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A couple of announcements Jonah Goldberg, who writes at the US conservative publication, National Review – and other places – is over in the UK next week talking about his recently-published book, Liberal Fascism. I have not read it but some of the readership might find it interesting. He’s in London at venues like the London School of Economics.
Meanwhile, as our own Brian Micklethwait pointed out the other day on his own blog, Kevin Dowd, an economist very much in the free market camp and an authority of monetary economics, is delivering the annual Chris R. Tame memorial lecture of the Libertarian Alliance in March. Kevin Dowd is not just a very nice fellow and a sharp economist, he is also an advocate of free banking and a critic of state monopoly money. He and his colleagues have been doing important research on the topic up in his academic redoubt in Nottingham. I definitely recommend this lecture. It pays to book early.
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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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If you’re interested, the Glenn and Helen Show did an interview with Goldberg about book at the end of 2007. It’s available to listen to or download here.
The Dowd talk, depending on just how good it is, could be huge. The timing is absolutely perfect, although I guess the LA got lucky rather than clever with that. March 17 looks like being, almost to the day, the moment when the Just Throw Money At It policy will have collapsed in ruins so ignominiously ruinous that the whole British Establishment will be yelling to the anti-bail-out mob (i.e. us): Well what the hell would you do? If Dowd answers that question eloquently and with precision, and does not confine himself merely to denouncing the current blunders, then he could become a major figure.
For libertarians, this man is a godsend. He is both an unswervingly principled libertarian and an expert (long before such expertise suddenly became topical) on all the details of banking regulation and monopoly money which the rest of us know the broad (and bad) outlines of but not the nitty gritty. (I exclude Paul Marks from this generalisation. He was raging here about “Ponzi schemes” here, long before the phrase hit the headlines.)
Never in my entire life have I been more eager and anxious (i.e. that he hits the various nails on the head) about a mere speech. I’m actually more nervous about this event than about any speech I have ever given myself, not because it could be bad, but because it could be so, so good, and must be.
J. Goldberg will even be on B.B.C. Radio 4’s “Start the Week” (just after 9A.M., British time, on Monday – repeated in the evening) and this Andrew Marr show is normally a leftists only event.
Brian is right about me “raging” about the money supply expansion in Britain the United States and other nations over recent years – although some might say if I had spat less blood and produced more calm arguement I might have been more likely to have had an effect.
Kevin Dowd faces a choice – as do all “free bankers”.
Let us leave aside whether fractional reserve banking is fraud by definition (that is a legal debate rather than one of economics) – the economic question is “what do you do when these entities get into trouble?”
Do we go in for endless Alan Greenspan style “rescues” (remember all the “Greenspan saves the world” stuff about Greenspan, every other month, for year after year as he injected more money into the system to save X, Y, Z – money that the bankers built pyramids of credit upon) or do you let them go bankrupt?
If you let the banks go bankrupt how long will people keep putting money into fractional reserve banks (into entities who lend out money whilst pretending that the “depositors” somehow still have the money – and so are able to expand lending beyond real savings).
In the long run “free” fractional reserve banking is not really an option (for all the talk of Scottish banking or what not) – as the fractional reserve bankers will either demand a “lender of last resort” (i.e. subsidies) or will simply violate their contracts and not hand over money they had promised to do (a trick they played, again and again, in Scotland when they refused to hand over gold that they had entered into contracts to hand over on demand).
Of course Kevin Dowd could simply reply that he is against all bailouts and that he would insist that banks and other entities honour contracts they had signed – or go bankrupt.
In which case credit money bubbles would be vastly smaller than the one we have – although whether fractional reserve banking would long survive is an open question.
“What do you do?” Asks Brian.
There are two practical replies (practical in economic terms – neither is politically practical).
Either one lets the banks (and those corporations that depend on them – remember in this demented world many companies even borrow money to meet payroll) go bankrupt (simply honouring existing law by paying off all depositors with less than 50,000 Pounds in the bank in Britain, or less than 100,000 Dollars in the United States – an option much less expensive than what has already been done).
In which case there will be savage slump – but a recovery will start within a year (think 1921 – Warren Harding cutting government spending in the face of a bust, the last time this was ever done).
Or we have a LAST bailout – something that even Murry Rothbard (the anarchist) sometimes supported.
The government physically produces money (with the printing press – no credit games) and GIVES (not “lends”) it to the banks. Perhaps with the proviso that all government paper money is now worth a certain amount of gold – the physical gold that the government actually has divided by the number of notes it has printed (and will never print any others on top of).
Regardless of whether there is a gold link or not the paper money would cover all the bank credit – so the banks would be saved by this great gift.
BUT – there would be a condition to this gift.
The banks must never again lend out more money than they have physical notes in their vaults – each loan most mean a reduction in the “deposits” they claim to have (with no two people having the same money at the same time – and no credit money expansion whatever). In short one could either “deposit” money with a bank (and get no interest – indeed have to pay them to look after the money) or one could give the money to the bank to be lent out – in which case one would NOT have a deposit with the bank (one would be a money lender – useing the bank as an agent).
Both of the above are politically impossible – as all political parties (and politicially connected businessmen) want to “get lending going again” so that the All Fools Festival can continue.
So the financial system is doomed.
Paul, I have such a high regard for your comments that I wish I could have an RSS feed on them!
As you say both the options you mention (bankruptcy and a final bailout) are politically impossible now, but there must surely be a chance that the political landscape could change within the next decade (I know – none of us can afford another ten years of this evil nonsense).
If and when that happens, certain people will have to be putting forward ‘Most Confident Alternatives’ (Brian Micklethwait’s term). So, bearing in mind a possible shift in political context, I’m curious to know your opinion as to the merits of private commodity money alternatives – a la Hayek’s text ‘Denationalisation Of Money’.
More specifically, in that text there is a claim by Hayek that Gresham’s Law only comes into effect when there are fixed rates of exchange among currencies enforced by the State. I have heard the U.S. ‘wildcat’ banks mentioned as a refutation of this claim, but I wasn’t convinced – branch banking was not permitted thus transport would have been a major aspect of exchange costs.
The Jonah Goldberg talk was fantastic 🙂 There were some very cool people in the audience, and a surprising number of them seemed to disagree with Goldberg, so it wasn’t simply preaching to the choir (as the Friedman talk with the Oxford Libertarian Society a while back seemed to be, although admittedly publicity on such an event is different). Goldberg’s talk was super-compelling and he didn’t spit acid, which was suprising and nice, especially considering it would have been so easy since the talk was basically addressing a slander. (Not that I’m against a good and well-deserved acid-spitting now and again, but it was nice to see someone deliver a smart, accurate and witty presentation without being caught up in paroxysms of indignation.)
I’m certainly buying his book now.
Yes Goldberg held his own on the Andrew Marr radio show also. Although he went soft on B.H. Obama – but it would take extreme (suicidal?) courage to oppose “The One” on the B.B.C.
Mike – sorry I did not write in reply to your questions before. And you may never read this now.
However….
Wild cat banks – sure they existed and tended to go bankrupt (taking their notes with them) when allowed to go bankrupt.
Bad money does not drive out good – when there is no fixed exchange rate.
Hayek is correct on this – as shown by the private mints in American history.
Yes there were many private mints (especially in the West) till the 1850’s – and when they produced dodgy coins people did not accept them at par (if at all) with the full weight and purity coins produced by other private mints.
So the good private coin minters bankrupted the bad private coin minters.
And would do so again.
What is politically possible.
Well there are some good people in both Senate and House – and some good State Governors (such as Governor Mike Samford).
So take heart – I could not have written anything like that about Britain.
I doubt there is a single person in the House of Commons who knows anything about real economics.
“What can I do to help” (your unspoken question).
Easy for you (well less difficult for you than for someone British like me).
Primary challenge.
If Republicans vote for the “Obama stimulus plan” or othersuch (such as the Wall Stree bailout) you support a primary challenge.
And you tell them this in advance.
There is little point (and little chance) of the Republicans winning any elections if they are pro bailout.
So first make them anti bailout (if need be by getting in a bunch of new candidates) and then take the arguement to the country – in the face of the economic failure that is comming.
You can do this – British people can not.
The Conservative party does not work that way.
Paul Marks – thanks – I was waiting, but did not want to be so rude as to alert you to my question on another thread.
Your defence of Hayek is encouraging – but I’d like to know more about that period of U.S. banking history – is there a particular book you might recommend?
Your point about primary challenges is well taken; however to implement that, I’d have to apply for U.S. citizenship since – like you – I too am actually British! I’m not sure what gave you the impression that I was an American…