Do Libertarians Really Want a Free Market in Banking?

[wizardwatson]

Of course it isn't, but I'm not a Libertarian. I believe there is a role for government, and I do believe in state's rights.

Community gold-backed banking can work inside our Constitutional system. We can deal with the taxing issue later.

But many so-called libertarians don't seem to want to do anything until it all burns to the ground and they can start from scratch. Then I guess they'll look for someone to lead the way.

If the liberty movement cannot find an actionable strategy to unite around it will fail. It is already small, and the worse things get, the more people will look to government for security.

 

[Josh_LA]

no freedom is worthy if it's not informed, intelligent, responsible and honest.

so yes, i am saying that socialists and Fascists have a point when they believe people can't be trusted to make their own choices.

 

[gilliganscorner]

I wrote a post similar in spirit to the OP. He is describing an agorist movement.

One of the items missing is what banking would look like in a free market. On one end of the spectrum, you might have a %100 full reserve bank that would essentially act as a warehouse for what you use as money (no yak dung please). The bank would charge you a fee to store your money.

On the other end, you might have a bank that practices 0% reserve (i.e. full fractional reserve) banking, that would pay you interest for depositing your money there).

Out of these various types of banking models and individual companies, we might have a slew of businesses that examine these banks financial reports and publish risk reports about the banks' respective solvencies and/or investment products a la Consumer Reports magazine is to automobile ranking, instead of being lulled into a false sense of security government agencies create. People would subscribe or deposit their monies with one or more of these banks depending on their individual risk levels. Some of their money (savings) would be left with a high reserve bank and some that they could afford to risk would be left with a low reserve bank, which has a greater risk/reward model.

Of course, we don't have that today, with the State/Banking cartel called the Federal Reserve which "regulates" banks.

The beauty of agorism is that it isn't all that hard to implement. You can do it today, if we want to get off our asses put our analysis paralysis behind us.

 

[wizardwatson]

More from the Mises dude:

wizardwatson:
Well, I try to communicate and I'm attacked because I'm not a good writer, and I get accused of being self-indulgent and I get all sorts of advice about how better to present my theory. So I thought I'd try a different angle.

Right, so you got advice, and then did something different.

wizardwatson:

1. It's shorter and more concise than my last post.

I scanned it, and still have no idea what you are getting at. It's just a lot more fluff. WHAT IS YOUR POINT? Is it possible to sum up your issue in 2 sentences, and then give an idea of your solution in another 2 or 3 sentences?

wizardwatson:
2. My title is the question and is most important and relevant. Maybe you're afraid to answer it.

Who are these libertarians you are challenging? Identify your opponent specifically and make your argument based upon their position. It's just a gigantic strawman.

wizardwatson:
3. I'm not writing for the "Mises Community" or the "Ron Paul Community". You're sounding very collectivist for a Libertarian.

And that is your problem. You aren't writing to your audience, you're writing for yourself.

wizardwatson:
4. Who cares if my writing is terrible and that its worse than my last thread. No one is reading things to understand. They are reading to see who agrees with their way of thinking and who does not.

Ugh

wizardwatson:
I will call Mr. Murray whatever I want. He is dead. He can bitch at me when I go to meet him. Again, very anti-free speech for a Libertarian.

You don't have a right to free speech here, and it's lame that you use that as an excuse to avoid critcism.

wizardwatson:
Please put me on your ignore list.

We don't have one. We're not the Ron Paul Forums (by any stretch of the imagination)

My response:

My roughness is certainly my own fault, and the quips about free-speech were made jokingly. But I will get to the point in a few sentences if that is what your challenge to me is.

I am speaking to whatever human actor is reading this post.

My question to the reader is the title of my original post;

Do libertarians really want a free-market in banking?

More specifically, do YOU want a free market in banking. If you say no, then you are not a libertarian in the Rothbardian sense. If you say yes, then my reply is that there already is one. There may not be a free market in the purchase of precious metals, but a free market in banking does exist. You can ask Lew, or Hoppe, or Kinsella, or Block, or anyone else. No one can show me now that a free market in banking does not exist. The way is only blocked buy our own conditioning of thought.

If we are to believe then, according to all the great works of the Austrians, that sound money is the antidote to statism and tyranny, my question is what is your justification for not acting in the manner most conducive to the realization of liberty? That being, conducting your transactions as much in possible in gold or silver.

So you can answer the question. Not answer the question. Try to show me in some reasoned manner that a free market approach to banking is blocked. Or tell me your justification for inaction.

And then of course there is the option of attacking me.

My answer, is I'm am working towards implementing gold and silver backed community banking. I just paused for a while to ask everyone else why they are not. Why isn't it on the table, or in the cards? Seems like it should be at the forefront.

-David

 

[acptulsa]

Well, any entrepreneur must ask two questions to succeed: For what is there a demand? And how can I supply it without losing my shirt?

If the demand we set out to satisfy is a credit union that will loan even in such a credit crunch as this, we're in a great position to do it. We promise to keep full reserves, we set up with any nationwide ATM network that will have us, and we run your basic FRN based credit union. It won't be the most convenient bank as we are unlikely to try to set up brick-and-mortar branches in each city, but many of us libertarians will put up with that to be part of the solution and not the problem. Those of us who are forced into the banking world because our employers insist on doing direct deposit will be there with bells on.

We could set up a bullion depository with a twist. Deposit your pms with us and we'll loan it and pay our costs (at least) with the interest. So, a safe, cost free depository for us. That would be useful enough to get deposits. Why leave your pms sitting around and doing nothing? Why even invest in a safe? Of course, the loans would have to be paid back in pms as well, so borrowers would have to convert on both ends, but in a credit crunch surely many would be willing to go to the trouble.

Or, we can shoot the moon and try to combine the two. Since the overwhelming majority of us get paid in FRNs and everyone needs them to pay bills and such, this would involve the institution becoming depository, lender and dealer all at once. The deposits could be made in FRNs, the pms bought, the loans made in FRNs and the interest used to cover expenses and salaries. These would be highest in this scenario as you'd need someone to figure how much to pay in taxes on each transaction if and when the pms went up between that customer's last deposit and this withdrawal. This would be a pain, even with computers, of course. But depositors would be able to make a boast no other bank customer could claim--their account would be inflation-proof. Again, an ATM system would make it possible to do all this with only one brick-and-mortar facility.

So, pick a battle. How far do we want to go and could we break even doing it?

 

[wizardwatson]

Well, any entrepreneur must ask two questions to succeed: For what is there a demand? And how can I supply it without losing my shirt?

If the demand we set out to satisfy is a credit union that will loan even in such a credit crunch as this, we're in a great position to do it. We promise to keep full reserves, we set up with any nationwide ATM network that will have us, and we run your basic FRN based credit union. It won't be the most convenient bank as we are unlikely to try to set up brick-and-mortar branches in each city, but many of us libertarians will put up with that to be part of the solution and not the problem. Those of us who are forced into the banking world because our employers insist on doing direct deposit will be there with bells on.

We could set up a bullion depository with a twist. Deposit your pms with us and we'll loan it and pay our costs (at least) with the interest. So, a safe, cost free depository for us. That would be useful enough to get deposits. Why leave your pms sitting around and doing nothing? Why even invest in a safe? Of course, the loans would have to be paid back in pms as well, so borrowers would have to convert on both ends, but in a credit crunch surely many would be willing to go to the trouble.

Or, we can shoot the moon and try to combine the two. Since the overwhelming majority of us get paid in FRNs and everyone needs them to pay bills and such, this would involve the institution becoming depository, lender and dealer all at once. The deposits could be made in FRNs, the pms bought, the loans made in FRNs and the interest used to cover expenses and salaries. These would be highest in this scenario as you'd need someone to figure how much to pay in taxes on each transaction if and when the pms went up between that customer's last deposit and this withdrawal. This would be a pain, even with computers, of course. But depositors would be able to make a boast no other bank customer could claim--their account would be inflation-proof. Again, an ATM system would make it possible to do all this with only one brick-and-mortar facility.

So, pick a battle. How far do we want to go and could we break even doing it?

Too complex. RP supporter has gold coin. He deposits it with some other liberty lover, say in the safe of the local hardware store. Hardware store assumes liability for reserve. A common intermediary bears witness. Transaction recorded on Ripple. RP supporter can now spend the gold's value (by weight) with anyone on Ripple connected to the common intermediary. No bricks no mortar, simple and straightforward.

 

[William2012]

What form of Fraud Law would be present in a free banking system?

Would there be any fraud laws?

If there was a fractional reserve bank wouldn't it eat up the full reserve banks initially in a free market?(Easy money can be tempting)

Or would people be smart enough to recognize where the sound money is?

One can't support a free market and then go and tell someone they can't produce a fractional reserve currency or fiat.
Or could it be stated that since they are inherently without value, or not the stated value it would be considered fraudulent?

Anarcho-Capitalism is very interesting.

 

[angelatc]

If there was a fractional reserve bank wouldn't it eat up the full reserve banks initially in a free market?(Easy money can be tempting)

Or would people be smart enough to recognize where the sound money is?

I think people would opt for both. High risk, high reward.

 

[Truth Warrior]

What form of Fraud Law would be present in a free banking system?

Would there be any fraud laws?

If there was a fractional reserve bank wouldn't it eat up the full reserve banks initially in a free market?(Easy money can be tempting)

Or would people be smart enough to recognize where the sound money is?

One can't support a free market and then go and tell someone they can't produce a fractional reserve currency or fiat.
Or could it be stated that since they are inherently without value, or not the stated value it would be considered fraudulent?

Anarcho-Capitalism is very interesting.

Fraud is theft, theft is criminal. Where's the problem?

 

[acptulsa]

Too complex. RP supporter has gold coin. He deposits it with some other liberty lover, say in the safe of the local hardware store. Hardware store assumes liability for reserve. A common intermediary bears witness. Transaction recorded on Ripple. RP supporter can now spend the gold's value (by weight) with anyone on Ripple connected to the common intermediary. No bricks no mortar, simple and straightforward.

Well, I don't know. For starters, what if you're the only liberty lover in town? Secondly, who pays the intermediary for their time to witness? Why would the local hardware store consider it a good business practice to assume this liability for nothing? How many libertarians are willing to have each and every one of their transactions recorded for posterity by Ripple? And who pays to transport that gold to the person who settles the accounts with Ripple?

It will be complex no matter what you do. And these logistics are what will kill us if we're not careful. The devil really is in the details.

 

[William2012]

Fraud is theft, theft is criminal. Where's the problem?

But in a free-market could fractional reserve and fiat currency be called fraudulent?

To me it is debateable, almost antithetical to the idea of a free-banking system.

In anarcho-capitalism could one be a monetary-engineer?

What I mean is try drastically new forms of currency/economics?

I have thought about the utilization of energy produced as a currency model.
As a lover of science, this would be ideal for my situation.

 

[Truth Warrior]

"Complexity is the essence of the con and the hustle."

 

[Truth Warrior]

But in a free-market could fractional reserve and fiat currency be called fraudulent?

To me it is debateable, almost antithetical to the idea of a free-banking system.

In anarcho-capitalism could one be a monetary-engineer?

What I mean is try drastically new forms of currency/economics?

I have thought about the utilization of energy produced as a currency model.
As a lover of science, this would be ideal for my situation.

The market place will decide. Decide what? Who knows?

 

[William2012]

"Complexity is the essence of the con and the hustle."

Please explain?
I just really wan't to know, if we had a truly free banking system could we experiment with alternate models never before attempted?

It would seem to me that one would be able to in a free market banking system.




And energy banking can be full reserve technically, just energy instead of gold.

The bank is a battery/energy plant. Of course it sells energy to consumers, but we could also utilize this as a form of currency by allowing those who produce their own energy to feed the battery, which could either be converted into gold,
Stored, or saved and used to produce a product(say I have a contract with a manufacturer that allows people that produce energy to just trade there stored electricity for a product of that manufacturer)

Of course it should be Full Reserve watt for watt.
This would also encourage technological growth in the energy industry.

 

[wizardwatson]

Well, I don't know. For starters, what if you're the only liberty lover in town? Secondly, who pays the intermediary for their time to witness? Why would the local hardware store consider it a good business practice to assume this liability for nothing? How many libertarians are willing to have each and every one of their transactions recorded for posterity by Ripple? And who pays to transport that gold to the person who settles the accounts with Ripple?

It will be complex no matter what you do. And these logistics are what will kill us if we're not careful. The devil really is in the details.

Well, I'm a liberty lover, so that makes two if you're one. Intermediaries can be a group of volunteers, or you could just use the notary at any bank to witness the contract. But paying them isn't out of the question either. Local hardware store might do it if they're part of the system.

But that doesn't matter, eventually reserve holders will even out between people who are high risk, and people with low fees.

Ripple records transactions but its private. It's also open source and free to anyone-but the owner is currently running a version on his own server. I've actually been corresponding with Ryan (the guy who created Ripple) over the last couple years trying to figure out how to use his system with asset-backed currency.

As far as who pays for transport, the way I see it, someone just arranges with an intermediary and a reserve holder if they want to cash out their digital gold for real gold.

The devil is in the details, but I've been studying the problem for about 3 and a half years, and I believe I'm done now (with all the really tough questions anyway). I can find no real barrier to implementation.

That's why I posted that long paper over the weekend. I've been deep into it and I was trying to explain all the subtleties of decentralized banking, but I realize now, that I need to start with the basics.

Like, first getting people to realize its not only doable, and has awesome growth potential, but the tools are already available.

 

[malkusm]

Regardless of whether or not sound money would be used, or whether or not fractional reserve banking would exist, doesn't really get at the source of a "Free Market in Banking." One critical piece that has been overlooked is the artificial interest rates set by the Federal Reserve. We do NOT have a "free market" as long as the government is controlling the rate that banks can profitably lend at and/or provide interest at.

In a true free market over the past couple of years, rather than lowering interest rates to stimulate investment spending, each bank would decide the interest rate it wants for itself. Imagine you are in charge of a bank, and about 10% of the money you loaned out could no longer be reclaimed. Would you be likely to follow the Federal Reserve's policy of lowering interest rates and making more capital accessible in such a market? Of course not. In a free market in banking, the bank would raise interest rates, causing the savings rate to increase in the economy, which would lead to capital deepening and a long-run increase in investment spending and GDP (without running up the huge deficits of Keynesian/central banking economic policy).

 

[wizardwatson]

"Complexity is the essence of the con and the hustle."

This is really a huge barrier too. Our minds are very complex, it is difficult to see the situation simply.

What really isn't obvious about asset-backed banking is that you need 2 accounting systems, one for the reserves and one for the money subsitute (digital). Then there is simply a legal obligation that connects the two.

 

[acptulsa]

You know, having access to a full reserve bank would be nice but what we really, really want is sound money. We all feel pretty sure that the value of the FRN will tumble soon, and we'd really, really love to offer a competing currency. Now, the Free Bank of Lakotah plan involved a combination of bank and mint--they were planning on making their own coins. I think their plan is flawed both because their coins were too pure in silver content to wear well in circulation and because their banking services are too limited, but the basic concept of a combined bank and mint might be necessary.

But regardless of those details, is it possible to set something up that can play in a FRN dominated world today and offer a sound money alternative when the public gets FED up tomorrow? I don't think that anything less would be able to be sufficiently in place, established and trusted when the new and ugly round of inflation hits so it can provide an instant solution to the problem and meet the brand new demand of the market.

 

[wizardwatson]

Regardless of whether or not sound money would be used, or whether or not fractional reserve banking would exist, doesn't really get at the source of a "Free Market in Banking." One critical piece that has been overlooked is the artificial interest rates set by the Federal Reserve. We do NOT have a "free market" as long as the government is controlling the rate that banks can profitably lend at and/or provide interest at.

In a true free market over the past couple of years, rather than lowering interest rates to stimulate investment spending, each bank would decide the interest rate it wants for itself. Imagine you are in charge of a bank, and about 10% of the money you loaned out could no longer be reclaimed. Would you be likely to follow the Federal Reserve's policy of lowering interest rates and making more capital accessible in such a market? Of course not. In a free market in banking, the bank would raise interest rates, causing the savings rate to increase in the economy, which would lead to capital deepening and a long-run increase in investment spending and GDP (without running up the huge deficits of Keynesian/central banking economic policy).

A gold based digital currency is immune from the effects of what the Fed does to interest rates except in relation to how it effects the portions of your community using FRN's.

The "free market" allows you to use FRN's or not use FRN's. If those banks choose to use FRN's they are choosing to do so, therefore free market is not violated, since they are also free to participate in 100% gold backed currency.

 

[Truth Warrior]

Please explain?
I just really wan't to know, if we had a truly free banking system could we experiment with alternate models never before attempted?

It would seem to me that one would be able to in a free market banking system.




And energy banking can be full reserve technically, just energy instead of gold.

The bank is a battery/energy plant. Of course it sells energy to consumers, but we could also utilize this as a form of currency by allowing those who produce their own energy to feed the battery, which could either be converted into gold,
Stored, or saved and used to produce a product(say I have a contract with a manufacturer that allows people that produce energy to just trade there stored electricity for a product of that manufacturer)

Of course it should be Full Reserve watt for watt.
This would also encourage technological growth in the energy industry.

Most of that quote came from a retired con man explaining how he worked his scams. I don't recall his name. I read that several decades ago and like it. It explains many unnecessarily "complex" things.<IMHO>

"Everything should be made as simple as possible, but not simpler." -- Albert Einstein