Rothbard vs. Mises on Free Banking

In a private Facebook message, Kurt Fiech directed my attention to an article by Gary North on the conflict between Rothbard and Mises regarding the enforceability of a 100% gold standard.

Rothbard vs. Mises on Fractional Reserve Banking

Thanks Kurt. I haven't had time since the tornado to check out Gary North's Website. I thought I might as well share my thoughts with others on this blog.

Here's North's description of banking in a free/Christian/anarchist society:

"The only way for the bank to pay a rate of interest is for the bank to lend the gold coins or receipts to gold coins to entrepreneurs or consumers, who in turn promise to pay back more than they borrowed at the end of a specified period of time. The debtor borrows the gold, which serves as money, to buy something. Therefore, the original depositor cannot get his gold coins back during the period of the loan."

Note the last sentence.

Rothbard says banking originated as warehousing. Depositors did not expect to be paid to deposit their gold in a warehouse. They paid for storage. If they want to be paid, they must forfeit the right to immediate withdrawal. This is a matter of contract under a Free Market. The depositor cannot get his gold coins back because he knows they are going to be invested. (Or, in less Godly societies perhaps, "loaned out.")

Now North's next paragraph:

"The banker has made the promise to depositors only on this basis: he does not believe that all the depositors will come down to the bank on the same day and demand payment in gold. Therefore, the entire banking system rests on a statistical probability. This denies the statistical possibility of payment on demand in 100% of the cases. "

Depends entirely on the contracts. Depositors could be contractually obligated not to withdraw. The bank has no contractual obligation to honor a demand for immediate withdrawal.

"Let us say that all of the depositors decide they want to get their coins back on the same day. They line up in front of the bank. Once at the front of the line, each depositor insists that the bank pay him his coins. He stresses his coins. They are not the bank's coins. The contract says so."

Not necessarily. Rothbard distinguishes two kinds of banking: one is a storage of a specific item ("the 1849 Double Eagle in proof condition once owned by Treasury Secretary William Meredith"), the other a contract for fungible items ("1 oz. of gold").

Now we get to prejudicial rhetoric.

¿ Is this a reasonable statement:

The Federal System is a system of states. But, because the federal government wants cooperation from the people, and also from the smaller states, and because ultimately self-government is the most important form of government, the federal government agrees to certain kinds of terms that will be acceptable to those under its jurisdiction. These people will accept certain rules as binding the courts, and the federal government agrees, because it wants to get cooperation at a lower price than it would cost if people resisted the decisions of the courts.

Wacko? Fringe? Nutcase?

Perfectly rational, hopefully peaceful, mainstream political science. Right?

But here is Gary's original:

The warlord society is a system of gangs. But, because the warlord wants cooperation from the people, and also from the smaller gangs, and because ultimately self-government is the most important form of government, the warlord agrees to certain kinds of terms that will be acceptable to those under his jurisdiction. These people will accept certain rules as binding the courts, and the warlord agrees, because he wants to get cooperation at a lower price than it would cost him if people resisted the decisions of the courts.

Ooooohh, that sounds so scary, Gary.

But again, the only way the State is going to be abolished permanently is through regeneration, revival, repentance, reformation, etc. Swords into plowshares. Christian anarcho-pacifism. Patriarchy.

Then North says this:

"Under such a system, there can be settlements of disputes. The settlements are made on the basis of coercion. This is how they are made under a system of civil government. It was the position of Mises, as distinguished from Rothbard, that the state is a legitimate way to get issues settled with the least amount of violence and the greatest predictability. Under this system, Mises believed there would be greater predictability, lower costs of enforcing the decisions of judges, reduced violence between individuals, reduced violence between plans, and a social order favorable to the division of labor."

I can't find my copy of Rothbard's For a New Liberty right now, but I'm comfortable with his outline of a Free Market system of dispute resolution. See also books like

• David Friedman, The Machinery of Freedom: Guide to a Radical Capitalism, La Salle: Open Court, 1989 (2nd ed.);
• Morris and Linda Tannehill, The Market for Liberty, New York: Laissez Faire Books, 1984;
• The Enforcement of Rights by Butler Shaffer

There is an interesting parallel between North's praise of the State and that of Harvard Psychologist Steven Pinker:

Steven Pinker: Why Violence Is Vanishing - WSJ.com

I agree with Pinker on the decline of violence, but it is clearly correlated to the spread of Anarcho-Christendom: Service, forgiveness, repudiation of vengeance. When Christianity loses cultural sway, as it did 1860-1980, violence rises.

North:

"[Rothbard] had a theory of multiple police forces, which he discussed in chapter 12 of For a New Liberty. The problem here should be obvious: the police force with the most efficient system of warfare will turn itself into the state."

This is never proven.
In a Christian society, it won't happen as long as Christian ideals dominate culture.

But let's assume it's true and ask why.

Perhaps the reason is because the demand for a Free Market agency of coercion is itself non-Christian. Any coercion is unChristian. If your bank loses your money, your recourse is Matthew 18:15ff. Excommunication. Police = deacons.

Social boycott is pressure, but not "coercion." Coercion is violence. Coercion is vengeance. Coercion is unChristian.

That's the argument from ethics. There's an argument from economics as well.

Americans demand a "government" (agency of coercion) to protect us against the statistically insignificant chance of a burglary or robbery or breach of contract, but the cost is a statistically inescapable 60% of our income per year.

The cost of centralized taxation is greater than the cost of decentralized "warlords," which is greater than the cost of pacifism and forgiveness combined with self-government and Biblical education.

North:

"[Rothbard] appealed to common law judges, but he did not show how common law judges could enforce their rules without the backing of people with badges and guns."

Perhaps they can't. Victims lose. But without coercion society loses less than it does now, under a coercive system of "final appeal."

I would rather suffer losses under anarchist "courts" (that is, losses which result from the absence of coercive government) and enjoy the "blessings of liberty" (which would be a much higher overall standard of living, with a doubling of discretionary income [if taxes take two-thirds, then repeal of taxes would be a tripling of income, with half of the bonus being required for social infrastructure at reduced Market prices]).

We all agree with North on the need for commodity money and the harms of fractional reserve banking:

"[Mises] argued that the misleading price signals that are produced by [fiat money], especially in the area of interest rates for loans, are what lead a majority of entrepreneurs to make the same investment mistakes simultaneously."

The only way we're going to have a stateless society is if we have a Christian/pacifist society. How many such Christians are going to go into debt to invest? Why would they need to do this if there are strong families and no inheritance tax? How many Godly Christians are going to loan gold to these bad investors who come from broken homes and are unwilling to work and save before they have funds to invest?

Usury and Rewarding the Wicked

Carl Sagan's "Pale Blue Dot"

I don't like Carl Sagan.

He was at war with God.

He dedicated his life to convincing others that the universe is a Godless, impersonal, meaningless accident:

Our planet is a lonely speck in the great enveloping cosmic dark. In our obscurity, in all this vastness, there is no hint that help will come from elsewhere to save us from ourselves.

I believe there is Help to save us from ourselves, but we have to want to be saved. We have to think of ourselves as something we need to be saved from. This is called "repentance."

"Repentance" makes no sense in an ultimately impersonal and meaningless universe.

But too many Christians who believe in the Creator and "Supreme Judge of the World," don't really know what we need most to repent of.

A Ron Paul supporter has put Carl Sagan's words to a new video, visually exposing the heart of rebellion against God: archism -- the desire to "be as gods."

http://www.dailypaul.com/242074/new-video-pale-blue-dot-carl-sagan

The video is moving, yet also a mis-fire.

Carl Sagan feigns surprise at the arrogant blood-shedding Generals and Supreme Rulers, but they studied at the feet of The Astronomers and the Professors. There they learned to rationalize their archist lust for power in a universe where no Creator has endowed us with rights, and no Judge will ever say No. Together the scientists and the warmongers rebel "against the Lord and against His Anointed."

Repentance means beating our swords into plowshares.

Three Stages of Un-Archy

I'd like to think that mankind is entering the third stage of progress from archism to non-archism, a path of progress that began with the Advent of the Prince of Peace, whose coming was announced by the angels to be the inauguration of "Peace on Earth."

Stage One: The Divine Right of Kings

In our day billions of human beings live out their lives in relative peace. Western Civilization is the product of global Christian evangelism and service. In the pre-Christian world, staggering rates of people died violent deaths, either in tribal violence, or at the hands of empires whose Pharaohs and Ceasars were considered divine. At the time of the first Christmas, there wasn't even the concept of "liberty" as we know it today, as John Lofton has pointed out. The State was Divine. It was only the maturing of Christianity that began to call the Divine State a species of "idolatry." It was Christianity, not atheism, that questioned the Divine Right of Kings, and resulted in the American Revolution (even though Jesus would not celebrate Independence Day).

The 20th century was the first universally secular century. It was a century of unparalleled statist violence. The triumph of atheism is the triumph of democide.

Stage Two: Political "Apathy"

The mainstream media won't tell you about the resurgence of Christianity in the late 20th/early 21st century. More people stay home from polls than vote. Atheists (including practicing atheists who attend church on Sundays) are worried about the rise of electoral apathy and lack of "confidence" in government. But loss of confidence in government is a good thing, something to be encouraged.

It is interesting to note that the rise of political "apathy" is not accompanied by a rise in crime, as though political apathy was a morally inferior outlook which we would expect to be accompanied by a rise in other morally inferior behavior. Crime is down as political "apathy" is up.

The good news (or at least the hoped-for news) is that people are no longer true believers in the Messianic State.

Stage Three: The State Reviled

The final stage of progress comes when people realize that being a politician is immoral and unethical, because everything the State does is immoral and unethical, including theft, kidnapping, and murder.

People must understand that the compulsory redistribution of wealth does not raise one's standard of living as  effectively as working under a Free Market system: the State always takes more from you than it gives back in "benefits" and "entitlements."

When people make this realization, they stop voting, they transcend mere "apathy," and they forcefully (but non-violently) say to their "elected representatives," "Your policies are immoral. Stop it. Go home."

Death Panels and Representative Government

Sarah Palin was one of the leading voices of concern for "death panels" in Obamacare:

Death Panels? Sarah Palin Was Right | Cato @ Liberty

Too bad she wasn't as prophetic about death panels in the "war on terrorism":

Kill List Criteria & The 100-Person "Death Panel" That Enforces Them - Government Accountability Project

Michael Cloud once said, "The problem is not the abuse of power; it's the power to abuse."

It is beyond the ability of "We the People" to keep up with all these government abuses. Every day another abuse is brought to light. We need to recognize that the entire power to abuse must be abolished. The entire concept of "representative" abuse must also be abolished.

Abolishing unconstitutional bureaucracies is just the first step.
Abolishing constitutional bureaucracies which are wasteful and inefficient is just the second step.
Abolishing constitutional bureaucracies which efficiently promote evil is just the third step. (Republicans have been breaking their promises to take these first steps for decades. Only Ron Paul is making serious and credible proposals to do even this much:

Explainer: What Ron Paul's Trillion-Dollar Spending Cuts Axe (and What They Don't) - WNYC)

The final step is abolishing constitutional bureaucracies which efficiently promote something everyone believes is virtuous. This will come with the realization that promoting virtue through "representative government" -- that is, a program requiring the initiation of force and financed by taxation (which is theft) -- is always evil. This means the entire concept of "representative government" is evil.

SuperDaveShow Appearance

I'm scheduled to be interviewed on the SuperDaveShow tonight at 7pm Central Time.

Call in with your questions!

Email Me!

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http://KevinCraig.us/email.htm 

Tonight I'll be speaking at the Ozark Property Rights Congress in the New-Mac Community Meeting Room in Anderson, Missouri, 7pm.

Thanks for your prayers!