Hello,
After watching the republican debates on Youtube, I became a big Ron Paul fan. However, I noticed that a lot of people in the Austrian camp defend the gold standard and want to stop the existance of the FED/ECB/central bank as well as the fractional banking system.
I understand how the current system is bad for the middle class, but why do you/we always try to bring down the current system if simply introducing competition would show its weakness too.
Could you please tell me what is right or wrong about this reasoning:
1. FED+fractional reserve banking is bad, we know this but other disagree or are ignorant.
2. People have the right to disagree or be ignorant.
3. By imposing a gold standard, we limit the freedom of people to use fiat money or be ignorant.
4. By introducing competition (free entry), different schools in economics will introduce different currencies. We will use gold standard, others will use currency that inflates at fixed rate, others will use currency that is centrally managed. To each his own.
5. By introducing competition (free entry), the performace of these currencies can be compared in the long run, and demand will probably whift towards the best system.
6. By introducing competition (free entry), innovation can take place. Maybe the Google Dollar based on 0,4Gold + 0,3 Gold + 0,3 Adsense revenue will outperform the gold standard, who knows. Let the market ride and decide.
7. Arguing for competition is far easier politically than saying we know best with the gold standard. "Hey, we want to do things the way we want. It's the American way" is far easier to defend than "You are all wrong. All the others are laughing at me to make me look like a fool, but you have to believe me. Read a book please."
8. If people still want to use the USD Dollar under competition, why not let them? They can finance the state! The inflation tax becomes a tax on stupid people. Nothing wrong with a voluntary tax. Let them pay for the police, fire man, military and courts, and abolish all other taxes.
9. Make it illegal for the FED to deflate the USD, because that would be stealing from tax payers of course. Would also be impossible if FED revenue was the only revenue.
So, I this a pragmatic way to reach our goals or is this a stupid idea?
Edit: What I forgot to say, under free entry fractional reserve banking is not bad. It's just another way of paying the fee the private institution asks for supplying money. Competition will keep fees low, reserves high and thus inflation low.
Very good point, I totally agree with you. The result would probably be the same, but the means are completely differents. The austrian school promotes free market, so the mean should always be the free market.
pj86:I understand how the current system is bad for the middle class, but why do you/we always try to bring down the current system if simply introducing competition would show its weakness too.
The thing is that competition is forbidden and this is the core of the current system. Already introducing competition would be bringing down the system. Today the legislator is always looking for ways to ban others from participating in the market.
Estonia recently introduced a new law against money-laundring. In this law there was stated at all who want provide alternative means for payments etc. have to identify possible customers face-to-face. Momentarily this created a problem for a local company that was in the e-gold business and they shut down their transactions.
One night I dreamed of chewing up my debetcard - there simply is nothing like hard cash in your pocket!
pj86:So, I this a pragmatic way to reach our goals or is this a stupid idea?
Yes, and no. Very good points, all. I completely agree with everything except #9. First, you probably meant "inflate", rather than "deflate", but I assume that was just a slip. It's the part about making it illegal that I see as unnecessary. If there are competitive currencies, let them each do whatever they want, and the cards fall where they may.
And while it is a pragmatic approach, it is not as simple as convincing the people and government to just allow competition. The goal of government is not to provide what is best for the people, but to provide what is best for those in government, and connected to it, and to grow itself. Many indidviduals in government want what is best for the people, and there is no overarching conspiracy, it's just that all the incentives, institutions, and rules that make up the government in which they all act are completely oriented toward growth.
It is because this is a good idea that it will never be allowed. It is completely counter to government's actual ends. Governments' self-protective mechanisms would kick in, even if you managed to convince a majority of voters and a significant number of congress, etc. And, you would have to eliminate or evade taxes in order for there really to be competition.
That doesn't mean it can't be done, only that it can't be done within the political process. Google "agorism".
The state won't go away once enough people want the state to go away, the state will effectively disappear once enough people no longer care that much whether it stays or goes. We don't need a revolution, we need millions of them.
Thank you all for the replies so far.
Tim, you agree 100%, so no reply needed.
Don, simply introducing competition would indeed bring down the system. That is the basic point I was trying to make. It's just that introducing competition is more feasible than making our current currencies sound. The US Dollar has to inflate, or people on fixed interest rate credit will be burned. Also, there is guarantuee that what we say (gold standard) is true. Free entry is a hedge against our own potential stupidity.
Histhasthai, I meant what I wrote. Under free entry, the FED will have an incentive to inflate the US Dollar less, because performace differences with other currencies would become too obvious. Therefore, the FED might start thinking of deflating the US Dollar to outperform all other private currencies and eliminate their competition. This is predatory pricing basically, which should be allowed only if it is financed by private money. Point 9 is to make sure the FED won't take public money to introduce unfair competition and win the popular vote to go back to the old monopolistic system.
Regarding the remarks that it can not be done, I did not say it is easy. I just think introducing competition is easier than going to a gold standard. Easier, not easy. Do you agree with that?
pj86: Could you please tell me what is right or wrong about this reasoning: 1. FED+fractional reserve banking is bad, we know this but other disagree or are ignorant. 2. People have the right to disagree or be ignorant. 3. By imposing a gold standard, we limit the freedom of people to use fiat money or be ignorant. 4. By introducing competition (free entry), different schools in economics will introduce different currencies. We will use gold standard, others will use currency that inflates at fixed rate, others will use currency that is centrally managed. To each his own. 5. By introducing competition (free entry), the performace of these currencies can be compared in the long run, and demand will probably whift towards the best system. 6. By introducing competition (free entry), innovation can take place. Maybe the Google Dollar based on 0,4Gold + 0,3 Gold + 0,3 Adsense revenue will outperform the gold standard, who knows. Let the market ride and decide. 7. Arguing for competition is far easier politically than saying we know best with the gold standard. "Hey, we want to do things the way we want. It's the American way" is far easier to defend than "You are all wrong. All the others are laughing at me to make me look like a fool, but you have to believe me. Read a book please." 8. If people still want to use the USD Dollar under competition, why not let them? They can finance the state! The inflation tax becomes a tax on stupid people. Nothing wrong with a voluntary tax. Let them pay for the police, fire man, military and courts, and abolish all other taxes. 9. Make it illegal for the FED to deflate the USD, because that would be stealing from tax payers of course. Would also be impossible if FED revenue was the only revenue. So, I this a pragmatic way to reach our goals or is this a stupid idea?
1. Don't confuse two separate systems. There's the current system of fiat debt-based money, which is totally fraudulent. There's fractional reserve banking as it was practices prior to 1913 under a gold standard, which is also exploitative.
2. Yes, people have the right to disagree or be ignorant. That's one advantage of having your own blog. You can keep the ignorant trolling under control. In a forum like this, all viewpoints should be respected, including the stupid ones. This leads to flamewars.
3. Demanding people use gold as money is as immoral as demanding people use Federal Reserve Notes as money. There should be no regulation or taxation of money. People should be free to use whatever they want as money.
4. In the present, competition is forbidden by the State. Try setting up a gold-denominated warehouse receipt bank, and see how soon police raid you.
5. With true competition among monetary systems, nobody would use unbacked fiat paper. In a true free market, all money would be backed by tangible goods and services.
6. Google will not be the sponsor of a sound monetary system. The are a corporation and subject to regulation by the State. They aren't going to risk their search engine and adwords business to sponsor sound money. For example, eBay used to offer auctions conducted in eGold. They stopped that practice under pressure from the IRS.
7. It isn't easy to argue politically for free markets. Try calling your Congressman and seeing if he responds to your concerns. Organizing a grassroots political movement takes tremendous effort. There are all sorts of dirty tricks that can be used, as exemplified with Ron Paul's campaign.
8. It's one thing to say "I want to boycott the Federal Reserve and income tax." It's another to start actually doing it.
9. You mean devaluing the dollar (inflation). Inflation and deflation are opposites. Congress doesn't have the political will to restrain the Federal Reserve. The US Constitution says you have the right to petition the government for redress of grievances. What happens when you petition the government and they tell you to go **** yourself? Then what happens?
The most practical way to attain the goal of a true free market is agorism. It's the only resistance strategy I've seen with a nonzero chance of success. The idea is that you do work without reporting it for taxation and regulation. You use sound money instead of Federal Reserve Notes, protecting yourself from theft via infaltion. By avoiding the income tax, the inflation tax, and stupid regulations, your productivity is raised more than 50%.
I have my own blog at FSK's Guide to Reality. Let me know if you like it.
1. Why is fractional reserve banking exploitative if the reserve ratios are under the scrutiny of free entry competition?
2. I don't have a blog.
3. Agreed. Point 3 is not something I want. It's something I point out. You should read the subsequent points more as a storyline.
4. I am talking about introducing competition, so I am aware that free entry is illegal right now.
5. Indeed, and 100% gold will have a good shot at being a top performing currency. Maybe money would be 1% fiat or so to pay the issuing institution for its efforts. Don't know. Market knows. Maybe money will be 100% backed and still deflate, as advertisement space could be sold on the bills, part of which could be given to the owner of the bills. Other part to pay issuer. Again, I don't know the outcome, nobody does.
6. That they aren't now does not influence the validity of my reasoning.
7. Again I agree, but I think it is easier than making the FED use a gold standard. And more desirable too.
8. I indeed pay income tax, I live in a country where the tax is legal and where my employer pays it to the state before I ever see the money. Again, I don't see how this influences the validity of my arguments.
9. No I don't, read my previous post for an explanation.
pj86: 1. Why is fractional reserve banking exploitative if the reserve ratios are under the scrutiny of free entry competition? 2. I don't have a blog. 3. Agreed. Point 3 is not something I want. It's something I point out. You should read the subsequent points more as a storyline. 4. I am talking about introducing competition, so I am aware that free entry is illegal right now. 5. Indeed, and 100% gold will have a good shot at being a top performing currency. Maybe money would be 1% fiat or so to pay the issuing institution for its efforts. Don't know. Market knows. Maybe money will be 100% backed and still deflate, as advertisement space could be sold on the bills, part of which could be given to the owner of the bills. Other part to pay issuer. Again, I don't know the outcome, nobody does. 6. That they aren't now does not influence the validity of my reasoning. 7. Again I agree, but I think it is easier than making the FED use a gold standard. And more desirable too. 8. I indeed pay income tax, I live in a country where the tax is legal and where my employer pays it to the state before I ever see the money. Again, I don't see how this influences the validity of my arguments. 9. No I don't, read my previous post for an explanation.
1. Fractional Reserve banking has almost always been subject to State regulation. Limited liability incorporation encourages dishonest behavior by bank owners and management during times of stress. Limited liability incorporation allows banks to cheat their depositors in bankrupty court. Under common law, bank owners and management would be personally liable for any shortfall.
Regulation of banking means prevents competition. Before 1913, you needed something like $2M capital to start a bank. Regulation of banking costs small banks a larger percentage of their assets than large banks.
Fractional Reserve banking always existed in collusion with the State.
2. I like having a blog, because it helps prevent clueless people from dirsupting things.
4. How do you plan on introducing free competition? The people who control the government are quite happy with the current corrupt system. Why would they voluntarily change things?
5. It's hard to predict exactly what money would be like in a true free market. There are no historical examples.
6. If you try to set up an alternate monetary system as an on-the-books business, you'll be shut down by State violence. If you do it 100% legally, then the cost of regulation compliance will wreck your business model.
7. How are you going to convince the people who control the Federal Reserve to switch back to a gold standard? They like being able to print more money and give it to themselves. Why would they voluntarily give up this power?
8. The income tax is immoral. The legal arguments favoring or opposing the income tax are irrelevant.
9. The Federal Reserve has alternating inflation/deflation cycles, because that lets them maximize the amount of wealth they confiscate. The long-term trend is inflation.
Thank your for your reply.
You make a good point about the effect of law on business owner behavior. What is the libertarian point of view on limited liability and the law system in general?
I don't understand why you keep on pushing that it is impossible to change anything. Ron Paul's popularity give me hope. If you stop caring, government wins always.
Also, not sure if it's what you want to say with your references to your blog, but if you consider me clueless, so be it. I am here to learn.
pj86:What is the libertarian point of view on limited liability and the law system in general?
I'm not technically a libertarian. A proper libertarian says "There should be a sharply limited government that restricts itself to police, defense, and contract enforcement." I say "Who needs a government at all?" This philosophy is best decribed as "agorism". I've also heard it described as "left libertarian" or "up libertarian". Technically, I'm also an anarchist, but the "anarchist" label is tainted in many people's minds. Most people think an anarchist is someone who goes around blowing up government buildings, which I think is immoral and a waste of time.
My attitude is "The only valid form of law is natural law or common law, and contract law." The concept that a group of 535 people can get together and ban me from buying incandescent light bulbs is ridiculous.
Once you give government a monopoly on police protection, then it expands to the point where you have the current monster. Once you give someone the power to tax and force you to pay for their services, then it expands to the point where they control practically everything.
A corporation is a legal fiction. Saying "The Coca-Cola corporation owns this property" makes as much sense as saying "Santa Claus owns this property." They both are fictional characters. A group of people may get together and pretend they're a corporation, but they should get no special legal protection.
pj86: I don't understand why you keep on pushing that it is impossible to change anything. Ron Paul's popularity give me hope. If you stop caring, government wins always.
Are you looking forward to Ron Paul's inauguration? Thanks to all the fair and balanced media coverage he received, he clinched the Republican nomination easily.
So you're giving up on pursuing reform for 2-4 years until the next election?
Voting doesn't work. There are too many dirty tricks that can be used.
I didn't say I was giving up on pursuing reform. I said I was giving up on pursuing reform by voting or any other political means. You've been brainwashed to believe that the only meaningful political action a person can do is vote.
That's the whole point of agorism or "counter-economics".
Promoting competition is more important than stopping central banking. The problem with the current system is that we have a central bank that limits competition. Without the Fed, we would have competition among banks with currencies. Some banks might use gold standards, others might use silver standards, others might just have "paper money," etc. It would be up to the consumers to choose. In addition, consumers would probably choose a currency based on precious metals for their stable value.
I'd also like to point out that fractional reserve banking and competition do not exist side by side. Banks that practise fractional reserve banking under a free banking system are bound to fail since they would not have enough reserves. Fractional reserve banking only exists under government coercion, like we saw in the Panic of 1819, the depression of 1907, and other early booms/busts.
“The fact that our economical models at the Fed, the best in the world, have been wrong for fourteen straight quarters, does not mean they will not be right in the fifteenth quarter.” - Alan Greenspan (no kidding)
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