral and ethical arguments (Natural Law), in terms of effectiveness.

    Justice and Property Rights by Murray N. Rothbard
    – The Failure of Utilitarianism
    http://mises.org/books/egalitarianism.pdf

    Utilitarian Free-Market Economics by Murray N. Rothbard
    – C. Ludwig von Mises and “Value-Free” Laissez Faire
    http://mises.org/story/2647#c

    “Mises’s attempt to advocate laissez-faire while remaining value-free, by assuming that all of the advocates of government intervention will abandon their position once they learn of its consequences, falls completely to the ground.”

    “The point here is that Mises, not only as a praxeologist but even as a utilitarian liberal, can have no word of criticism against these statist measures once the majority of the public have taken their praxeological consequences into account and chosen them anyway on behalf of goals other than wealth and prosperity.”

    So call yourself whatever you want… just make it clear that when you go advocating war, the destruction of private property, the breaking the non aggression axiom (principle), an increase in theft, an increase in coercion, an increase in the size of the State (gang of thieves writ large) – which is only natural considering war is the biggest government program and the health of the State… just don’t call yourself a Libertarian while you do it. Because you’re not.

    At least have the guts to maintain the “neo-conservative” or “objectivist” mantel, no matter how tarnished (rightfully so) it is. Statist and socialist would also suffice.

    “War has all the characteristics of socialism most conservatives hate: Centralized power, state planning, false rationalism, restricted liberties, foolish optimism about intended results, and blindness to unintended secondary results.” – Joseph Sobran (1991)

    The Myth of National Defense: http://mises.org/etexts/defensemyth.pdf

  25. Michael — I agree that war is the lifeblood of the state, and that libertarians should be anti-war. However, I don’t think it’s helpful to play this game of comparing purity and then trying to kick people out of the club.

    Most libertarians have supported some wars of history. WW2 is a common one. The US war of independence is another. Personally, I question these wars (so I guess I pass your purity test) but I don’t think we should kick the vast majority of libertarians out of the “libertarian club”. All that would do is decrease the amount of people listening to us.

    Yes, some libertarians supported the invasion of Iraq. Not many in America… but quite a few in Australia. That was disappointing to me, and various friends have had to put up with my drunken rants on the issue. I think they were wrong. But once again, I can’t see the value of simply declaring them the enemy. That stops them from listening.

    My preferred strategy is to notice that libertarian ideas are in the minority and try to build a broad movement of people generally sympathetic to the idea. By having a broad movement, more people come to self-identify with libertarian ideas and thinking so we might be able to build some momentum, and the non-libertarian world sees a larger and more acceptable brand, which they might consider.

    We should of course go further and challenge libertarians to question their “blind spots”, and hopefully people who think about the issues will slowly become more libertarian over time.

    But insisting that everybody jump straight to anarchy (or minarchy) is simply a strategy for being ignored. We have to bring people to these ideas, not drive them away.

  26. I’m willing to work with anyone who wants to minimize the state, in their given area. And work to get them to question, their “blind spots” as you say, but I don’t suggest doing this to only libertarians, but non-libertarians aswell. i.e social freedoms (drug legalizers), free speech activists, no internet censorship, anti-tax groups, anti-compulsory unionism, anti-war protesters, health freedom groups (anti forced govt medication of the public – fluoride, iodine etc.)

    I see all these groups having a foot or so in the Liberty tent. Some labels more than others. The “purity” test over what constitutes Libertarianism is the non aggression axiom (principle) and Lockean / Rothbardian homesteading private property principles. There is often debate over small positions /intricacies, i.e FRB and what violates the principles.

    But UNJUST war clearly violates both, where ‘we’ are the aggressors. I don’t mind if anyone chooses to support war, just don’t call yourself a Libertarian while you do it. Don’t hold a gun to my head and demand I cough up extra money through taxation & inflation to pay for the war machine. Don’t pretend the state owns my body & that conscription is justified. Don’t lock me up for dissent. /general rant against warmonger stereotype. I’m not ‘kicking anyone out’ of the Liberty tent, and refusing to deal with them. Just the Libertarian label, for they violate both foundations of the philosophy.

    Again, not fussed if anyone is a non-archist either. First American revolution? Radicalism. It worked. (To the extent the status quo was unraveled)

    “When we think of our classical liberal forbears who were genuinely radical, who hated statism and the States of their day with a beautifully integrated passion: the Levellers, Patrick Henry, Tom Paine, Joseph Priestley, the Jacksonians, Richard Cobden, and on and on, a veritable roll call of the greats of the past. Tom Paine’s radical hatred of the State and statism was and is far more important to the cause of liberty than the fact that he never crossed the divide between laissez-faire and anarchism.” – http://tinyurl.com/9g57et

  27. Nearly all libertarians are willing to sacrifice the non-aggression principle at some stage. So that isn’t a useful guideline for who is “in” and who is “out” of some exclusive club. And the homesteading principle is quite marginal to the idea of libertarianism in an age when most ownership is acquired through trade or theft (not homesteading).

    A much better yardstick for being libertarian is whether you think the government should play a much smaller role in society.

    But if there was a strict non-aggression principle, then anybody opposed to FRB would clearly be a statist. They should be immediately rejected from libertarian circles. Opposition to FRB is much more statist than supporting an occasional war. So you are less libertarian than the war-mongers, and I hope you immediately stop calling yourself libertarian.

    I hope you see how thoroughly unhelpful this line of discussion is.

    By your exclusivist approach, not only are you rejecting most people who already self-identify with the label “libertarian”, but you make plenty of “pure” libertarians (like myself) want to abandon the phrase because it becomes associated with exclusivist arrogant pettiness.

    By taking an inclusive approach we are able to promote the general idea of a preference for voluntary society over government… and then once that idea is well appreciated it can be leveraged into many topics (such as being anti-war and pro-FRB). But by arrogantly dismissing people as “not in the club” you are making people less likely to listen.

    One problem here is that some people seem to think Rothbard IS libertarianism. He isn’t. He’s one guy among many. He did some good work, and some less good work. The libertarian movement is much bigger than Rothbard or Mises.

  28. “But if there was a strict non-aggression principle, then anybody opposed to FRB would clearly be a statist.”

    I would have to agree with that. Obviously, it violates the non aggression principle.

  29. FRB = fractional reserve banking. Basically, it involves people entering into voluntary contracts for how another person can use their money.

    Some strange people (including Bird, and some Austrians) think it should be banned because it makes financial markets more volatile. They are correct that it makes financial markets more volatile, but it also gives huge benefits such as massive efficiency gains in the allocation of capital… which is the prime driver of economic growth.

    But putting aside the consequentialist argument, FRB is “voluntary acts between consenting adults”, and they only way to stop it would be by violating the non-aggression principle.

  30. There is discussion around what constitutes a violation of the NAP and what doesn’t, what constitutes a violation of property rights and what doesn’t. In terms of FRB, stated above “There is often [a] debate over small positions /intricacies, i.e FRB and what violates the principles.” Pro-Frbers consider the NAP would be violated by those who oppose it and those who oppose it – consider it fraud and the state / private court is justified in protecting property rights.

    As I outlined, that’d be fine. Both sides have a disagreement about what is consistent with the NAP and property rights. There are several prominent Libertarians on either side, but they are both trying to apply Libertarian principles. I wouldn’t discount someone over issues like this.

    Supporting UNJUST war isn’t permissible though. Iraq, Vietnam etc. Hawks need to identify themselves as neo-conservatives, objectivists, whatever. (http://www.youtube.com/watch?v=-9ZY3K1zYiY) Eg. Glen Beck is not a Libertarian. He is a neocon, (http://www.youtube.com/watch?v=L6C6E6ayh4U) that tarnishes and propagates Libertarianism as a close cousin of conservatives and correlates Libertarianism to be “right wing”. It’s not. And it disarms Libertarians most effective tool: the ability to step above the frey and point out the left / right paradigm is fallacious, an illusion, elaborating that our positions contain no socialism at all. (left wing = international socialism, right wing = national socialism)

    Imperialism and Empire has nothing to do with Liberty. Mercantilism isn’t Capitalism. And I’d argue opposition to FRB isn’t statist at all. (Inherently inflationary, inflation is a hidden tax, taxation = theft) Lol, but this is probably not the right time nor place. 🙂

    What you consider ‘arrogant’, I consider sticking to the principles of the philosophy. The “Libertarian” label isn’t the ONLY one that contains Liberty related positions… and I don’t see why it’s such a big issue. I don’t see how pointing out to someone they should re-define the label they associate themselves with – because they are doing it wrong, somehow translates to “exclusion”. “Libertarianism” has a far better branding with the public than neo-conservativism does. And I’d understand the hawks being embarrased / reluctant about associating themselves with scum like Wolfowitz, Cheney, Rumsfield and all the baggage that comes with it. By allowing these folks (Sean Hannity, Glen Beck, Rush Limbaugh, Ann Coulter)** to adopt the label, as all of them have essentially tried since Obama has taken office, we are diluting what ‘we’ represent. The Republicans / neo-cons have began using extensive Libertarian rhetoric, words – never actions. By associating ourselves with them, it becomes less clear what ‘we’ stand for, what ‘we’ represent.

    ** American examples, which I think also apply here in Aus, just without the mass MSM punditry on a channel like Fox News, which is now the anti-status quo channel.

    Rothbard was a system builder, much like Mises (Austrian school, not Libertarian). Specifically, he refined and fused together:
    * natural law theory, using a basic Aristotelian or Randian approach;
    * the radical civil libertarianism of 19th century individualist-anarchists, especially Lysander Spooner and Benjamin Tucker;
    * the free market philosophy of Austrian economists, in particular Ludwig von Mises, into which he incorporated sweeping economic histories; and,
    * the foreign policy of the American Old ‘Right’ – that is, non-interventionism.

    “Someone acquainted only with these facts would never suspect that Rothbard was a principal founder of Cato and that the organization had been established to promote his distinctive variety of libertarianism.” 25 books, 1000’s of articles on it all. Hand in FEE.org, formation of LP party, journals, more journals and newsletters. He was a powerhouse, lol.

    He was called “Mr Libertarian” for a reason. No doubt there are other ‘stars’ who have had a great impact on bringing many people into the movement. Friedman and Rand come to mind. But the Chicago school leads to monetarism and Objectivism is a closed system, also applying LTV to IP.
    I welcome all to the Liberty movement, I just advocate calling a spade a spade.

    As for your point about homesteading property rights, this should clear things up a bit.

    “Consider the universal status of the ethic of liberty, and of the natural right of person and property that obtains under such an ethic.

    For every person, at any time or place, can be covered by the basic rules:
    • ownership of one’s own self,
    • ownership of the previously unused resources which one has occupied and transformed; and
    • ownership of all titles derived from that basic ownership —either through voluntary exchanges or voluntary gifts.

    These rules —which we might call the “rules of natural ownership”— can clearly be applied, and such ownership defended, regardless of the time or place, and regardless of the economic attainments of the society. It is impossible for any other social system to qualify as universal natural law; for if there is any coercive rule by one person or group over another (and all rule partakes of such hegemony), then it is impossible to apply the same rule for all; only a rulerless, purely libertarian world can fulfill the qualifications of natural rights and natural law, or, more important, can fulfill the conditions of a universal ethic for all mankind.” —Murray N. Rothbard in The Ethics of Liberty

    If there are property titles that have been stolen, the correct course would be reparations. (http://mises.org/multimedia/mp3/block/block10.mp3)

  31. “Of course, the real reason that Australia’s manufacturing is in relative decline is that the comparative advantage of different nations is changing.”

    This is not true at all John. The real reason is just as Gerry would have it. Its our crap socialist money system and our inept monetary policy. And particularly its the way our monetary system dovetails with company tax and depreciation. Bad monetary policy hurts all of our economy. But manufacturing is disproportionately hurt since depreciation, under inflationary conditions, overstates profits.

    Finally Cambria remembers somethin he has been told:

    “Don’t you think that economic policy has driven away some of our manufacturing base?

    Not only is corporate tax far too high but inappropriate deprecation policies relating to tax is one example.”

    Cambria is right. I could set up a mathematical scenario which shows this. Wherever heavy equipment being depreciated over long periods is concerned, then our monetary/tax policy disproportionately buggers these people. And this would be the case for mining as well but we just happen to have all these resources to our mining wasn’t about to be destroyed.

    Gerry Jackson is right in all respects on this matter. You just seemed determined not to learn the material. And of course Sinclair is ignorant.

    Our Monetary/Fiscal mix would hurt all of our economy no matter what we do. But if we wanted to make the minimal change so that it didn’t disproportionately bugger manufacturing that would be to allow depreciation expensing of equipment in the year of the companies choosing.

    But thats mostly dealing with the symptoms. Its the company tax and the socialist monetary system that need to go. Or be reformed in the meantime. But our economists, including you and Sinclair, refuse to learn and publicise this gear.

    Once again this has got absolutely nothing whatsoever to do with comparative advantage. Nothing at all. You are just going to learn about comparative advantage over again. Because the tribal consensus of the Australian economists is wrong. You cannot argue that case. You cannot make a case of it, that comparative advantage supports the destruction of manufacturing. This is just Treasury horseshit and ignorance.

    Lets see them make that case if they don’t agree that they are totally ignorant fools. Comparative advantage does not arbitrarily work on a sector by sector basis. Where did you guys get that idea from?

    Well I know where you got it from. It was an historical reaction to us losing a lot of manufacturing after the tariffs came down. We could have had the tariffs come down and GAINED a lot of manufacturing. But this didn’t happen on the grounds of the rest of our policy mix. So in reaction to this, in their ignorance, Australian economists developed this unscientific and wrong view about comparative advantage.

    [beep]

    [JOHN: It seems likely to be that Chodorov = Bird… in which case he may (with little provocation) be placed in moderation]

  32. No thats not true at all Terje. And you must get your act together as well.

    “If the optimal value for our currency is X, whether X is 50 US cents or 40 milligrams of gold or whatever, then if our currency is consistently valued at 1.5 times X then eventually I think prices will simply adjust to the new level.”

    You aren’t seriously insinuating that Jackson doesn’t understand how floating currencies are supposed to adjust to trade imbalances do you Terje?

    What is the point you are groping with here? Clearly you have no clue as to what Jackson is on about. And its not helpful to then bring this point about comparative advantage that our economists have totally buggered up and to just treat it like its a tribal issue to do with the gold standard.

    Jackson is dealing with one aspect of why our useless monetary policy causes these problems. He’s relating matters to the history of the gold standard. Since our fractional fiat system is highly artificial, and has nothing to do with free enterprise. And is in fact at least as artifical as a cap and kill carbon trading edifice……

    …… well to understand how we can expect it to work, it makes sense to understand a more natural monetary system. Under gold if the banks in one country went through a period of rampant bank-cash-pyramiding the first problem that would develop wasn’t inflation. Rather the first problem would be falling exports and surging imports. Since most goods flowing internationally tend to manufactured goods this is bank-cash-racketeering is an immediate blow to your manufacturers. Thats only one way in which manufacturing is damaged by inept monetary policy, since the fractional-fiat system does tend to mimic the gold standard in some ways.

    And its a valid point he makes. There are many more ways in which our policy mix is in the process of pauperising us. But Gerry is focusing on this aspect of things and he’s right to and you ought to try and understand where he is coming from.

  33. How does the edifice of compulsion-cash and bank-cash-pyramiding damage our manufacturing. Let me count the ways for yea they are legion. But elsewhere. Not here.

    Those countries with lower effective reserve asset ratios will be damaged the most all other things being equal. So the English-Speaking-World has been damaged by this system more. Because we were the people who got rid of our reserve-asset-ratio in its entirety.

    You could go the other way one supposes. Where a Defacto reserve asset ratio is maintained by sheer terror in the banking community. This is how you and Humphreys seem to want to do things, in violation of clarity in property rights.

    But nonetheless one must give that way of doing things its due. But the fact is that this way of doing things doesn’t exist. Ergo the sort of generalisations one makes on the basis of economic models that imply monetary stability DO NOT HOLD when you take the RAR (defacto or enforced) away.

    So here we have a whole lot of people who have forgotten the premises of the models they’ve learned. Have forgotten that these are simplified models. And are dragging in a perverted version of comparative advantage to justify this slow-moving business holocaust we are experiencing where we lose the productive basis of our wealth.

    We are losing our relative manufacturing POWER and EFFICACY not because of comparative advantage but because of the haemoraging, by multiple wounds, that our crap currency/tax system, inflicts upon us.

  34. Do a google search of Gerard Jackson and Corporate tax and what do you find? Do a google search of Sinclair Davidson and corporate tax and what do you find?

    I think I’ve done a bit more on the issue than has Gerry.

    I should also say I checked his references on the latest rant, and they don’t support his argument – especially the Schumpeter reference.

  35. “FRB = fractional reserve banking. Basically, it involves people entering into voluntary contracts for how another person can use their money.”

    “FRB is “voluntary acts between consenting adults”, and they only way to stop it would be by violating the non-aggression principle.”

    John,

    Money is property. Individual property rights supercedes contract. Okay.

    1. Individual property rights
    2. Contract

    Bank management is either committing fraud against the depositor of demand deposits (this does not describe a loan transaction where the bank simply acts as a direct contractual intermediary and does not entail the obligation of making the creditor whole on demand or selling extra notes that are sold as legitimate titles, immediately redeemable but are not) or loan receiver being sold a quantity of notes that were all sold as fully redeemable titles to specific quantities of property on demand, but were nothing more than paper with false claims written in ink. Recording phony inventory quantities on balance sheet statements would also be committing fraud against creditors and stockholders.

    Titles are intrinsically worthless 1’s and 0’s in computers or on paper. The real business of money and banking transactions is what is physically where and who has legitimate possession of what.

    Trust me, in free society people don’t just trade worthless promises for real goods and services with out fraud being part of the equation. We do it now because of past connections to real money and being subject (and acclimated) to systemic tyranny and fraud.

    Fraud should be ‘banned’ just like rape or physical assault and whatever the precise form the act of justice takes in real everyday life, it is in defense of the non-aggression axiom, not a violation.

    “but it [FRB banking] also gives huge benefits such as massive efficiency gains in the allocation of capital… which is the prime driver of economic growth.”

    This is bogus. Fake money title creation only distorts prices. Money is not capital and distributing more bogus money titles does not create capital or enhance it’s placement in the structure of production.

  36. The idea that individual property rights supersede contract is wrong. They both imply the other. You can only enter contracts regarding your own property. And if you freely own property, then you are allowed to enter contracts. They go together.

    Banks clearly state that you are giving them use of your money, and they clearly state that they will use that money to provide other loans. Not only is this written in their contracts, it is also “common knowledge”.

    Basically, banks are doing exactly the same as fixed-return managed fund operators, except that banks offer the extra service of easy access to getting your money back where possible. That’s a great service. I’m thankful they have this service. I don’t think the government should use coercion to prevent this service.

    There is no fraud involved. Everybody enters the contracts voluntarily, using only property that they have the right to use.

    Consider this example… if I give $10 to Sinclair and say “here’s $10… use it as you like… I will ask for it back at some stage (anytime) and I hope you can give it to me, plus a little bit of interest. Is that OK?” and he says “yes”, then what should the government do? Jail us?

    If Sinclair then takes the $10 and walks down the street… and then sees Terje, and Terje says, “hey sincs, can I borrow $10 and I’ll give you $11 back next week” and sincs says “yes”, then what should the government do? Jail them?

    Of course, the government should do nothing. There has been no fraud. There has been no violence. There has simply been voluntary contracts between adults dealing only with their own property. But the above example is exactly fractional-reserve banking.

    If you want the government to jail me or sincs or terje in the above example then you want a statist, totalitarian, coercive action. Boo. Hiss.

    As for FRB improving the efficiency of financial allocation, you miss the point. The benefit does not come from the increase in the broad money stock (nobody has ever said this, so you’re arguing against a strawman). The benefit comes from allowing matching between savers and investors with different time & liquidity preferences. This was a remarkable and hugely beneficial financial innovation which significantly increased the amount of investment possible within any given money stock.

    Consider this… if you ban FRB, then deposits at the bank will be kept in a safe making zero return. The bank will charge you a fee for holding your money, probably quite high. That sucks.

    And if you want to borrow money, you can only borrow money from somebody with the exact inverse liquidity preference (ie they can give up $100 for a year and you need the same amount for the same time). That is quite rare. Consequently, the supply of loanable funds would significantly decrease, even if the money stock remained constant. This would drive up real interest rates significantly, leading to much less investment and much less capital. And poverty.

    So you want to use a coercive government program to over-ride voluntary contracts and create poverty. Sounds like socialism.

    [I’ve put Chodorov in moderation]

  37. Damian,

    The US had a free banking period. Private banks lent out money fractionally. They had a 40% reserve requirement but were also on the gold standard (as opposed to the gold backed, fiat system we have now).

    People like Rothbard would have opposed this. This was the US’s golden age of capitalism.

    This issue has been done to death.

    Look at the royal caning Bird copped here:

    http://www.catallaxyfiles.com/blog/?p=3205

    From that debate, I challenge you to show me why the following is wrong:

    *Assume a generous definition of money – broadly as possible.

    MV = PY

    Let’s look at MV first.

    In each round of money creation, M can only be relatively greater than V if the reserve ratio falls below zero.

    This can only happen if there is persistent disequilibrium in the market for currency.

    Now, let’s look at PY.

    P can only rise faster than Y if the continuing rounds of deposits are not put into viable projects, or the price signal gets distorted by continuing money market disequilibria, or fiscal disruption.

    Under the broadest defintion of money, V always rises proportionally higher than M, and so fractional banking is not inflationary.

    MV = PY

    V>M if r>0 (r is the credit multiplier)

    r –>0 in the extreme case.

    That is, P can only rise faster than Y if Say’s law breaks down or Sm > Dm.

    V>M as long as Say’s law holds. What this means is that the credit creation process is constrained by Say’s law so that if the monetary equilibra is maintained and fiscal largesse doesn’t significantly alter prices and the loanable funds market, that each round of credit creation can only ever continue if it is the result of previous productive economic activity. As r>0, then V must be > M.

    There are two killer arguments against 100% backing:

    1. Free banking constrains issue and tends to zero inflation due to the loan book constraint (on top of the competitive issue restraints).

    2. Fractional banking is not inflationary without prolonged disequilibria and overssuply of the currency base through manipulation of interest rates by a central authority (or breaking down Say’s law for the same reason or continuing fiscal disruption, both distorting prices and resource allocation (from above).*

    Ludwig von Mises’ take is below.

    Human Action

    Ch XVII. INDIRECT EXCHANGE
    Sec 12. The Limitation on the Issuance of Fiduciary Media

    ” In carrying the idea implied in the Currency Theory to its full logical conclusion, one could suggest that all banks be forced by law to keep against the total amount of money-substitutes (banknotes plus demand deposits) a 100 per cent money reserve. This is the core of Professor Irving Fisher’s 100 per cent plan. But Professor Fisher combined his plan with his proposals concerning the adoption of an [p. 443] index-number standard. It has been pointed out already why such a scheme is illusory and tantamount to open approval of the government’s power to manipulate purchasing power according to the appetites of powerful pressure groups. ”

    ” 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.”

    ” It is extremely difficult for our contemporaries to conceive of the conditions of free banking because they take government interference with banking for granted and as necessary. However, one must remember that this government interference was based on the erroneous assumption that credit expansion is a proper means of lowering the rate of interest permanently and without harm to anybody but the callous capitalists. The governments interfered precisely because they knew that free banking keeps credit expansion within narrow limits.”

  38. Obviously property rights supersede contract. Since one can only enter into contracts with ones own property. Which is impossible if this property is not defined and under the rightful possession of one entity.

    Property rights also supersede the non-aggression principle. Since it is impossible to tell who the aggressor is without property rights.

    So no luck with that analysis Humphreys.

  39. Semantics. Sigh. I suggest that property rights and contract go together. You can’t have one without the other. Whether you want to refer to this as “supersede” or “simultaneous” isn’t the point… we agree they’re both necessary parts of free association.

    Property under an FRB system is well “defined and under the rightful possession of one entity” (as Bird puts it). The money-holder has given control of the money to the bank via a voluntary contract, and the bank has used the money, which they had the right to do because of the above mentioned voluntary contract. Simple.

  40. “The idea that individual property rights supersede contract is wrong. They both imply the other. You can only enter contracts regarding your own property. And if you freely own property, then you are allowed to enter contracts. They go together.”

    This statement is roundabout, circular, semantical word games.

    No.1 is ownership of your self, your physical mind and being. Contracts commissioned to aggressively kill or other contracts that violate someone else’s individual right of self ownership are illegitimate.

    “Banks clearly state that you are giving them use of your money, and they clearly state that they will use that money to provide other loans. Not only is this written in their contracts, it is also “common knowledge”.”

    Are we talking individual property rights and contract theory or how the corrupted system currently operates?

    “Basically, banks are doing exactly the same as fixed-return managed fund operators, except that banks offer the extra service of easy access to getting your money back where possible. That’s a great service. I’m thankful they have this service. I don’t think the government should use coercion to prevent this service.”

    What relevance is this to the theoretical issue of rights? Who cares what service you like.

    “There is no fraud involved. Everybody enters the contracts voluntarily, using only property that they have the right to use.

    Consider this example… if I give $10 to Sinclair and say “here’s $10… use it as you like… I will ask for it back at some stage (anytime) and I hope you can give it to me, plus a little bit of interest. Is that OK?” and he says “yes”, then what should the government do? Jail us?”

    Thats not a bank transaction that involves multiple parties with conflicting claims to specific quantities of property in a bank holding facility.

    “If Sinclair then takes the $10 and walks down the street… and then sees Terje, and Terje says, “hey sincs, can I borrow $10 and I’ll give you $11 back next week” and sincs says “yes”, then what should the government do? Jail them?”

    No extra fake claims to property have arisen in this scenario and it is in no way relevant to the points made regarding the issue of FRB and individual property rights.

    “Of course, the government should do nothing. There has been no fraud. There has been no violence. There has simply been voluntary contracts between adults dealing only with their own property. But the above example is exactly fractional-reserve banking.

    If you want the government to jail me or sincs or terje in the above example then you want a statist, totalitarian, coercive action. Boo. Hiss.”

    Again, nothing to do with fake property titles being sold without the underlying property in possession.

    “The benefit comes from allowing matching between savers and investors with different time & liquidity preferences. This was a remarkable and hugely beneficial financial innovation which significantly increased the amount of investment possible within any given money stock.”

    This is what loan transactions not demand deposit transactions are for. This is when claim to the underlying property has been wholly transferred until maturity. Banking is vital as a financial intermediary. Fractional reserve banking is a long practiced fraudulent corruption of this function and in no way alters investment in a positive way.

    “Consider this… if you ban FRB, then deposits at the bank will be kept in a safe making zero return. The bank will charge you a fee for holding your money, probably quite high. That sucks.”

    Money in and of itself does not make ‘a return’, it’s just a medium of exchange. Money itself does not exert any special magical properties on the real world. Money held of the market in aggregate (in vaults) influences the purchasing power of the money stock being actively used bidding in the markets. Holding larger quantities of money of the market simply juices the purchasing power of the stock in pursuit of goods.

    “And if you want to borrow money, you can only borrow money from somebody with the exact inverse liquidity preference (ie they can give up $100 for a year and you need the same amount for the same time).”

    Are you under the impression that what was written in the previous post was a call to abolish banking? I don’t get it.

    THE ISSUE IS ILLEGITEMATE PHONY PROPERTY TITLES THAT ARISE IN THE PROCESS OF FRACTIANAL RESERVE BANKING PRACTICES.

    That is quite rare. Consequently, the supply of loanable funds would significantly decrease, even if the money stock remained constant. This would drive up real interest rates significantly, leading to much less investment and much less capital. And poverty.

    So you want to use a coercive government program to over-ride voluntary contracts and create poverty. Sounds like socialism.”

    To imply that pointing out the legal illegitimacy of FRB is any different to pointing out the illegitimacy of murder or slavery in a free society is nonsense.
    I put forth basic legal philosophy of property and contract in relation to money, banking and accounting practices. The matter of the state or other entities in a completely free society defending this principle was never addressed. Murder is universally wrong, theft and fraud is universally wrong. .

  41. Property rights are part of an unwritten social contract, so you could argue that the social contract came first. However, both are important.
    And, as I mentioned before on a similar subject, how can you stop people inventing factional banking? It might, or might not, be immoral, but a libertarian society should never have laws against it, even if it didn’t permit any government services to offer such services. Morality is not the same as legality. A libertarian morality would be your personal code of ethics, and laws would be minimum standards of behaviour enforced over property by the owner of the property on other people.

  42. Damian,

    Would you care to read above where I have shown that mathematically, fractional banking doesn’t create inflation, and quoting of Mises’ support of free banking?

  43. Mark,

    It was a statement of legal rights to property titles.

    The systemic effect of this can theoretically be both an increase or decrease in the volume of money titles in existence and this in itself matters little besides the distorted pattern of distribution of spending with the tendency for asset pile ons (boom times) and altered bidding practices.

    BANKS SYSTEMICALLY BORROWING SHORT AND LENDING LONG is one perversity that contributes to the instability of rapidly fluctuating quantities of money titles and ensuing dislocations.

    I’m a free banker that believes in ultimate clarity in property titles. The assertion that this implies philosophical support for a state is garbage.

  44. “Property rights are part of an unwritten social contract, so you could argue that the social contract came first. However, both are important.”

    Contract is voluntary human to human interaction. “Social contract” is your inner abstract speculative philosophical enquiry, it is not real world human action where legal theory being discussed is concerned.

    “And, as I mentioned before on a similar subject, how can you stop people inventing factional banking?”

    Napalm, lot’s of napalm. Seriously.

    “It might, or might not, be immoral, but a libertarian society should never have laws against it”

    “A libertarian morality would be your personal code of ethics, and laws would be minimum standards of behaviour enforced over property by the owner of the property on other people.”

    Selling property titles that clearly states a right to a claim on property on demand without actually having legal possession of all the property claimed to be immediately available on demand is fraud, a derivative of theft. This entitles the defrauded party with the appropriate supporting evidence the right to restitution etc. One doesn’t need to be a science fiction writer in order to state basic legal principles that through an on going intellectual process of reasoning should guide human practices in the future whatever form they take.

  45. “Selling property titles that clearly states a right to a claim on property on demand without actually having legal possession of all the property claimed to be immediately available on demand is fraud, a derivative of theft.”

    No, that’s BS. You are just making this up. Buyers can forestall payment, sellers can forestall delivery.

    Why do you want to put the local Coca Cola delivery franchisee in gaol?

  46. ““And, as I mentioned before on a similar subject, how can you stop people inventing factional banking?”

    Napalm, lot’s of napalm. Seriously.”

    Really, I hope you don’t think that and it makes your position look ridiculous.

  47. “No, that’s BS. You are just making this up. Buyers can forestall payment, sellers can forestall delivery.

    Why do you want to put the local Coca Cola delivery franchisee in gaol?”

    Different contract, different product. And by the way are you saying nobody should have the right to legal recourse should contract conditions not be met?

    PAYABLE ON DEMAND! is that not clear. If I sell you a piece of paper stating legal title to a specific quantity of property I claim to hold (why else would I sell you a little piece of paper with some ink on it?) and also sell the exact same claim to another party, thats Madoff 101. If I sell claims payable on demand for 150 items of property and I only really have 100 items of property thats fraud.
    Bankruptcy is the ultimate discovery of the extent a bank engages in this fraud.

  48. So Damian, your entire complaint is that banks say “payable on demand”. If they replaced that with “payable on demand when possible, but we can’t 100% guarantee that it will always be here” then your concerns would be solved.

    Wow — what an important change. Earth-shattering. 🙂

    If there is a legal contract that requires the bank to always give money, and they fail, then the depositor could sue. Though I think you’ll find that their contract covers for that possibility, and so there would be no breach.

    I agree your side-track on “contracts v property” is irrelevant semantics. Hopefully you’ll stop bringing it up.

    I’m glad you wouldn’t use the government against Terje, Sinc & I if we did fractional-reserve banking between us (as per my example). You should extend your tolerance to all other people, and allow everybody to engage in FR-banking. What I outlined was exactly what banks do.

    I don’t think you understand the liquidity matching role of banks, which you want to make illegal. You say that loans are good. Yes they are. What banks do is match money from people with a high liquidity preference with borrowers with who need a long-term loan. You want to ban this. Effectively, you want to ban banking and hugely drive down investment. Boo. Hiss.

    As I pointed out (and you mockingly ignored) banks do broadly the same thing as a fixed-interest managed fund operator. Do you want to bad that too? Get the govt to throw all those people in jail too?

    You also totally fail to address my point about paying a fee to keep money in a vault. Of course money on its own doesn’t make a return. It is invested in business and those businesses make a return. But you won’t allow that (you insist that deposits are kept in a vault at the bank) which means you can’t get interest, and instead have to pay a significant fee for vault-services.

    I agree that murder, theft and fraud are all wrong. But it is a simple fact that a voluntary contract to shift the control of money and match different liquidity preferences is not murder, theft or fraud. It is called “banking”, one of the greatest innovations of capitalism. And you want the government to ban this voluntary behaviour.

  49. What is it about fractional that sends nominally sane people insane? Bird of course is an obvious exception seeing he’s basically unhinged about most things.

    I really don’t get it. And they all seem to have an issue with interbank lending too which is regarded by some as possibly equal or worse than the nazi death camps.

  50. “So Damian, your entire complaint is that banks say “payable on demand”.”

    Its not a ‘complaint’, it’s just statement of fact about the nature of a banknote as a financial instrument and it’s what makes a banknote a banknote and not a long term bond with a low credit rating or anything else.

    “If they replaced that with “payable on demand when possible, but we can’t 100% guarantee that it will always be here”

    Again, a banknote is a banknote. It says payable on demand because thats what it is. Can we at least agree on reality.

    “Wow — what an important change. Earth-shattering.”

    Yes, with regard to the nature of the thing being discussed here it is ‘an important change’.

    “I agree your side-track on “contracts v property” is irrelevant semantics. Hopefully you’ll stop bringing it up.”

    Look, contracts can not overrule individual property rights. Think of buying and selling slaves. These contracts, although they are agreements between two consenting adults and look like contracts are illegitimate violations of individual property rights.

    “I’m glad you wouldn’t use the government against Terje, Sinc & I if we did fractional-reserve banking between us (as per my example). You should extend your tolerance to all other people, and allow everybody to engage in FR-banking. What I outlined was exactly what banks do.”

    The whole scenario you outlined is not relevant. Because first of all what are those $ units even claims to? Your talking about fiat money as if it were intrinsically real property in and of itself that would have market exchange value absent the institutions of tyranny in place in order to make it function to the extent that it currently does as a medium of exchange . Fiat ‘money’ has nothing to the legal analysis of banknotes which by their nature are claims on real underlying property.

    “What banks do is match money from people with a high liquidity preference with borrowers with who need a long-term loan. You want to ban this. Effectively, you want to ban banking and hugely drive down investment. Boo. Hiss.”

    Again the distinction between a demand deposit and an interest bearing deposit where you don’t have access to the principle until maturity is crucial here. By the way, banks are important but they aren’t a the only singular mechanism whereby investment funds move throughout an economy.

    “As I pointed out (and you mockingly ignored) banks do broadly the same thing as a fixed-interest managed fund operator. Do you want to bad that too? Get the govt to throw all those people in jail too?”

    As a “broadly the same thing” example: To the extent that fund managers deal in counterfeit bonds without any underlying collateral (massive problem in the us right now) these people should meet justice whatever the form and in whatever political society it takes place in.

    “You also totally fail to address my point about paying a fee to keep money in a vault. Of course money on its own doesn’t make a return. It is invested in business and those businesses make a return. But you won’t allow that (you insist that deposits are kept in a vault at the bank) which means you can’t get interest, and instead have to pay a significant fee for vault-services.”

    Your own personal liquidity preference will determine how much if any money you own is held in a bank vault. I for example at present try to avoid the banking system to the greatest extent as possible and hold gold in my physical possession as apposed to demand deposits. The bank is providing a service of conveniently safekeeping money. They can charge whatever rate they like bearing in mind it’s a competative market

    Businesses (receiving loans etc) operate, by using the purchasing power the market assigns the money lent to them. The more money held of the market in aggregate (vaults etc) just raises the purchasing power of every unit being actively deployed in spending. It has no negative effect on total investment. It’s just a relative re-pricing of money against the goods it buys.

    “But it is a simple fact that a voluntary contract to shift the control of money”

    That is a loan transaction where the principle is not available till maturity. It is not a demand deposit where money is held for immediate access.

    “And you want the government to ban this voluntary behaviour.”

    Again, you insinuate a support of the state when talking about fundamental legal principles of property and contract. I have not specifically mentioned government or any other means of defending this legal principle.

  51. Modern banknotes are not a title to anything. The market values them according to their utility and scarcity. For paying tax bills they are very useful.

    Modern bank accounts have terms and conditions that are material to any contract. Those for my bank (St.George)are quite explicit in puting limits on their ability, or responsibility or liability or however you want to put it, to pay on demand. Basically they say they won’t if they can’t but they’ll try to avoid that problem. When you open an account with them you have to agree to the terms. However perhaps Damian has never read the fine print.

    Historically bank notes (eg pre 1910 in Australia) did promise to pay gold coin on demand. However even that does not necessitate a huge stock of gold coin matching all notes on issue. It just requires that they honor the commitment as and when it falls due. However such notes are illegal today so Damian can’t really complain about them either.

  52. Damian — you are making absolutely no sense. Before you continue, please take some serious time to think about these issues carefully.

    The definition of a banknote is absolutely irrelevant. The issue is, can one person give another person use of money through a voluntary contract? You have said “yes” when it is me, terje & sinc. But you irrationally say “no” when a bank is involved. It just makes no sense.

    I never said contracts can over-rule individual property rights. I have right to my money. I am allowed to enter into a voluntary contract with a bank to hold that money and use as it wants. The end.

    The example I gave with me, sinc & terje is exactly what fractional-reserve banking. It’s not just similar. Not an analogy. It is identical.

    You then introduce a random and irrelevant discussion of fiat money. Fine, it’s not backed by assets. But that’s entirely irrelevant to the current discussion. You can have FR-banking on fiat or asset-backed currency so your side-track is irrelevant and simply a way for you to avoid the blatant fact that you want to ban voluntary contracts based on real property rights (as per my terje/sinc/me example).

    Your weird fixation on the words “demand deposits” defies intelligent thought. Throw the words away. Semantics are obviously confusing you. Think about this sentence very carefully: should it be legal for me to go into a contract that gives you control of my money, but for me to ask to have access quickly whenever possible. Don’t dodge the question. Don’t create irrelevant side-tracks. Answer the simple question. Because that is exactly what FR-banking involves.

    I never said banks were the only mechanism where investment funds move through an economy. That another entirely irrelevant side-track. Please stop that.

    You again fail to address the issue that you want to massively decrease the matching between people with different liquidity preferences, and therefore you want to massively drive down investment. You again fail to understand the point that banks are simply “high liquidity managed funds”. A less generous person that myself would conclude you don’t actually understand these points.

    There are no “counterfeit bonds” in managed funds or FR-banks. You are just making up words. Banks cover their liabilities with assets. Your complaint is simply that the liabilities and assets don’t have the same liquidity. Yawn. Of course they don’t! The very thing that banks do is match money from people with different liquidity/time preferences! I don’t mean to be rude, but it looks like you don’t understand the very basics of what “banking” means.

    You finally admit that banks will become nothing more than “storage service” companies in your distopia, and say they can charge whatever they like. I agree a storage company can charge whatever it likes. But I don’t think you have understood the consequences from this. For people holding money in the storage company, their money will be eaten away by fees. Negative interest rates on “bank” deposits! That is economic vandalism.

    You then try to lecture me on how monetary economics works. lol. Yes, yes… we all know that MV = PY. Very basic stuff. but we’re not talking about the effect of changing monetary aggregates. That’s a different discussion for a different day. You again totally fail to address the real point that if you get the government to ban liquidity matching (ie what banks do, all voluntarily) then you will significantly decrease the supply of loanable funds. This isn’t an open question. It’s a fact. A huge effect on investment. Again — economic vandalism.

  53. Damian – If nothing else, answer this simple question. I want to start the following business. Should it be legal.

    People lend me their money. I offer to pay interest on the money they lend. I tell them that I will use their money to invest in other things. I tell them that I won’t always have their money with me… but if they ever want it I will try to get it to them as quickly as possible.

    That is it. This is the grand evil conspiracy that you want banned. If you would allow the above, then you have just allowed FR-banking.

  54. I have a few basic questions –

    1.Do banks explicitly state in their T&C to new account holders that they may not be able to always give account holders their money upon request? I admit I have never checked myself.

    2. If they do make the above clear then would this not then also entitle banks to freeze accounts in the case of a bank run or for that for that matter any other reason they might decide on? Obviously it is not going to be in banks interests to be doing this kind of thing often but do they have the contractual right to do this?

    3. Are there any banks that operate on a 100% reserve guarantee? Obviously the selling point to account holders would be security and on-demand service rather than interest. Not sure how a bank could do this though if they are in the loan business.

    4. Is it conclusive that FRB does not produce inflation? Would appreciate a “for dummies” answer on this if possible!

    Thanks in advance for any comments

  55. Jaz,

    In response to your 4., I suggest you reread my argument at #40 and actually read the whole thread that was on catallaxy.

    Banks do not create money out of thin air. Deposits are made first, as a result of productive activitiy or money being drawn down from elsewhere. Even under the broadest definition of money, thr increase in output will always equal the increase in money. The supply of money meets the demand for money and there is no inflation.

    Expansionary fiscal policy breaks down Say’s law and the deposit making process does not follow the above example. The supply of base money in excess of money demand also creates inflation.

    Fractional banking does not.

  56. “People lend me their money. I offer to pay interest on the money they lend. I tell them that I will use their money to invest in other things. I tell them that I won’t always have their money with me… but if they ever want it I will try to get it to them as quickly as possible.”

    1. People LEND me their money.
    2. I tell them that I will USE their money to invest in other things
    3. I TELL THEM that I won’t always have their money with me

    This is a LOAN transaction, not a demand deposit, and it only goes as far as two parties.

    It does not elucidate a complete fractional banking scenario of multiple demand deposits, and receivers of loans with NEWLY CREATED bank notes stipulating that they are a title to a specific quantity of property at the bank payable on demand. When the bank doesn’t have the property held in it’s possession whilst issuing the new notes it is fraud.

    Illegality arises when the bank continues to create new property titles (bank notes) to non existent property through loan operations. By the continual creation of new banknotes, either owners of demand deposits, or loan receivers of new bank notes from loan transactions are being defrauded.

    The spiel about fiat was because thats what your example was. In your example you talked about money in todays illegitimate sense of just dollar units enforced by a regime of government tyranny with no real monetary backing that people demand in free society which is what I’m discussing here.

    Counterfeit securities that claimed to be collateralize with real estate were sold and then on sold from wall street during the run up to the housing bust. Google it.

    “You finally admit that banks will become nothing more than “storage service” companies in your distopia”

    On the demand deposit side of banking operations ‘storage service’ is correct. This does not account for legitimate loan transactions essentially directly from lender to receiver with the bank collecting a fee as intermediary. All loans using banknotes are then legitimate and the property stipulated on the bank note is held at the bank. The lender then has no ability to withdraw and spend the money which he committed to lend until maturity.

    This is not dystopic, it’s legally sound business/accounting practices.

  57. Damian:

    Get a safety deposit box and leave your money there. Seriously we’re not objecting. We’ll just keep using banks.

  58. “Damian:

    Get a safety deposit box and leave your money there. Seriously we’re not objecting. We’ll just keep using banks.”

    Who’s ‘we’?

  59. Jaz — good questions.

    1. I think Terje answered your first point. The issue has gone to court previously, and they found that the banks are acting consistently with their obligations when they offer deposited money for loans. And more to the point… even if the current contracts weren’t clear, the BIG CONSEQUENCE of this is that banks need to slightly change the wording in their contract documents, which nobody reads anyway. Wow. I mean really… does anybody think changing a few words would radically change the monetary system or the dynamics of the economy? But as Terje pointed out, it’s a moot point anyway.

    2. Yes, banks have the ability to freeze accounts. As you say, it’s obviously not in their interest. The bank would still have a liability with the depositors, and in the case of bankruptcy, the depositors have first call on the assets of the bank.

    3. Most banks have the “100% reserve option”. They’re called “vaults”. They are also available from the PO Box and other institutions. This is not what is generally meant by “banking”, though this is exactly what the anti-FR crowd want for “banking”. Obviously, this money can’t be used for loans.

    4. Inflation can exist under any monetary system. Inflation is caused by the amount of broad money growing quicker than GDP. To simplify a bit, broad money consists of base money * credit multiplier * velocity. The anti-FR crowd want to abolish credit, which would remove the credit multiplier. You could still get inflation from an excessive increase in base money or the velocity.

    The behaviour of the credit multiplier is too complex to go into now… but it is extremely important to the banking system and suffice to say most anti-FR people have no idea how it works. All they can say is “fraud… ah… fraud… ah… inflation… ah… fiat… ah… help”. Which isn’t an argument. It is entirely caused entirely by voluntary contracts, so the only way to remove it is to use violence/coercion. Boo. Hiss.

    Hope that helps.

  60. Damian — when you give money to a bank, you are lending them your money (as with my example). They do tell you that they will use your money to invest in other things (though if you didn’t already know that, you must be on a different planet), and banks do tell you that they won’t always have your money (though, again, if you didn’t already know that, you must be on a different planet).

    So my example was exactly FR-banking.

    So you have only two options. Ban random voluntary contracts for no good reason. Or allow voluntary contracts, including FR-banking. Those are the only two options. Pick your side — freedom or statism.

    You are hung up on the semantics of “demand deposit”. Just put the words out of your mind. They are confusing you.

    You say that the example doesn’t cover FR-banking, because in banks the same thing happens more than once. So what? If it is legal for me to lend money to Terje (under the scenario described above), then it is also legal for Mark and Sinclair and other people to lend money to Terje. No problem. If Terje changes his name to “bank” then everything is still voluntary. This is exactly what happens with FR banks.

    Banks don’t create new bank notes. They can create credit. But anybody can create credit. If I lend you $5 I’ve just created credit. Yawn. Seriously… you comments make it look like you don’t understand the basics of financial economics.

    You again repeat that “if banks don’t have your money it is fraud”. It’s a broken record. Stop repeating it because it’s simply untrue as a point of fact. Not opinion. Just factually wrong. Repeating “2 + 2 = 5” over and over again doesn’t make it true. Though at least that maths mistake would be more sensible than the fraud mistake.

    Again I’ll explain this painfully simple point. If the banks has a contract that says “I may not have your money when you want it” and then they don’t have your money — it’s NOT FRAUD. Simple enough?

    You spiel about fiat was entirely irrelevant.

    And your grand defense of banks as some sort of loan dating agency is underwhelming. Those services already exist all over the place. That is not banking. You want to ban banking.

    You say that direct loans between savers and borrowers is legitimate. What if the loan contract says “but I may ask for my money at any time, and I hope you have it”. Because that is exactly what exists with FR banks! Or would you create an arbitrary government rule against voluntary contracts of that sort?

  61. John:

    You realize that if Bird reads you latest comment it will send him thermo nuclear, right? You know that, right?

  62. John,

    Economically, When demand depositors who naturally count %100 of their deposits as instantly deployable cash holdings and build this assumption into their daily affairs and financial planning are economically transformed into long term lenders as the bank takes their deposits and lends them ‘long’ (particularly borrowers for large multi year capital projects) an instant conflict of property rights arises AS WELL AS A MISMATCH IN TIME PREFERENCES when the time is chosen by depositors to spend cash holdings that they believe they have full authority and control of.

    Eventually this accumulated mismatch between ‘lenders’ (people believing they are depositors but the bank forcing them as economic actors to be lenders) who are always on average short due to time preferences inherent in choosing to be a depositor and borrowers who are long due their inherent time preferences choosing to be a long term borrower.

    The most disruptive problem economically is a temporal mismatch or disco-ordination of affairs on both sides of a banks balance sheet due to the double accounting taking place as more fake money claims are disbursed through loans (particularly long and large multi year loans for major capital projects).

    It just doesn’t work to have short term depositors simultaneously acting as long term lenders in the long run. It’s an inherent disharmony of interests and money preferences that in aggregate, once reaching a sufficient magnitude in an economy triggers the end of a business cycle.

    Arbitrarily and illegally assigning an economic role (long term lender) to economic actors that believe their role is something entirely different and act accordingly to that belief (short term depositor) is an economic perversity and a chain of relationships that eventually fall apart.

    Money serves as a great function in accounting and organizing every economic participants affairs in temporal harmony. When a bank continually makes two conflicting promises to separate parties regarding ownership and access to the spending of particular sums of money, a day eventually comes when these interest collide.

  63. Alfred thinks money doesn’t exist. Alfred you must have a hard time shopping. Alfred thinks banking is a pyramid scheme. Alfred ought to spend less time outdoors lest he hurt himself. Alfred is confused and troubled by what he clearly does not understand. And he is also very rude.

    I think there are some modest arguments against FRB. On balance I don’t think they justify a ban but they do warrant recognition. However all this banging on about fraud is just folly.

  64. Banking is not a pyramid scheme. But fractional reserve is. The entire world banking system just had to be bailed out by government action.

    Why would that be the case were it not a pyramid scheme? Its a subsidised and socialised pyramid scheme. To get rid of the socialism we need to get rid of the cash-pyramiding. The share pyramiding and the gold and silver pyramiding has to go too. Its all the same racket.

  65. John and Mark, thanks for answering my questions.

    Taking a simple view of this as long as FRB by its nature does not promote instability in the system and if all parties involved are knowledgeable of how it operates then I can’t see any grounds to oppose it.

    Fraud involves deception and if banks make it clear how they operate I can’t see how FRB can be regarded as fraud.

    By this logic I would also have no problem with people running ponzi schemes either so long as the exact process was fully disclosed to potential investors (this would probably deter most, but perhaps surprisingly, not all investors).

  66. ‘Alfred J. Nock’, Fraud is when you use another person’s name. What is your real name, please? Yes, I know The State Is Our Enemy, but so are fraudsters.

  67. Damian — you complain about a mis-match of time. As I have already explained to you several times and at length, that is what banks do, and they do so voluntarily. When people make deposits, they agree that this money can be given out in loans. They agree. The information is there, and they agree. Did I mention that they agree. It starts with “agr” and rhymes with tree. Really. This is not a drill. People agree that the bank can use their money to hand out loans.

    This difference is why banks are not the same as vaults. Both exist. If you prefer a vault, go and pay for your vault. We can have open competition between banks and vaults. My guess is that banks will win because (1) they offer a positive interest rate instead of a negative interest rate; and (2) they offer a very high degree of liquidity. But hey — let’s just allow the market to decide.

    You go on about depositors believing they have guaranteed control over their money. If they think their money is sitting at the bank doing nothing (and really… who is that dumb?) then they are wrong. But if they believe they have a very high chance of accessing their money immediately, they are right!

    Banks offer a brilliant service where they are able to put liquid money into productive use through long-term debt… while still holding enough liquid assets (ie cash) to keep their depositor base happy. What a wonderful free-market innovation! Banking is one of the greatest steps forward for modern man because it gave positive returns and relatively high security to depositors while it also allows lower interest rates to investors.

    You might argue that vaults offer more security. That’s an open question… but its also irrelevant. All of the arrangements are voluntary, so if you don’t like it, don’t do it. No problem.

    In your second para you say “eventually this mismatch…” and don’t finish your point. Eventually what? There is absolutely no problem in having a bank having assets and liabilities with different maturity dates. All people and companies do this. Yawn. If you are claiming that all people/companies should have assets and liabilities with equal maturity dates, then you are creating a new (and absurd, and socialist) economic theory.

    You then make the weird claim that different maturity dates leads to the end of business cycle! Obviously you’re not talking about the Austrian business cycle (which is caused by the mal-investment inherent in unbalanced monetary policy… which is NOT what we’re talking about) so you must have created your own new theory. Congrats. But it is absolute bunk. There is no rational grounds on which to claim that an asset-liability maturity mismatch leads to a business cycle. That is pure witchcraft without any rational basis.

    It is true that banks can have a liquidity problem. That is also true of any person or company. Yawn. None of this is a disaster. People deal with this all of the time. Sometimes a bank (like any person or company) may even go bust. Yawn. None of this is a disaster. People deal with this all of the time.

    You AGAIN say that it is illegal for people to lend to a bank. No. It. Isn’t. It is perfectly legal to create such a contract.

    You AGAIN say that banks make conflicting promises. No. They. Don’t. They enter into legitimate and voluntary contracts.

    These are facts. Not opinions. Each person is entitled to their own opinions, but you are not entitled to your own facts. You don’t get to make up your own fake facts to justify your hugely statist intervention to abolish one of the greatest achievements of capitalism.

    If you don’t like the bank contracts, don’t enter them. But don’t force your preferences on other people.

    But your question for the day is… do you want to make it illegal for a person or company to have assets and liabilities with a different maturity date? Remember that all assets and liabilities have been acquired voluntarily. Think about it carefully. Only one answer is consistent with capitalism.

  68. 1. Alfred believes that fluctuations in credit creation cause inflation and the business cycle. He has never shown how that occurs, and will not admit that trying to stop these fluctuations requires either a fixed exchange rate (glod won’t do either vis a vis the internal price adjustment mechanism) or by closing off the economy to international trade and finance. Please note that inflation targeting (early 1980s) failed initially (in Aus, UK and to a lesser extent the US) because it attempted to get rid of fluctuations – the result was an excess of base money was supplied and fluctuations and mispricings were magnified.

    2. Alfred reckons that small firms cannot get capital in a capital market that allows short selling. Why are there firms on the ASX with market caps of 5 mln that raise capital through share issues and rights?

    3. If fractional reserve created inflation, then why when Australia dropped capital adequecy ratios from 25% to 8%, we saw inflation that correlated an excess of base money over GDP growth (up to 7%), not 300% inflation?

    4. Some statistical studies have shown that M3 causes M1. Belief in 100% backing and “money created out of thin air” seemingly are contradicted by this.

    5. Alfred tried to say any increase in money is inflationary, even if the demand for money increases. Claerly this is rubbish. High school economics students could see this as utter tripe.

    6. Alfred then went onto refute 6. by rejecting marginalism and opportunity costs.

    7. Alfred’s/Graeme’s “100% reserve system” is unworkable rubbish. International trade finance (e.g, letters of credit, forfaiting) would be illegal. Global trade would end and we would all be much poorer.

    9. Here is a definition of fraud. It is obvious that fractional lending – either in free banking or our modern fractional reserve/fiat banking system are not “fraudulent”…

    http://www.lectlaw.com/def/f079.htm

    “FRAUD, TO DEFRAUD – The term ‘fraud’ is generally defined in the law as an intentional misrepresentation of material existing fact made by one person to another with knowledge of its falsity and for the purpose of inducing the other person to act, and upon which the other person relies with resulting injury or damage. [Fraud may also include an omission or intentional failure to state material facts, knowledge of which would be necessary to make other statements not misleading.]”

  69. ADMIN: I’ve put Bird’s new persona (Alfred) on moderation and removed his posts (and the replies). This is the third version of Bird I’ve had to moderate. If he keeps this up, he will be permanently banned from the site instead of just moderated.

  70. John,

    Is this an accurate definition of fractional reserve banking. Because minus any reference to bank notes and specie (as in free market banking), I concur with this basic definition:

    Fractional-reserve banking
    From Wikipedia, the free encyclopedia
    (Redirected from Fractional reserve banking)

    Fractional-reserve banking is the banking practice in which banks keep only a fraction of their deposits in reserve (as cash and other highly liquid assets) and lend out the remainder, while maintaining the simultaneous obligation to redeem all these deposits upon demand.[1][2] Fractional reserve banking necessarily occurs when banks lend out any fraction of the funds received from demand deposits. This practice is universal in modern banking.

    By its nature, the practice of fractional reserve banking expands money supply (cash and demand deposits) beyond what it would otherwise be. Because of the prevalence of fractional reserve banking, the broad money supply of most countries are a multiple larger than the amount of base money created by the country’s central bank. That multiple (called the money multiplier) is determined by the reserve requirement or other financial ratio requirements imposed by financial regulators.

  71. Damian,

    Did you see my last response to Bird above? I think John should take it out of moderation.

    Fractional banking does not create inflation:

    Forget what someone wrote on wiki. All bank money does is create a chain of assets and liabilities. I’ve shown you that under the broadest definition of money, creating new bank money cannot create inflation. The increase in deposits is matched by a demand for more broad money.

    Please stop inferring that fractional banking is inflationary because it has been proven beyond any doubt that it is not.

    Fractional banking is not fraudulent (or tortious):

    “Money, when paid into a bank, ceases altogether to be the money of the principal; it is then the money of the banker, who is bound to an equivalent by paying a similar sum to that deposited with him when he is asked for it . . . . The money placed in the custody of a banker is, to all intents and purposes, the money of the banker, to do with it as he pleases; he is guilty of no breach of trust in employing it; he is not answerable to the principal if he puts it into jeopardy, if he engages in a hazardous speculation; he is not bound to keep it or deal with it as the property of his principal; but he is, of course, answerable for the mount, because he has contracted . . . .”

    per Foley v. Hill, (1848) 2 H.L.C. 28, 9 E.R. 1002

    http://www.uniset.ca/other/css/9ER1002.html

    If you would like to say fractional banking is fraud, please find the relevant section under the Crimes Act for any Australian State (or the penal code for your local jurisdiction).

    No such section exists.

  72. Damian – there is no reserve requirement laws in Australia. However broad money in Australia is not infinite. Why?

  73. Damian — the definition is nearly correct, except that banks don’t have an obligation to provide immediately access to the money. They have the obligation to do so if possible and they have a very strong incentive to do so (otherwise people won’t want to bank with them).

    There are two issues. Is this fraud? Clearly not, because all the details of the arrangement is set out in the contract. The fact that you might not have known what was in these standard contracts is of no interest. (Though how you managed to stay ignorant of it puzzles me.)

    The second issue is whether FR-banking is a good thing. This is quite a separate issue. It is certainly voluntary, but perhaps you think it is so bad the government should ban this voluntary behaviour. If that is your case, at least be honest and admit you are taking the socialist position, and stop using the factually incorrect words “fraud” when talking about FR-banking.

    I also think the socialist argument against FR-banking is wrong. I’ve explained in much detail how banking provides a significant service by offering positive interest savings opportunities and low-interest borrowing opportunities… consequently significantly increasing investment, capital stock and economic growth. There is no doubt about this. You have admitted as much by admitting that FR-banking allows banks to match different liquidity preferences. This liquidity matching makes up the vast majority of the supply of loanable funds (ie investment).

    Presumably you are worried that the existence of the credit multiplier creates some instability. Perhaps. But all life, and all business, involves risk. The government shouldn’t ban risk. And the reality is that the risk involved in FR-banking isn’t that high (and there are also risks in a non-FR bank, just like there are risks in any business).

    Yes, the credit multiplier increases the broad money supply. I explained that to Jaz above. But that doesn’t create inflation. Only a change in the rate of the credit multiplier (all else being equal) would do that. But (1) it is impossible to abolish credit unless you’re going to ban people lending money to each other (very totalitarian); and (2) even if you could abolish credit, you could still have inflation by changes in GDP growth, base money supply growth or velocity.

    But anyway… instead of banning things you don’t like, how about we allow both sorts of businesses to exist, and allow people to choose whether they want to use banks or vaults or investment dating agencies. I don’t want to ban your options. You shouldn’t want to ban my preferred option.

  74. Mark,

    If you are saying that FR in either CB fiat or free banking does not engender the circulation and accounting of extra money claims in the short run that would otherwise not come to fruition absent FR you are mistaken.

    If you are using the word inflation in the sense of long run nominal aggregate price levels in a free economy what you are saying is correct in a free society, free banking scenario and I concur.

  75. Terje,

    What are you talking about?

    What does infinite money supply have to do with?

    There is no fixed inextricable link between regulatory policy and money aggregates. This has not been stated or implied. Thats why central monetary planning ideology is a complete farce. The CB does technically have the ability to make a currency worthless which is a synonymous with ‘infinite supply”.

    Banks presently of their own volition are tending to adjust their reserve ratios up much to the chagrin of authorities. Bear in mind many of them would be history without intervention.

  76. John,

    In free society I completely agree now that with complete disclosure, well written and understood contract (and fiduciary media), accurate balance sheet accounting FR is not fraudulent.

    As long as the bank is truthfully disclosing what the fiduciary media they sell is and people willingly accept it thats their problem. Same goes for deposit contracts that may be.

    Absent the state with various competing fiduciary media and specie the whole game completely changes and no entities by use of coercive force have the ability to illegally exploit fiduciary media issuance like as is present because their is know one monetary standard people are forced to adhere to.

    The economic issues I highlighted only ring true with universal coercive enforcement of FR and a universal coerced specific medium of exchange. The whole game changes completely absent the state along with quite a lot of other conventional economic analysis.

    Thanks for getting me to rethink this issue.

  77. DAMIAN: “That multiple (called the money multiplier) is determined by the reserve requirement or other financial ratio requirements imposed by financial regulators.”

    TERJE: “there is no reserve requirement laws in Australia. However broad money in Australia is not infinite. Why?”

    DAMIAN: “What are you talking about? What does infinite money supply have to do with it?

    There is no fixed inextricable link between regulatory policy and money aggregates. This has not been stated or implied.

    Except it is implied in your first comment, quoted above. Hence my question.

  78. Terje,

    Sorry, that was part of a quick copy and paste definition from wikepedia that I actually didn’t read that properly. That part of the quote is actually innacurate in my view and I wouldn’t personally characterize the ‘money multiplier’ in that simplistic way.

  79. I found the relevant clause from my banks terms and conditions.

    21.2 Sometimes, a branch may not have
    enough cash to pay a large cash
    withdrawal. Please give the branch
    at least 2 Business Days notice
    if you wish to make a large cash
    withdrawal from the branch. In the
    event of a large cash withdrawal
    exceeding $100,000, we shall have
    the discretion to pay you by bank
    notes in large denominations or by
    Bank Cheque.

    The use of the word “large” in this context is a bit of a weasle word in my view. They could be a lot clearer. However they are very explicit that they can outright refuse cash withdrawals for amounts over $100,000.

    http://www.stgeorge.com.au/resources/sgb/downloads/pds/terms/sgbvisaterms_0209.pdf

  80. Terje,

    That just looks like a technical procedural thing related to getting physical paper money to your location which seems logical and reasonable. It doesn’t just say screw you we gambled your deposit away don’t call us we’ll call you if we feel like it.

  81. Damian — I agree the government shouldn’t be in the money business. However, irrespective of what sort of money we’re dealing with, it is possible to create voluntary contracts that result in FR-banking.

    I don’t think FR is the problem with the current banking system. The main problem (in my view) is moral hazard created by government involvement. Basically, the government has told banks that they can be as irresponsible as they want, and the government will bail them out. The government has told customers that the government will protect them, so customers have no incentive to make careful and prudent decisions about their bank.

    This has led to poor risk management by the banks.

  82. Damian — just because a bank doesn’t have your money when you ask for it, that doesn’t mean your money is gone. There is an important difference between a liquidity problem (don’t have the cash right now, but I can get it) and an insolvency problem (I lost your money).

    Any business (including FR-banks and vaults and investment dating agencies) can go broke (insolvent), meaning that people lose some money.

    The specific complaint against FR-banks is that if everybody wants to withdraw their money at once, then there is a liquidity problem. Their money is still there… they just have to wait while the illiquid assets are liquidated.

  83. John,

    State participation in money and banking is very very bad news any way you cut it. They don’t let markets clear, they encourage moral hazard and lack of due diligence, they pull resources away from potential wealth production to parasitism, they use it to reinforce hegemony, they distort market participants perception of economic of reality etc.

    Getting the state completely out of money and banking would be the holy grail regardless of FR banking. Unfortunately the public are brainwashed and the psychopath powers that be love monetary control.

  84. I think the government should get out of banking and I don’t think the government should produce currency. However I don’t think it really can get out of money as such so long as it does any form of taxation. When you say taxes must be paid in gold you create demand for gold. When you say taxes must be paid in silver you create demand for silver. Before the US government got into currency creation and banking, money was still highly political with the debate about bimetalism and the extent to which tax payment in one metal could substitute for payment in another. So long as there is tax I don’t think the government can be neutral about the national unit of account. It can be wise or unwise in the selection but it can’t be neutral.

  85. As far as any state mandated monetary standard goes a bimetallic standard with denominations of physical weight would be best. I think it’s vital to have at least two lawful competing monetary options. That and as much decentralized authority over ‘regulation’ as possible would be a big improvement from where we are now. If we can’t break away from the concept of state control of banking, at least make it wholly a matter of states and territories.

    Maybe now is the time to make noises about this as I see a lot of speculation about China and others planning something with some kind of role for gold post dollar and that would actually have direct implications monetarily for Australia anyway wouldn’t it?

    Maybe thats a political in for monetary reform. We need it for trade harmonization with China. Look there Kevy, besides slaughtering dissidents and selling their organs China likes gold. Shouldn’t we like gold to?

  86. Bimetalism had a lot of problems. I think monometalism is the best option. With bimetalism the USA essentially tried to fix the exchange rate between gold and silver with massive disruptive global flows of both metal as a result. A table of two or more alternate tax payment options is essentially unworkable. Liabilities, including tax liabilities should be clearly denominated. That means one national unit of account. The idea that we need multiple national units of account or that we would benefit from it is folly in my book. In fact the political arguments that hinged around the exchange rate between gold and silver under bimetalism were quite destructive.

  87. Actually I’d go further and say that multiple units of account across the globe is something of a folly. Gold ought to be the global unit of account. Golds relative fixed supply, it’s fungible nature, it’s chemical stability, it’s scarcity, the closed nature of the world economy and the fact that inflation within a gold standard destroys the profitability of marginal gold production all come together to make gold the near perfect candidate.

  88. As long as a bunch of crooks like the IMF don’t have anything to do with it. We don’t need an administered global currency supposedly backed by gold we need gold.

  89. The government doesn’t need to require tax in a single currency. They only need require that the payments are made in a liquid form.

    Income tax could be paid as a percentage of whatever income you earn. Consumption tax would be as a percentage of the sales of a business.

    Though I agree the government would certainly bias the choice of currency, because there is a “network economy” in currency (ie it makes sense to use what other people are using) and the government spends about 40% of our annual national income.

    This is just one more reason why we need to shrink the size of government.

  90. Damian – you can have a global unit of account without a global currency. And whilst I think gold is the obvious choise as a unit of account I still think we should mostly trade using gold denominated currency or such instruments rather than gold itself. Obviously we can do this without fiat currencies but I fully expect that fiat currencies will always occupy a niche.

  91. Terje,

    Not arguing against notes, electronic cards etc. Just saying units of weight ought ideally to be the units of account if mandated rather than Dollars or Euros etc and the IMF really are despicable and would try to use gold remonetization as an in for establishing gold backed SDR’s.

  92. I tend to see it the other way around. That once again including gold within SDRs might be a good way (in political terms) to reinstate a monetary role for gold. This is the line the Chinese are pushing.

  93. I think that these are very serious issues that need to be debated. I don’t know which side is right but I do know that if they are not properly debated we will finish up with a highly interventionist policy.

    Brookes News has an open invitation to anyone to debate the issues on its site. It’s not about personal abuse or stabbing in the back but debating the issues.

    If John Humphreys or Sinclair Davidson wish to debate these issues on the Brookes News site they are welcome to do so.

    If they are right then they can enjoy the thought of Jackson squirming when uploading the article to his site.

    You don’t deal with serious issues just by dismissing them as Des Moore did in relation to the manufacturing issue.

  94. Pingback: The last gasp of a fading fool « Thoughts on Freedom

  95. Pingback: Mangled Thoughts » Professor Sinclair Davidson, Institute for Public Affairs, Centre for Independent Studies

  96. While I too may not understand economics on the otherhand without even reading your paer on carbon tax I can state it is utter and sheer nonsense because I am a CONSTITUTIONALIST and there is no constitutional powers for the Commonwealth to misuse taxation powers to interfere with State legislative powers such as environment. Economist or not if you do not understand the basic constitutional powers then your entiore paper is a sheer wast of effort!

Comments are closed.