The Mises Seminar

Today I attended the Mises Seminar in Sydney. It was organised by new kid on the block The Mises Institute of Australia. The event was very professionally organised, with a well planned agenda, a great venue, a terrific guest list, and brilliant libertarian speakers. As and when they have another such event I would encourage all libertarians to go along and have a look.

I met lots of terrific people. When I mentioned my involvement with the LDP I got an unfortuantely too typically libertarian response which is that people would like to join the LDP and vote for a candidate of the LDP if only the LDP was properly libertarian on policy X, policy Y or policy Z. Ironically many of these same people if in America would vote for Ron Paul who belongs to a political party far less libertarian than the LDP. Strange but unfortunately typical.

I would definitely hang out at one of these seminars again and I support the effort entirely. However if I was to complain about the lack of libertarian purity regarding the event it would be the obsession of most of the economic speakers with the very unlibertarian idea that fractional reserve banking should be illegal. It is the same idea that turned me off the Austrian school of economics when I first encountered it more than a decade ago. Thankfully they had one speaker, Steve Kates, who did not share this obsession. He kind of saved the day for me.

To be clear I do agree with Austrian economists when they say we should abolish central banks. This is a very libertarian proposal.

In summary libertarians can disagree on the details but should still work together where they have common cause and find agreement. So vote LDP and also support the Mises Institute of Australia.

73 thoughts on “The Mises Seminar

  1. Pingback: Congratulations to the the Mises seminarians at Catallaxy Files

  2. Economics aside there was also a provocative talk on smoking and property rights. As well as a presentation from a front line project co-ordinator from Afghanistan. Also a very educational introduction to Natural Law.

  3. Good write-up terje. I completely agree on the fractional reserve issue and was disappointed that there wasn’t more time for debate on that particular point. Chris leithner was making bizarre analogies when he tried to defend it after being challenged on it. I don’t think he’s thought it through properly. Otherwise I thought the event was organised well and I’ll certainly attend the next one.

  4. ‘vote for a candidate of the LDP if only the LDP was properly libertarian on policy X, policy Y or policy Z.’

    Interesting to hear. It’s a similar story in the UK and just about every libertarian group I have looked at. They often end up splitting over an issue and it simply kills any chance of momentum. I’d say across all groups there is a common philosophical outlook. It’s a pretty common thing that people are stuck between the LIbs/ALP, not fans of some/most Conservative policies, and conflicted over big spending union backed parties.

    On fractional reserve, I say let the market decide, take the monopoly of money supply away from the government and either fractional reserve will be chosen by the market or the hard liners will be proven right and banks will fold. I can’t see it being solved via arguement and the Mises guys should accept this as a compromise. If they are so certain then the market will pick them and they have nothing to lose.

  5. Thanks Terje.

    On fractional reserve banking, this is Leithner’s argument:

    “[I] cannot regard the words “deposit” and “loan” as synonyms — and the underlying concepts as equivalents. If a bank lends a deposit, then (whether the depositor knows it or not, and whether he likes it or not) from the depositor’s point of view it ceases to be a deposit and becomes a loan … [The logical] impossibility of fractional reserve contracts is categorical. That is, it’s logically inconceivable that a bank and a customer can agree to convert money substitutes (i.e., warehouse receipts, banknotes and demand deposits) into debts. It’s also logically impossible for two people simultaneously to own the same item of property. They may, of course, say or even certify otherwise — just as I may say, certify and sincerely believe that 1 + 1 = 3 or that I own a kangaroo that can speak Finnish or prove the Gauss-Markov Theorem. But what they or I say or certify is objectively false. Just as triangles are different from squares, so too money substitutes (titles to present money) are distinct from debt claims (titles to future goods). To say otherwise doesn’t change reality; it misrepresents it. Hence the constructive fraud.”
    ~ The Evil Princes of Martin Place, p. 175, p. 180

  6. Ben – yes he is making up definitions to suit his agenda and then having a semantic wank.

    Deposits are loans. They have unusual loan terms but they are still a loan. If you open a deposit account you enter into a contract with the bank. The relevant documents are the application form you sign and the terms and conditions that you agree you have read. I have read the terms and conditions for my deposit account. They are pretty clear. I can withdraw money from my account any time I want so long as the bank has the cash on hand. It states that if they don’t have the cash on hand they may limit the size of the withdrawal or require a longer notice period to get the cash. So there is nothing fraudulent about the FRB my bank is engaged in.

    More discussion here:-

  7. I also went to the Seminar. I thought it was very stimulating and enjoyable, with some very interesting talks, and good to meet other like-minded people. Great to see so many young people. Hans Hoppe gave an interesting analysis of the state, and another explaining banking and credit in plain language. Ben O’Neil gave a very good talk on the defects of the positive theory of law (the idea that the law is whatever the state says it is).

    I also couldn’t understand why anyone, particularly of the Austrian school, would say that *voluntary* fractional reserve banking should be illegal. If a bank, a depositor of money, and a borrower of money, all agree that the bank will hold, say, only an 80 percent reserve why should that be illegal? The difference in risk and return would be contemplated in the price, and that is as it should be. It is no answer to say, as Chris Leithner did, that it’s “fraud”, because if the parties know and consent, where is the fraud? And even if it is illogical or even deluded, so what? That’s not a reason for banning something. It is only fraudulent under our current system, which imposes FRB on the whole population, in which *non-consenting* *non-parties* are harmed.

    My other thought is that it would be good to have some activities which are not just critical argumentation, but perhaps for example, a focus on common vision, ideas for activism over the coming year, perhaps some comedy.

    Libertarians tend to be a herd of cats, and the tendency to splinter over differences which do not matter in practice is regrettable. *If and when* we reach the stage of a classical liberal government, *then* may be the time to argue the merits of further reductions in government. In the meantime, I would be gladder if we focussed on our common values and goals, than finding splinters.

  8. Whilst I agree with a lot of the positions postulated they are academic in their orientation not policy oriented. My interest is more at the policy end of the spectrum. Whilst in a room full of libertarians you will probably find over 90% support for abolition of central banking the group will splinter on the replacement optional.

    Alternatives might be:-

    1. A gold standard.
    2. A competing commodity standard. However as was the case with bimetalism decisions about the unit of account for taxation becomes complicated.
    3. Move to a Hong Kong style monetary authority.
    4. Adopt the US dollar.

    Obviously people should be able to use any currency they want but what currency should the government use for denominating tax liabilities and for government spending?

    It is in my view a little like the republican debate. It isn’t hard to get a majority that thinks we should be a republic, however the moment you get real specific about an alternative you find the majority tends to disappear.

  9. Terje: Leithner is not, as you allege, “making up definitions to suit his agenda and then having a semantic wank”. Here are pages 92-96 of The Evil Prince of Martin Place, clearly showing that he is within the tradition of Classical Roman Law:

    The Irregular Deposit Contract and Loan Contract under Classical Roman Law

    “The first problem for us all, men and women, is not to learn, but to unlearn,” said Gloria Steinem. To learn good economics, we must purge bad economics from our minds; similarly, to uncover sound legal principles we must first clear dense thickets, which have often accrued over the centuries, of bad legal decision, legislation and regulation. The traditional and universal legal principles in relation to the irregular deposit contract and the loan contract did not emerge in a vacuum. Nor were they the result of deductive reasoning independent of sense experience. In the Corpus Juris Civilis, Roman jurists bequeathed to us the concept of law as an underlying structure of rules which (with a bit of luck) we discern more clearly and understand better over time. Law exists from the start; its discovery and proper application, however, takes time and proceeds erratically. Hence governments don’t make law. At best, they help to clarify and apply it; typically, they bastardise and flout it.

    Cicero’s rendering of Cato’s words shows that Roman jurists knew that law was not the invention of any man or group; further, its comprehension was the product of many minds over centuries:

    There never was in the world a man so clever as to foresee everything and that even if we could concentrate all brains into the head of one man, it would be impossible for him to provide for everything at one time without having the experience that comes from practice through a long period of history.

    Our understanding of law, in short, and of the consequences which ensue when we contravene it, emerges from a process of continuous trial and error in which each individual takes into account both his own circumstances and the behaviour of others. Classical Roman jurists never sought to invent the law or to create new law, but rather to discover pre-existing universal legal principles which inhere in the logic of human action and of social relationships. Accordingly, these jurists understood that the violation of law rends the fabric of human relationships.

    As part of this process, these jurists discovered the irregular deposit contract, clarified its essential principles and elaborated its details. This contract is not, it’s important to emphasise, an intellectual contrivance or an abstract creation: it’s a natural consequence of human action as expressed in social interaction and cooperation. Section 3 of book 16 of the Digest (one of the major parts of the Corpus Juris Civilis), entitled “On Depositing and Withdrawing,” introduces and analyses the deposit contract. Its author, Ulpian, begins with the following definition:

    A deposit is something given another for safekeeping. It is so called because a good is posited [or placed]. The preposition de intensifies the meaning, which reflects that all obligations corresponding to the custody of the good belong to that person.

    Roman jurists understood that a deposit can either be regular (in the case of a specific good) or irregular (in the case of a fungible good). The actual phrase depositum irregolare did not, however, appear until the 15th century. In number 31, title 2, book 19 of the Digest, the jurist Paul explains the difference between the loan contract and the deposit contract of a fungible good. He concludes:

    If a person deposits a certain amount of loose money, which he counts and does not hand over sealed or enclosed in something, then the only duty of the person receiving it is to return the same amount.

    Paul affirms, in other words, that in the monetary irregular deposit the depositary’s obligation is to return the tantundem: the equivalent in quantity and quality of the original deposit. If for some reason the depositary goes bankrupt, the depositors have absolute privilege over any other claimants, as Ulpian explains in number 7, title 3, book 16 of the Digest:

    Whenever bankers are declared bankrupt, usually addressed first are the concerns of the depositors; that is, those with money on deposit, not those [i.e., lenders] earning interest on money left with the bankers. So, once the goods have been sold, the depositors have priority … and those who received interest are not taken into account — it is as if they had relinquished the deposit.

    Ulpian implies (and elsewhere indicates) that the payment of interest is incompatible with the monetary irregular deposit. When bankers paid interest, it was in connection with a totally different contract (i.e., a mutuum contract or loan to a banker).

    The Digest (book 47, title 2, number 78) specifies the depositary’s obligations admirably clearly: if you receive a good on deposit and use it for a purpose other than that for which it was received, then you commit theft. The jurist Celsus also tells us (book 47, title 2, number 67) that taking a deposit with the intent to deceive constitutes theft. Paul defines theft as “the fraudulent appropriation of a good to gain a profit, either from the good itself or from its use or possession; this is forbidden by natural law.” In short, Roman jurists recognised that depositaries who receive money on deposit are often tempted to use it for themselves. This is acknowledged elsewhere in the Corpus Juris Civilis, along with the importance of properly penalising these actions — by charging the depositary with theft, “so that, in fear of these penalties, men will cease to make evil, foolish and perverse use of deposits.”

    Finally, we find evidence that Roman jurists understood the difference between the loan and the monetary irregular deposit. In section 2, number 24, title 5, book 17 of the Digest, Ulpian made the clearest statement to this effect:

    Once a banker’s goods have been sold and the concerns of the privileged attended to, preference should be given people who, according to attested documents, deposited money in the bank. Nevertheless, those who have received interest from the bankers on money deposited will not be dealt separately from the rest of the creditors; and with good reason, since to lend is one thing and to deposit another.

    It’s clear from Ulpian’s writings that bankers undertook two fundamentally different operations. On the one hand, they accepted deposits, which involved no right to interest and obliged the depositary to maintain the full, continuous availability of the tantundem in favour of the depositors, who enjoyed absolute privilege in the case of bankruptcy. And on the other hand, they received loans which did oblige the banker to pay interest to lenders, who lacked privileges (relative to depositors) in the case of bankruptcy. In conclusion, Roman legal tradition correctly defined the institution of monetary irregular deposit and the principles governing it, along with the essential differences between this contract and the loan or mutuum. Alas, as a result of the combined actions of bankers and politicians and as we’ll see in Chapter 4, this understanding of these differences was gradually corrupted over succeeding centuries. What the Romans understood clearly two millennia ago we have utterly and completely muddled. From this confusion emerge a host of evils — including financial crises and economic recessions.

  10. Benjamin.

    “The jurist Celsus also tells us (book 47, title 2, number 67) that taking a deposit with the intent to deceive constitutes theft.”

    There is no deceit. Even children know how banks work.

    The Romans were not capitalistic and not a model to the world. Do you want to also restrict farmers to owning 300 acres of land?

    The Romans had no normal banking system and collapsed under the handicap of not being able to generate enough wealth to pay for their army to defend the realm?

    I’m not surprised.

  11. Ben – thanks for the Roman law citation. This rather supports my point that what is being engaged in is a semantic game. Leithner isn’t making up definitions, that was perhaps too harsh a statement on my part, but he is being silly about them. It does not matter what a word means in some past time or some other context, what matters is the contempory meaning in the context of what is currently being examined (fractional reserve banking) and whether the parties involved have a shared understanding of that meaning. The word “deposit”, like many word, takes on a variety of meanings dependent on context. The technical term for this phenomena of language is called polysemy.

    Examples of polysemy abound. I went for a walk in the wood to gather wood. I could milk the cow for milk. You can bank on your friends but you can’t bank on the bank. The Wikipedia article has many other examples.

    So yes the word deposit means to put something somewhere. It also means to loan money to a bank. The etymology of the two meanings is no doubt connected. That is the fickle nature of language and it’s erratic evolution.

    What matters is not what “deposit” meant to Roman jurists. What matters is what “deposit” means to contempory people engaged in providing and receiving banking services. I have never seen or done a scientific survey to clarify what the average person understands by this word in this context but I have done anecdotal surveys and most people seem to know that money left on “deposit” with a bank is not physically held in reserve. They know it is lent out.

    And even if this word is problematic it isn’t fatal to the enterprise of fractional reserve banking. We could pass a law prohibiting the use of the word “deposit” and fractional reserve banking would be entirely unaffected. We could even invent a new word and precisely define it but the activity would be unchanged.

    Banking has not tricked nearly everybody in the world using a phony interpretation of the word deposit. Yet Leithner has tricked a few people using a phony interpretation of the word deposit. He has done it by ignoring context and by seeking to cloud the issue using a form of argument by authority (Roman jurists).

    This tactic, or to be more generous this mistake, is also something many Austrians do with the word “inflation”. They get all doctrinaire about inflation meaning an increase in the money supply. I fully accept that definition when I read Austrian literature but likewise I accept the alternate mainstream definition (an increase in the price level) when I read other literature. Words have specific meanings, but only in specific contexts.

  12. Terje,

    At first you accuse Leithner of making up definitions. Now you accuse him of arguing from other people’s definitions.

    Not always, but sometimes, the etymology of a word is useful. As Jose Ortega y Gassett said:

    [I]f we trace back the history of every word in a language, of every syntactic construction, we often arrive at what we can, at least relatively, call their origin — its etymology — the word or the turn of speech was a creation of speech that had meaning for its inventor and for its immediate recipients; hence, that it was human action, which, by coming into use in the language, became drained of meaning, became a phonograph record, in short, became dehumanised, soulless.

    So you claim it has been drained of meaning and is no longer an issue. Misesians agree that it has been drained of meaning, but disagree that its original meaning is no longer an issue. Since Misesians explain the origin of money through the regression theorem, going back to when the commodity of exchange was the money, they see that fractional reserve banking hijacked the connotations of money and banking, and that it did so without the consent of the relevant parties. This history cannot be whitewashed. It must be taken into consideration when talking about fractional reserve banking and using the connotation of words but not their meanings.

    Consider the words consent, representation, etc. These words, libertarians ought to agree, are misunderstood in current usage. No one consents to government, and the government does not represent anyone. Yet, according to you, since most people using the terms think it does, therefore we do and government is consensual and representative. I think this is a fair analogy. And so Leithner’s argument stands.

  13. There can still be fraud if parties know and consent. We can sign a contract agreeing that triangles are square, but that does not mean triangles are square. There is such a thing as an invalid signed contract. As I have quoted Leithner above:

    [I] cannot regard the words “deposit” and “loan” as synonyms — and the underlying concepts as equivalents. If a bank lends a deposit, then (whether the depositor knows it or not, and whether he likes it or not) from the depositor’s point of view it ceases to be a deposit and becomes a loan … [The logical] impossibility of fractional reserve contracts is categorical. That is, it’s logically inconceivable that a bank and a customer can agree to convert money substitutes (i.e., warehouse receipts, banknotes and demand deposits) into debts. It’s also logically impossible for two people simultaneously to own the same item of property. They may, of course, say or even certify otherwise — just as I may say, certify and sincerely believe that 1 + 1 = 3 or that I own a kangaroo that can speak Finnish or prove the Gauss-Markov Theorem. But what they or I say or certify is objectively false. Just as triangles are different from squares, so too money substitutes (titles to present money) are distinct from debt claims (titles to future goods). To say otherwise doesn’t change reality; it misrepresents it. Hence the constructive fraud.

  14. You are conflating separate issues. The objection that libertarians have regarding government does not rest on some notion that the average person is using words incorrectly. Concepts such as “freedom” and “government coercion” are well enough understood and if not can be reconciled with explanation. The difference between social democrats and libertarians is not based on confusion about what words mean but real differences of opinion about the morally correct social order and how people should relate to each other. There is not some lack of transparency in the language that tricks social democrats into being social democrats. Just as the word “deposit” does not trick people into thinking fractional reserve banking is allocated storage (or even unallocated storage).

    The difference is that social democrats, knowing what they are doing and judging it appropriate, impose their will on others. Depositors, knowing what they are doing and judging it appropriate, merely enter into a voluntary agreement with a bank.

    And again even if we conceded that the word deposit is misleading, and passed a law banning it’s usage, fractional reserve banking would still exist, would still work as it does today and would still be accepted by the overwhelming majority of consumers.

  15. Put similarly:

    As Hoppe, Block, and Hülsmann note, “any contractual agreement that involves presenting two different individuals as simultaneous owners of the same thing (or alternatively, the same thing as simultaneously owned by more than one person) is objectively false and thus fraudulent.”[4] A “fractional reserve banking agreement implies no lesser an impossibility and fraud than that involved in the trade of flying elephants or squared circles.”[5]

    Even Given voluntary agreement though:

    “The truth is that fractional-reserve banking amounts to violating the nature of the law of property rights. And so the argument that fractional-reserve banking represents sensible money economizing – an argument that Mr. Wolf brings up against a gold standard – doesn’t hold water.

    Arguing in favor of fractional-reserve banking would in fact be tantamount to saying that it is legal (or rightful or even lawful) that Mr. A does whatever he wishes with Mr. B’s property – without requiring Mr. B’s consent.

    What, however, if the bank and the depositor both agree voluntarily that money deposits should be used for credit transactions via the issuance of fiduciary media? Even such a voluntary agreement would be in violation of the law of property rights.

    While bank and depositor benefit from such a trade (or expect to), what about those who receive fiduciary media? They would be falsely lured into exchanging goods and service against an item (fiduciary media) that is already claimed as property by others – something the seller presumably wouldn’t agree to if he had only known the very nature of the trade.

    What if all market agents voluntarily agreed to engage in fractional-reserve banking? The conclusion above wouldn’t change: voluntarily accepted fractional-reserve banking would represent a monetary system that is, by its very nature, in violation of the nature of the law of private-property rights.”

  16. Just thought it might be useful to publish Hoppe’s point he gave when asked about it, which essentially mirrors this:

    Daily Bell: How about the free-banking paradigm? Is private fractional banking ever to be tolerated or is it a crime? Who is to put people in jail for private fractional banking?

    Dr. Hans-Hermann Hoppe: Assume gold is money. In a free society you have free competition in gold-mining, you have free competition in gold-minting, and you have freely competing banks. The banks offer various financial services: of money safekeeping, clearing services, and the service of mediating between savers and borrower-investors. Each bank issues its own brand of “notes” or “certificates” documenting the various transactions and resulting contractual relations between bank and client. These bank-notes are freely tradable. So far so good. Controversial among free bankers is only the status of fractional reserve deposit banking and bank notes. Let’s say A deposits 10 ounces of gold with a bank and receives a note (a money substitute) redeemable at par on demand. Based on A’s deposit, then, the bank makes a loan to C of 9 ounces of gold and issues a note to this effect, again redeemable at par on demand.

    Should this be permitted? I don’t think so. For there are now two people, A and C, who are the exclusive owner of one and the same quantity of money. A logical impossibility. Or put differently, there are only 10 ounces of gold, but A is given title to 10 ounces and C holds title to 9 ounces. That is, there are more property titles than there is property. Obviously this constitutes fraud, and in all areas except money, courts have also considered such a practice fraud and punished the offenders. On the other hand, there is no problem if the bank tells A that it will pay interest on his deposit, invest it, for instance, in a money market mutual fund made up of highly liquid short-term financial papers, and make its best efforts to redeem A’s shares in that investment fund on demand in a fixed quantity of money. Such shares may well be very popular and many people may put their money into them instead of into regular deposit accounts. But as shares of investment funds they would never function as money. They would never be the most easily and widely saleable commodity of all.

  17. From a typical modern civil code (that of my home state, Louisiana), as I recently noted here:

    “Art. 2931. Use of the thing deposited

    The depositary may not use the thing deposited without the express or implied permission of the depositor.”

    I do not think FRB should be illegal nor that it is inherently fraud, but a loan is not a deposit, and economically speaking, I do think FRB is a fragile ponzi scheme (not that there’s anything wrong with ponzi schemes).

  18. Hoppe is not calling property notes titles. He is stating his view that characterizing it as “redeemable on demand” *means that it is* a title, not a loan. This follows from his (correct, IMO) understanding of economics. But the FRFBers say that it IS a loan. If if IS then it’s not a title, and HOppe’s objection (I think) disappears. But then we would have a mere economic disagreement: Hoppe would say that if it IS merely a loan, and NOT a title, then they cannot guarantee to redeem it on demand (he is right about this), and that it will not succeed as a practical matter (I think he’s right).

    The solution is for the bank to be very clear about what they are doing: are they granting title to the customer, in which case he is a depositor; or are they borrowing money from him and giving him a promissory note in return? As long as things are clear, we have no fraud, no problem, and merely an economic disagreement, and we can imagine a society where FRFBers try to implement their scheme (with clear disclosure, and thus no fraud), and we will see if this rickety scheme would work.

  19. “In summary libertarians can disagree on the details but should still work together where they have common cause and find agreement. So vote LDP and also support the Mises Institute of Australia.”

    Hear hear. We have no time for splitters like the Democratic Liberal Party!

    Seriously folks, join the LDP and donate to the Mises Institute. What have you got to lose? Nothing. The upside is a blue sky.

  20. I for one don’t have “common cause” with the LDP. Our strategies completely different. I follow Rothbard, who advised that one be as radical as possible when promoting liberty. The LDP follows the opposite strategy of being as moderate (tax policy) and neo-conservative (Taiwan, Tibet policies) as possible. We are fundamentally at odds.

    That said, I always vote LDP at elections since there’s no better alternative. And it would be good if more Austro-libertarians influenced the LDP platform for the better.

    But if people are interested in donating to an organization or getting involved in activism, and they are happy to do so via an educational institute rather than a political party, I recommend Liberty Australia instead since you can rest assured we will never compromise our principles. I am currently looking for contributors/volunteer editors for the Journal of Peace, Prosperity & Freedom. Certainly however, if politics is your thing, then join the LDP and help re-write its policies.

  21. Yes, we need our tax policy re written! It’s fun and it is the easiest bit…money and people to stand as candidates are harder to come by. What I think we should have is a no exemptions or zero rated GST for the Federal Government (capped at 10% with GDP growth to pull this down to 5% with a TABOR), land value taxation for the States and shires (capped at 4% with the same growth rule to 2%) as well as a pooled fund for natural resource royalties. AND NO OTHER TAXES!

    I don’t compromise my principles. I don’t accept what I see as pacificism as a necessary tenent of being a libertarian (I value the fact that position exists because military power can be abused). I’m very ardently libertarian and think we should always push policy in that direction.

    Sukrit would you vote against school choice if you were a Senator because it is inferior to total privatisation? I wouldn’t. I’d vote for every inch crawled towards liberty but flog the virtues of radical libertarianism. I’d howl even at the smallest deprivation of liberty too and fight it tooth and nail. I’m sure you’d do that as well and I’d applaud it.

    I think there is a need, place and purpose for both positions. Personally I think registering a “Anyone But The Greens” harvesting votes and preferences for the soon to be governing LDP and LA coalition parties is an even better strategy…:D

  22. I for one don’t have “common cause” with the LDP.


    That said, I always vote LDP at elections since there’s no better alternative.

    Interesting. There is clearly no pressure on the LDP to capture the radical Austrian libertarian vote so logically, as a political party trying to be politically effective, the LDP should go after the moderates whilst still differentiating enough to keep the radical Austrian libertarians. The only political solution I can see if you want a more radical option to vote for is to create another libertarian political party. Something I for one would be quite supportive of. Assuming of course they are principled when it comes to preferences.

  23. Its completely valid. Names don’t matter as long both parties understand the terms. You hold up a triangle and tell me its a square, i inspect the ‘square’ and see that it’s fit for purpose and enter into the transaction willingly to purchase your ‘square’ for a mutually acceptable price and employ it for whatever means I choose. There is information symmetry here so you can call it, and i can accept, whatever term we want.
    The only factor that legitimately changes this is if there was information asymmetry. If you had misled me in some way (e.g. told me via email that what you are selling is a square when you know and it would be generally understood that what you hold is a triangle), then I have grounds for arguing fraud. It makes no sense that if I knew what i was buying and if you knew what you were selling and we both agreed on the trade, that one of us could be doing something wrong. The semantic argument is just that – semantics. A caveman could hold up a piece of meat and grunt and another proffers his club, and they trade. The specifics of the language make no difference – its voluntary trade.

  24. Ah, but what’s wrong with 0% taxation?
    As for FRB, this should not be illegal. Who is the victim? If all go in knowing the risks, then it is not fraud, no matter how much you try to twist the definition of fraud. You might believe it is immoral, but morality is different to legality.
    In a way, banking is like a company that gambles. Gambling should not be outlawed. If you tried to outlaw gambling, you’d eventually need to outlaw insurance companies, since their business is based on odds, and payouts.

  25. Ever heard of leading, instead of hackishly following?

    If you take a principled stand, people will slowly come to respect you and see that you are indeed correct, as has happened with Ron Paul.

    If you take the wishy-washy, middle ground, you might maximize your vote short-term but you won’t change anything for the future.

    You won’t inspire people, and win hearts and minds. You won’t attract the young and idealistic.

    And yeah, people can be very idealistic if only you have the courage & ability to inspire them. Look at the success of communism in the 20th century.

    While it is the best political party in Australia, in relative terms, the LDP is still a bland, boring enterprise that is incapable of inspiring anyone.

  26. The idea of honouring all contracts, no matter how inherently fraudulent, ought to be considered a grave threat to a minimalist government. Why ought to courts be clogged up, made expensive, and warped, just because the government and its cronies want to pull a fast one? The more inherently bad types of contracts that the government decides to “honour” the more expensive the legal system becomes. Corporate lawyers ought to be paid very little and their numbers ought to be few. That would be success in terms of minimalist law enforcement.

    There is absolutely no requirement, for example, for a government to enforce anti-counterfeiting laws, for bankers, who want to put out fractional reserve banknotes? Why would they go to the trouble? Why spend taxpayer resources on such a malevolent undertaking? Why not save the expense? And consider a functioning anarcho-capitalistic district? Would an enforcement agency in such a district, enforce, much less indemnify such a contract? Of course not. They would have to make a profit. So the idea with contract enforcement is “LESS-IS-MORE”. The most important fellow in that sort of outfit, would be the fellow who got together with the parties, and honed the contract, so that it almost enforced itself. That way his outfit could just concentrate on military capacity, while the fees rolled in, and they didn’t have to actually enforce very many contracts.

    “However if I was to complain about the lack of libertarian purity regarding the event it would be the obsession of most of the economic speakers with the very unlibertarian idea that fractional reserve banking should be illegal.”

    Taya, Paya, Tention. Legalizing fraud is a much greater threat to a libertarian society than to our own society. Let me give you an example to illustrate:

    In a libertarian society there is no firewall between savings and trading banks. There is no firewall between banks and real estate investors, banks and real estate developers, banks and hedge funds, banks and chronic gamblers, banks and mutual funds and so forth. So having legalised fraud, we are saying that the banks can create the lions share of the money supply. Therefore the banking cartel can clearly, and without controversy, pretty much take over all the wealth.

    This is easy to see. Since the banking cartel can TIME when they decide to turn money supply generation off. The money supply will start to drop as people pay off their old loans and no new loans are coming out to replace the old loans. So asset prices will fall. Then they can be the beneficiary of the fall in asset prices. Since they are the first to have finance when they are the ones to start up the money creation process again. Instead of expanding the money supply via the resumption of lending, they can simply fire up the money supply buying all these shares, and real estate properties, at massively discounted prices.

    We don’t need to be idiots about legal theory. The problem is that people have taken this Ayn Rand principle, of the non-initiation of force , to mean that all legal theory, is to be legible on the back of a postage stamp or it does not count. Now its a good summary broad-brush principle. But it can hardly be a substitute for the entirety of natural law understanding.

    Is fractional reserve fraud? Well its fraud if its made illegal, and its not fraud if it isn’t made illegal. So I hope we can put that particular argument behind us. The real question, is “should fractional reserve be considered fraud under natural law” the answer is of course yes.

    If you don’t think so then apply the natural law criterion to some examples we know about. Was it not fraud, under natural law, for Corzine’s outfit (Mo’ Fo’ Global) to steal between 1.2 and 3 billion dollars out of all the segregated on-call accounts they could get their hairy hands on? If not why not?

  27. “The idea of honouring all contracts, no matter how inherently fraudulent, ought to be considered a grave threat to a minimalist government. Why ought to courts be clogged up, made expensive, and warped, just because the government and its cronies want to pull a fast one? The more inherently bad types of contracts that the government decides to “honour” the more expensive the legal system becomes. Corporate lawyers ought to be paid very little and their numbers ought to be few. That would be success in terms of minimalist law enforcement”


    Fractional banking is perfectly legal.

    See Foley v Hill.

    Foley v. Hill, (1848) 2 H.L.C. 28, 9 E.R. 1002


    Carr v Carr

    Carr v. Carr (1811), 1 Mer. 541, n.; 3.5 E.R. 799; 44 Digest 728, 5813

    You’re Graeme Bird? You sir are an idiot. But I repeat myself.

  28. In what way is gambling a fraud? All parties go in knowing there are risks, but preferring to go in none-the-less. Fractional reserves are like gambling. Unless your version of a ‘libertarian’ society outlaws all gambling, you’ll also never get rid of such banking practices.

  29. Which is foolish, isn’t it Nuke? Libertarians prefer torts to regulation – so insurance is massively important for a libertarian idealised society – bad news Graeme Bird et. al., – insurers and other non bank participants in the intermediation system also create money.

  30. This is the idiocy we are dealing with in the pro-Fractional Reserve crowd:

    “Fractional banking is perfectly legal.”

    We are talking some very stupid people here.

  31. Lets go over it again. Fractional reserve is legally fraud, if fractional reserve is illegal and defined as fraud. Fractional reserve is not legally fraud, if it is legalised, and not defined as fraud.

    I hope you don’t get confused about this matter again Nuke.

  32. If you didn’t have a damn clue about this subject, for all of the time in the last six years, why the hell were you defending one side or the other? You are supposed to UNDERSTAND THE SUBJECT because you make an idiot of yourself and go claiming that one side is right and the other is wrong.

    You tell me how banks would make a profit under 100% backing. You tell me. Six years and you have been making your nonsensical case under false pretences. You don’t understand a damn thing about this subject.

  33. Stop spamming the site you lunatic.

    You are a coward Graeme Bird. YOU COULD NEVER ANSWER A SET OF MATHEMATICAL QUESTIONS I ASKED YOU ABOUT FREE BANKING VS 100% RESERVE because it was either beyond your capacity or you KNEW YOU WERE WRONG but couldn’t own up to it.

    “You tell me how banks would make a profit under 100% backing.”

    They are no longer “banks” as such.


  34. You are wrong Graeme Bird. You cried foul previously on catallaxy and said the judgments were wrong. You are the only person in the world who thinks it is illegal – yet you have NO legal training whatsoever.

    Give up you dolt.

    Fractional banking is perfectly legal.

  35. You are a confused idiot. They prefer torts (which stem from) and property rights (which under fractional banking, are very clear unless you are illiterate) to regulation.

  36. See you always do this Mark. You always act like an idiot. You cannot figure out how 100% backing banks could earn an income. And yet you voice fervent support for one side of the issue from a position of ignorance. And you charge about saying the most outrageously stupid things like “fractional reserve is legal” as if you were a two year old at a magicians show whispering “its a trick”

    Just stop yourself commenting, when you don’t have the intellectual capacity for it.

  37. Then what the hell are you arguing against you nutter? Why try and pull a fast one on us and infer that it is illegal?

  38. “The essence of a free society is clarity in property rights. Not fighting matters out in court with overpaid lawyers.”

    You twit apart from an unhinged missive about lawyers, the only way to enforce property rights IS through the court system.

    100% banks do not earn an income from banking. They are no longer banks. BTW you’d ban insurance as well you halfwit.

    “And you charge about saying the most outrageously stupid things like “fractional reserve is legal””

    If it is stupid then why did you agree that it is legal (after inferring that it wasn’t)?

    You’re embarrassing yourself Graeme. You cannot even get your pathetic argument consistent.

  39. No the idea is not having a lawyer-driven crapocracy. The idea is to have clarity in property-rights. You are merely displaying some ridiculous superstition about the common law. More voodoo-economics on your part.

  40. “100% banks do not earn an income from banking.”

    For five years you have been vehemently on the wrong end of this argument, from a position of total ignorance. Like fractional reserve you are inherently fraudulent, although you are yet to be outlawed.

  41. Why don’t you look up the dictionary definition of ‘Fraud’? If there is no trickery, there is no fraud. I see no deceit in fractional reserve banking, if all people are being honest and tell you what they are doing. It might be classed as a gamble, but gambling need not be fraud.
    Until such time as you print your own dictionary, and get to redefine ‘fraud’, and ‘gambling’, you have no case.

  42. If its legally defined as fraud, then its fraud. If fractional reserve banking is allowed, subsidised, and protected legally, as it is now, then obviously its not fraud. Its socialism/cronyism. You’ve just got to break out of this endless feedback loop.

    Obviously fractional reserve always involves trickery, if it was outlawed. Since they would be arrested for practicing it. And if the law was merely silent and yet there was no subsidy or legal favours involved, then fractional reserve would always involve deception and trickery. Because only a fool would leave his gold or silver with a bank who openly boasted that they may raid his segregated account like Mo’Fo’ global did.

    Fractional reserve fails all market tests. Since these clowns, no matter how subsidised and favoured by regulation, are always having to be bailed out, or always acting in a way that shows that different rules apply to them. Let us not forget that all the larger fractional reserve banks, and all derivatives would have collapsed in 2008, if not for bailouts that have gone on continuously since then.

  43. Bank funds aren’t segregated from share trading and real estate flipping under capitalism properly considered. Under capitalism, a 100% backed bank, could buy real estate on its own account.

    Given that bank funds can be used for speculation, there is no way that people would deposit gold and silver bullion and coins, with these people, to allow them to speculate in the markets, without trickery, or cartel.

    Now you might say that the cartel situation doesn’t involve fraud, because its at least possible that a cartel could keep this act up for generations. But when the collapse came, we would need to bail them out, or face a money drought. And the reality is that by then they would have infiltrated government and have undue influence on law.

    So even this cartel example ought to be regarded as untenable under any sort of natural law. Because you may be fooled into thinking that this isn’t trickery, or fraudulent, should you be wet behind the ears. But a review of a thousand years of banker history ought to inform you otherwise.

  44. You are a damned fool who creates his own reality.

    The caselaw goes back to 1811. You are wrong.

    “let’s have property rights without lawyers”

    Okay dickhead.

  45. “share trading and real estate flipping under capitalism properly considered”

    All well and good but not banking.

    So property developers are going to give you a free safe deposit box as part of their “business” without lending out any money they don’t own?

    You really are a superficial tool.

  46. Some writers here seem to feel that Banks should confine themselves to owning safe deposit boxes, and charging rent on them.
    But they still haven’t explained why FRB should be outlawed, nor explained how they would enforce this draconian legislation in a libertarian society.
    Please explain.

  47. You are liar Nuke. I”ve just explained why fractional reserve ought to be illegal, and considered fraudulent. You refuse point blank to make a case for fractional reserve.

    What is your economic case? What is your legal case? What is your utilitarian case? You don’t have any sort of case at all.

  48. See people keep making a case. And supporters keep lying and pretending that there is no case. Whole histories of banking have been written. This is a religious belief on the part of suckers and morons.

    Why do you support this racket Nuke. You won’t tell us. At Humphreys comes out and tells us that he thinks fractional reserve creates new investment resources. That just ridiculous. But you won’t tell why this rubbish. Are you families bankers? Don’t you want people to have to earn their living? Do you consider these welfare ripoff merchants to be your crowd or something? Your tribe?

    Just come up with a case will you?

    The problem is we are dealing with morons here. And bad people. JC supports the bailout AND he supports fractional reserve banking. See he doesn’t want to have to work for a living. He just wants to be subsidised.

  49. I”ve been talking about for five years. Before the crisis. After the crisis. We don’t have people who will make an honest case. Its just more science fraud. Like global warming. The Keynesian multiplier. The Big Bang. Its just more lies. They cannot make the case. They don’t feel they need to.

  50. I have never said if I am in favour of FRB, or not. I have pointed out that it should solely be a moral question, not a legal one. And I have supported this case by pointing out that the dictionary definition of fraud mentions deceit.
    Nor have you shown how you would enforce any anti-FRB law in a supposedly-libertarian society. How would you stop your land from becoming a dictatorship, with such tough laws in place?

  51. So here we have it. No economic case. No legal case. No moral case. They won’t make a case. They have must Ayn Rands non-initiation of force single sentence explanation of liberty, buzzing around in their small minds.

  52. FRB is, of course, legal in the sense that governments have not outlawed it. but you often argue as though it is intrinsically illegal, and banks should be prosecuted under the various fraud acts.
    And my argument was based on the idea that a libertarian society would be freer than our current society- so how would you stop people gambling with their own money in FRB schemes? Banks are quite open and honest about FRB- it is not a guilty secret. So where is the victim, if you want to call this a crime?

  53. You cannot stop them gambling with your money in a libertarian society. Which is the whole damn point. Because under such situations, you aren’t ever going to want them to raid your segregated on-call account. This is why fractional reserve has always begun with deception and trickery.

    But what is key about fractional reserve is that unlike other forms of fraud, its too late once the horse has bolted. Whereas if someone sells you a lemon, you can demand your money back, and you can prosecute after the fact. With fractional reserve the damage is being done immediately and you cannot expect to correct the situation after the fact.

  54. See Nuke you need to find out about banking history. You need to have a legal, a moral, and an economic case. Getting in the way of an argument, based only on your own ignorance is no good. The free banking crowd, appear to be all ignorant liars and arguing in bad faith. They aren’t even serious about fraud banking. Taya is. But not the others. The free banking nonsense is just something that liars at Catallaxy use to wrong-foot people.

    JC responded to a direct question about whether he agreed that banks should be subsidised, with the lie that he supports free banking. He doesn’t. He supports relentless banker subsidy. This is the filth using the ignorant free banking meme against fellow human beings.

  55. Banking, as we know it, was developed by the Dutch. Safe deposit holders realised that they didn’t need to finance projects only with their own money, but could use the moneys of their safe-deposit clients. These clients were bought off with some of the proceeds of these ‘investments’- i.e. modern interest rates. They also realised that a piece of paper specifying the amount could be used instead of the heavy metallic coins. Thus the coins were still there, able to be used- and the paper was also being traded as though it was real money! In banking, they regularly eat their cake, and still have it with them! Note, though, that FRB was instrumental in the development of modern banking- and paper money, and cheques.
    You should study history, Jonty, and not let ignorance blind you to the facts. I used to work for the Commonwealth Bank, and I think that I might know more about banking than you do.

  56. No fractional reserve banking wasn’t started by the Dutch. Good Lord. When it comes to Dutch banking, they stand out as the people who successfully ran a 100% backed bank. See you are talking ignorant nonsense. Fractional Reserve Banking came about long before the Dutch ever achieved independence.

  57. But you don’t tell us who you believe developed it! What do you know that Galbraith doesn’t, since it was in one of his books that I read about the history of banking?

  58. I”ve forgotten more than Galbraith ever knew. But there is no known originator of fractional reserve banking. It comes along naturally every time banking is developed. Its not an original creation to be proud of. Its a sordid practice that bankers become addicted too. Before anyone can find out enough to outlaw it, the bankers will have already started to practice it by stealth.

    The Venetians practiced it, and it was practiced in Florence, prior to the Dutch nation being formed. But then again it was also practiced in the Roman Empire. Its basically a spontaneous thing, but it is never planned by the consumer end. It is always brought in as a fait accompli by the banker. I was in corporate finance. So I know a bit about banking. In corporate finance we’d call ourselves “credit analysts” which was bullshit because it was all credit and no analysis. The only people doing anything worthwhile were down in commercial finance. Dealing with small business. The more or less useless parts of the bank tend to hold prestige over the only useful part of the bank.

    But under free enterprise commercial finance would be most of what banks did.

  59. But customers also benefit from FRB. The banks which start this would get more customers- the banks which don’t would lose almost all their customers! Especially in a freed-up free enterprise society. So I don’t see how it can be stopped, even if I agreed with you that it should be illegal (which I don’t). Whilst there would be competing moneys in a freer society, I still think people would be attracted to banks with FRB.

  60. As well, we should be working to minimise the number, length, and reach of laws in our societies. As a libertarian, I am hoping to reduce all laws in that manner.
    Therefore, my basic instinct is to see if we can solve problems without needing to make a law to cover it.
    And I think of this, as I stated above, as a gamble. Gambling should be a moral decision, not something that governments try to outlaw. Since customers know, or can easily found out, about FRB, it still does not qualify as fraud: therefore, there is no reason to get the government or the police involved.

  61. 100% backing IS minimising laws. You have 100% backing you can almost wipe the slate clean. Thats half point of it. Once you allow fractional reserve, you have to produce book loads of laws to clean up the mess after the fact.

    If you want minimal government you ought not be supporting bringing government into the enforcement of contracts, that by their nature are not enforcement, or otherwise shonky. Minimalist government would not be going around creating work for itself by putting legal force to all sort of numbers games, securitisation, and worst of all, ponzi-schemes.

  62. I stand by my point, that the Dutch invented banking ‘as we know it.’ By that, I meant, and mean, the use of paper money and cheques. The Romans didn’t have much paper, and I’ve never heard of them having cheques. I know that Roman emperors debased their currency by adulterating their coins, but they ordered people to treat them as ‘pure’ coins- banks can’t issue such orders, only governments can.

  63. But triangles are defined as having three sides. It is not similarly true that giving somebody a loan is defined as not giving somebody a loan. The analogy is entirely bunk. All parties to FR-banking have the legal right to what they are trading, and are engaging in trades that make perfect sense. You might not like them… but that’s an entirely different matter.

    Leithner is defining a word for his own convenience. First, he doesn’t own the English language, so as long as the contract is clear about the definition of it’s words, then there is no problem. Second, most dictionaries include “putting money in a bank” as a part of the definition of “deposit” anyway… so it is actually Leithner who is out of step with modern English. Thirdly, if every bank changed the name of “deposit” to “bob” then we would have entirely the same system… so wtf is he complaining about other than a pointless semantic wank? Does he really think that if all banks did a “find and replace” for all future contracts, then suddenly the banking system would have a revolution? Seriously?

  64. Banks don’t guarantee to redeem on demand, so this entire argument is bunk.

    You want the banks to be very clear. They already are very clear. Read the contract, or just think about the nature of banks for more than 5 seconds, or just go into a bank and ask them if they keep all your money in the safe or whether they lend some out, or read any book on banking, and then you will know what you’re *voluntarily* getting yourself into.

    There is not even a hint of fraud here. The argument of fraud seems to have come about because some idiots didn’t know that banks gave loans based on their deposits, and when they found out they were sad. They now want to ban voluntary agreements that make them sad.

    What was Benjamin saying about logic?

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