Posted by: graemebird | February 19, 2009

Monetary Economics.

Well actually just another thread to log more of my posts on Bryan Caplans blog to do with money and banking. So far this crowd is pretty patient. I suspect they are just going to ignore me. But someone somewhere will learn something:

“Under a 100% fractional reserve system, what would prevent banks/bankers from extending credit to increase their margins?”

Fines and jail and the loss of all their equity? How does that sound? If its illegal and you break the law you get fined or jailed. What is so hard to conceive about that.

The creation of bank-cash-pyramided money requires collusion between two or more banks in most cases. So if one bank doesn’t want to go under for breaking the law he won’t be an enabler of another bank that wants to flout the law and sell or loan non-existent assets. Which is always fraud.

On another note the key advantage to 100% commodity banking is finally we will have stability of spending. Stability of the volume of spending. Stable growth not just as a national aggregate, but regionally as well.

The advantages are really about correcting all the deficiencies of fractional fiat. Which causes gyrations in spending all over the shop. Since when the new bank-ponzi-money is created it starts changing hands and starts the process of erratic spending patterns.

Fractional fiat has many costs associated with it. But one big one is that it amounts to a full frontal attack on the price-and-spending-volume system for the allocation of resources when it comes to business spending. It throws a wrench in our price(and spending volume) system.

Some people seem to think that their ideals change the nature of reality in the strangest ways. Your anarchism doesn’t change the nature of monetary-economics. Being for anarchism and then claiming that 100% backing is utopian is pretty bizare right there. But in fact fractional reserve would destabilize any functioning anarchic system and can pass no market test.

Under any functioning anarchism you need profit-making enforcement agencies. To make a profit they would need to avoid enforcing contracts that are expensive to enforce or that cannot be enforced. A fractional reserve contract is such a contract. The most important fellow in the enforcement-agency would be the fellow who helped any two parties alter a contract so that it would be cheap to enforce. Since the way to be profitable is to basically just take your fee and not have to use up valuable resources enforcing dud contracts. Once ponzi-money is out in the system it no longer becomes possible to decide who owns what.

Sooner or later a market anarchy system would have to learn that it must not tolerate fractional reserve. Even if the lesson was painful and took them a 1000 years to learn. But we have a 1000 years record of banking to draw from and we ought to have learned that lesson by now.

Your transition strategy is moronic since it runs the risk of a monetary collapse, followed by a collapse in the velocity of circulation, which could destroy the economy with it, and discredit commodity money for a century to come.

Ideals do not overcome technical facts as some sort of utopian crazies imagine. I’m a pessimistic anarchist and a hopeful minarchist but I’d have to say that I get a bunch more pessimistic when I see people blithely dismissing the realities of monetary-economics in this way. All anarchists must come to grips with the reality that if they are serious, then an anarchistic society would have to take a zero tolerance approach towards fractional reserve.

“Joe (immediately above) is absolutely right. The essential insight of Burkean conservatism is that institutions evolved to their current state for good reasons.”

Well this institution evolved for very good reasons. A counterfeiting racket shared between government and banks. A fait accompli foisted on people after the fact.

We see the process of how this evolves even now, where share brokers are pyramiding on shares and issuing IOU’s when they cannot deliver. This issuing of IOU’s is a fait accompli foisted on the market after the fact of rampant embezzlement. Its an attack on market share pricing.

Likewise in the gold market. People just basically inventing ponzi-gold and trading it so the price of gold falls even as the waiting times to take delivery grow longer. All such bad habits get locked in the system if you let it and its very hard to navigate back to normalcy in property rights once these practices begin. And yet all such practices are an attack on the price system and something that is foisted on customers by the initial embezzlement of their property.

The Burkian argument is incredibly weak here. So much so as to be not be worth worrying about.

Once banks (brokers, gold suppliers) are allowed to embezzle property in this way the costs of setting things right is prohibitive. Thats the very good reason that this system evolved, but thats no reason to keep it when its an idiotic system.

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Responses

  1. “Sooner or later a market anarchy system would have to learn that it must not tolerate fractional reserve. Even if the lesson was painful and took them a 1000 years to learn. But we have a 1000 years record of banking to draw from and we ought to have learned that lesson by now.”

    Here again your whole argument falls flat. The current financial crisis shows that their is no “collective knowledge” built in any financial system, each actor protects his and only his interests, and therefore “reason” has to be enforced upon the system by legislation (so much for anarchy).

    NO THATS COMPLETE IDIOCY. THE CURRENT BANKING AND FINANCIAL CRISIS DEMONSTRATES WHAT ALL BANKING AND FINANCIAL CRISES DEMONSTRATE. AND THAT IS THAT BANK-CASH-PYRAMIDING IS A DESTABILIZING PONZI-SCHEME AND THE FUNDAMENTAL CAUSE OF THE BUSINESS CYCLE. WE HAVE A 1000 YEARS OF BANKING HISTORY TO SHOW THIS THESIS AND ITS UTTERLY FUCKING OBVIOUS ANYHOW SO ATTEMPT NOT TO BE A MORON.

    Furthermore, given the short-term bonus structure used to remunerate these actors they consider only their short term interests with no medium to long term logic.

    THATS GOT NOTHING TO DO WITH ANYTHING. UNDERS 100% BACKING THE LOANS COULD NOT HAVE BEEN MADE UNTIL THE TERM DEPOSITS WERE RECEIVED BY THE BANKS. ANY BANK THAT DID NOT WANT TO GO BROKE WOULD REALISE THAT IF THEY WANT TO LEND LONG THE MUST BORROW LONGER OR GO BUST.

    Typically, after Bear Sterns collapsed none of the other investment banks changed their practices although they all knew they had the same systemic problems.

    THEIR PROBLEMS WERE SIMPLY TO DO WITH BANK CASH PYRMADING. ALL KNOWN BANKS ARE INSOLVENT. ITS REALLY A VERY SIMPLE STORY.

    Another gem is this “article” must be: “Under any functioning anarchism you need profit-making enforcement agencies.”
    Anarchy by definition doesn’t have any agencies to enforce rules, and their is no such thing as “profit-making enforcement”

    NO THATS IDIOCY. IF ANARCHY IS TO FUNCTION AT ALL AND NOT BREAK DOWN TO FAMINE AND WAR-LORDISM IT MUST BE BASED ON PROPERTY-RIGHTS AND PROPERTY-RIGHTS MUST BE ENFORCED IN A SOCIETY OF HOMO-SAPIENS.

    Finally, rather than lampooning everybody for their lack of logic, I suggest you first learn to write an article with a beginning a middle end an end. Ultimately, you can only blame yourself for the fact nobody takes you seriously.

    I THINK ITS PRETTY CLEAR THAT I WAS MERELY LOGGING POSTS FOR THE EDUCATIVE BENEFITS OF SOMEONE WHO ACTUALLY WANTED TO LEARN ABOUT MONETARY-ECONOMICS. NOT SOME IDIOT WHO KNOWS NOTHING AND LUDICROUSLY THINKS HE HAS A HANDLE ON MATTERS. AND YOU ARE LYING WHEN YOU CLAIM THAT I DON’T KNOW HOW TO WRITE AN ARTICLE WITH A BEGINNING, MIDDLE AND END. I CAN CERTAINLY WRITE ARTICLES OF THIS NATURE IF I HAVE A MIND TO.

    THE ONLY ARGUMENTS YOU MADE ON THIS SUBJECT WERE ARGUMENTS THAT WERE IN ERROR. YOU HAVEN’T DONE VERY WELL TODAY AT ALL. ALTHOUGH YOU COMMENTS ON THE OTHER SUBJECT WERE FINE. PEOPLE TEND TO GO PRETTY NUTTY WHEN THE TOPIC COMES TO MONETARY ECONOMICS. I DON’T KNOW WHY THAT IS.


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