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My post below on the experience of Scottish banking before 1845 – when the rules were changed by the-then UK government of Robert Peel – elicited a lot of great comments. It turns out that the Lawrence White paper that I mentioned had been savaged fairly thoroughly by Murray Rothbard. Rothbard’s paper is immensely detailed and shows what a thorough economic historian Rothbard was. Briefly put, he says that White has misinterpreted the Scottish banking experience by not distinguishing between free banks that operated 100 per cent reserve requirements linked to gold, and those that were simply free banks without such specie requirements. (Rothbard was an advocate of such metal-backed money). This inevitably raises that old friend of ours, fractional reserve banking, which Rothbard described as essentially a fraud. Now in trying to make up my mind on FRB, it seems to me that so long as the holder of bank notes is made aware that the note has been issued by an FRB, rather than a 100-percent reserves one, then what is the problem? It is a bit like the argument about limited liability corporations that vex some libertarians such as Sean Gabb of the Libertarian Alliance. Surely, if I transact with a LL company and knowingly do so, then such consent is what counts. LL companies could, conceivably, exist even without special government legislation, although they might not last as long as LL firms do now. (Here is a rejoinder to Gabb on LL). Same with FRB: if there is commercial deposit insurance and customers know the score, I fail to see why the existence of fractional banking should necessarily lead to disaster. Or is there something I am missing in this debate?
At first blush, some might consider all this to be a bit arcane. It is anything but. Explaining how banks work now, and how they can be made to work much better as a result of competition and basic rules, will go some way, I hope, to destroying misconceptions. Such misunderstandings that exist at the moment only play into the hands of those who want to bring the free market order down. Such as those folk protesting at the G20 summit in London today. I will be in the area on business. I might take some photos and post them up later if they are any good.
Update: I was in the Docklands area. Nothing much going on while I was there.
Those good people at the Institute of Economic Affairs have put this fine study of free banking, as it existed in Scotland until the middle of the 19th Century, back into print. It is examined in great detail, with lots of figures and examples of how these banks operated, how many bank failures there were, and so forth. There are a few equations but nothing that should faze all but the most mathematically challenged. Historical scholarship of this detail and depth is vital. It is as vital, in fact, as those studies that showed that in Victorian Britain, before the Welfare State came along, Britain already had an extensive network of mutual aid societies. Without this historical memory, it becomes easier for politicians to sell the lie that the solution to X or Y lies in ever bigger government.
Readers can either read the pdf for free or, if it is tough on the eyesight, as it is for me, readers can get a publication-on-demand sorted out for just £10.
I do not suggest that free banking is necessarily the panacea for the current troubles. But it seems to me that a point lost on the anti-globalistas as well as many of the other critics of the current financial system is that they fail to grasp how banking, as it is practised in most instances today, has deviated from a genuine example of laissez faire capitalism. What we need is sound money, administered by banks operating under the constant blast of competition in proving the soundness of that money. When you think about it, it is not very hard to grasp the idea, is it?
The President of France is threatening to walk out of the G20 gabfest this week if the countries cannot agree on stricter regulation of the world’s financial markets. Of course, Mr Sarkozy buys into the fantasy that what has happened shows the failure of “unregulated capitalism”. If only he would walk out of the conference, which is likely to involve further layers of largely useless and counter-productive rules and meaningless communiques, not to mention disrupt London, provide a focus point for tens of thousands of anti-globalistas, and cost Londoners a ton of money in policing and disruption.
Go on Sarko, do it for les enfants.
“It is perfectly possible for inertia to be beneficial and an improvement, if the alternative is poorer. It is the same fallacy as the claim of the current Government concerning the current economic crisis, that ‘doing nothing is not an option’.”
– Former England rugby player and man of firm views on the sport, Brian Moore. Now a television commentator and newspaper pundit, Mr Moore sees parallels between the rule changes in rugby – some of which have been a retrogade step, in his view – and the reaction of certain governments to the credit crisis.
I must say it is about time that we found out what the South Park kids made of the bailout. This is probably not entirely work-safe.
I came across this fine tribute website to John D. MacDonald, the writer of many crime/mystery novels, most of which were set in the area around Florida, the Bahamas and Caribbean. If you have not come across his writings, which are a sort of mixture of Lee Child, with a twist of Raymond Chandler, a shot of Ian Fleming, a light coating of Eric Ambler and a tincture of Robert Parker, then you should correct that oversight. One thing I love about these old 1950s and 1960s novels is the artwork on the covers. I love those “pulp” covers with pictures of hot dames, tough private eyes, guns, boats, gambling cards with smudges of coffee or whiskey on them. There is a whole genre of design and artwork that went into making these covers that deserves more credit than it usually gets.
Even today, the MacDonald books, especially his Travis McGee stories, which later got a hilarious echo in the crime capers – also set in southern Florida – of Karl Hiaasen – read as freshly and sharply today as when they were first written. Reading them makes me want to jump on a plane and head on down south for a spot of marlin fishing off the Keys. Bliss.
Talking of protests – see Perry’s post immedately under this one – there are a number of protests going on in London to coincide with the pointless and expensive Group of 20 meeting of major industrialised and developing countries next week. There could be some serious clashes. It makes me wonder, given the Tea Party anti-bailout protests in the US at the moment – which are starting to get more coverage from the MSM – as to whether there is any understanding on the part of the G20 protesters that they actually might share some common ground with the free marketeers of the Tea Partiers. After all, do the anti-globalistas understand the rage that many Tea Partiers feel at having their hard-earned cash used to bail out banks that were run by often quasi-state institutions and highly paid executives? Of course, a lot of the G20 protesters are Naomi Klein-type socialist buffoons who want to replace what they mistakenly think of as “unregulated capitalism” with central planning etc, but it seems to me that the might be a section of the protesters who might be open to understanding the real causes of the crisis and understand also the injustice of the prudent bailing out the imprudent.
Of course this may be unwisely optimstic and that all of the G20 protesters are statists of one sort of another, out to bash at a “system” that they do not comprehend. If there are ugly scenes in these protests and people working for banks are targeted and hurt, I hope that Gordon Brown, a prime minster of a government that once used to fete the City when it suited, feels suitably ashamed for pilloring those same bankers now that the credit crisis has hit. It is now another reason why my loathing of Gordon Brown and his brand of politics has reached hurricane-force level.
“Those who are incapable of earning our respect often end up demanding it.”
– A commenter called Chris on this blog post.
Diana Hsieh, amongst others, is justifiably outraged at the move in the US Congress to move towards an expansion of the Americorps programme, making it compulsory for all young people in the US to participate in it. It is a form of conscription, which while it may not involve an explicit military role, is nevertheless a form of draft.
Ideas, either good or very bad, have a habit of travelling across the Atlantic to the UK. I’d be willing to bet that if, say, David Cameron is the next prime minister, he will look favourably upon such ideas. It fits in well with his dreary, authortarian/paternalist version of conservatism. In fact, the worse the economic situation gets, the more likely that states will try such ideas out. And no doubt the social alarmists will latch on to such ideas as a way to address problems of violent youths and so forth.
Timothy Sandefur says the US legislation is clearly unconstitutional.
The Labour blogger Tom Harris is upset that the Tory MEP, Daniel Hannan, dared – oh the impertinence! – to attack Gordon Brown the other day. The horror. A politician attacks another politician and about policies too – what is the world coming to? But as Alex Massie puts it, this is tosh, and Mr Harris, if he has any self respect, must surely know it. It also makes me wonder what Mr Harris thinks MEPs should do, or if they have any rights at all to criticise leaders of the countries whence they come?
I have often watched, in recent times, Labour ministers berate opposition politicians for “playing politics” for having the temerity to criticise some policy or other. This is a totalitarian mindset. In an adversarial system such as the Anglosphere one, rhetorical combat and debate is all part of the system and a necessary part, as well. It is probably also a sign of how the ruling UK Labour Party is now frightened that, when confronted with an example of blazing eloquence by a European MP like Mr Hannan, the best that NuLab can do is moan about the MP’s “lack of patriotism”.
At this blog, over the years, we have argued long and hard about the dire state of the Tory Party and the sort of people that have advanced within. I am sure that libertarian purists will be able to unearth unflattering political details about Mr Hannan. But in the current environment, his speech – now a YouTube phenomenon – is like a dash of brandy to a half-drowned man. I hope it galvanizes his colleagues to follow suit.
When it comes to drowning, the gurgling guy you see vanishing beneath the waves is Gordon Brown. Developments such as the insufficient bids for UK government bonds suggest the end is now very close.
What the author of Nineteen Eighty-Four could never have predicted is that the citizens would subject themselves to the scrutiny of the cameras voluntarily. The deeper threat to human dignity in 2009 is not state surveillance but pathological exhibitionism. In so many respects, what Orwell foretold has come to pass — with the crucial difference that it has been embraced by consumers not imposed upon them by the totalitarian state.
– The Spectator.
Some of his enthusiasm for commodities may have taken a bit of a hammering of late, but I always enjoy what this much-travelled man has to say. He’s a free marketeer with a nice, engaging way of putting his argument across. Take a look at this interview if you have some time.
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Who Are We? The Samizdata people are a bunch of sinister and heavily armed globalist illuminati who seek to infect the entire world with the values of personal liberty and several property. Amongst our many crimes is a sense of humour and the intermittent use of British spelling.
We are also a varied group made up of social individualists, classical liberals, whigs, libertarians, extropians, futurists, ‘Porcupines’, Karl Popper fetishists, recovering neo-conservatives, crazed Ayn Rand worshipers, over-caffeinated Virginia Postrel devotees, witty Frédéric Bastiat wannabes, cypherpunks, minarchists, kritarchists and wild-eyed anarcho-capitalists from Britain, North America, Australia and Europe.
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