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Source link: http://archive.mises.org/10184/anti-state-anti-war-pro-market/

Anti-State, Anti-War, Pro-Market

June 24, 2009 by

[The Left, The Right, & The State by Llewellyn H. Rockwell, Jr. • Ludwig von Mises Institute, Auburn, Alabama • 568 pages • $25. This book review, by William H. Peterson, was previously published by the Washington Times.]

Here is how libertarian 10th-termer Texas GOP Congressman Ron Paul, who would terminate the Fed, endorses the Rockwell work on its back-cover:

We are threatened by statism from both left and right. Their plans all depend on inflationary finance. This is why Lew’s book is a clarion call for the only way out: Freedom and sound money, which he defends with equal passion.

Such ability is where Rockwell shines — most knowledgeable and most articulate on a market society in which pro-state and pro-war activities are explored and deplored. FULL ARTICLE

{ 26 comments }

Dick Fox June 24, 2009 at 2:09 pm

Criticism of central banks uses the same logic as that used by anti-gun advocate. The anti-gun advocate blames the instrument not the perpetrator who commits the crime. Those who are critics of central banks always blame the institution rather than the perpetrators and their bad policies.

A central bank that only maintained the stability of a currency using a gold anchor would be no threat at all.

Justin June 24, 2009 at 2:42 pm

Dick,

“A central bank that only maintained the stability of a currency using a gold anchor would be no threat at all.”

We had that from 1946 – 1971; it was called Bretton Woods. How’d that work out for us? As soon as the arrangement becomes inconvenient for the state, it is tossed aside.

Austrians hold that artificially low interest rates set by the central bank (what you casually refer to as maintaining “the stability of a currency”) are largely responsible for the boom-bust cycle.

Jason Gordon June 24, 2009 at 2:43 pm

A citizen owned gun is to a government’s standing army, as sound money is to a central bank.

Dick Fox June 24, 2009 at 3:00 pm

We had that from 1946 – 1971; it was called Bretton Woods.

Justin,

You need to read your history again. Bretton Woods was not a gold standard. But even so your logic is the same as the anti-gun nuts. They will say “Columbine, how did that work out for you?”

My answer to them is, had others had guns those two nuts wouldn’t have even thought about attacking the school and even if they did they would have been dead after their first shot.

Then to you I say, the Bank of England held the pound stable for over 100 years and the First National Bank of the US, designed by Alexander Hamilton, took the dollar from a value of 10% of par to par almost over night, then held the US dollar stable until its charter was allowed to lapse, not to mention taking the US government credit rating from nothing to the highest credit rating in Europe.

Justin June 24, 2009 at 3:43 pm

Dick,

I don’t understand your position. You support a gold standard and yet advocate a central bank? What is the function of the central bank in your scenario? I assume you disagree with my earlier quote, although you didn’t address it:

“Austrians hold that artificially low interest rates set by the central bank are largely responsible for the boom-bust cycle.”

Yes, Bretton Woods was not a true gold standard, but that is not my point. It was what you describe: a “gold anchor”. You can’t trust the fox with the hens – governments tend to abandon gold standards when they want to deficit spend.

Misesian June 24, 2009 at 3:44 pm

@Dick Fox:

A Central Bank:

1) Is in the business of manipulating interest rates. Anything beyond the natural rate of interest provided by the market gives false signals to investors, causing malinvestments. Nobody…not Greenspan, Bernanke, Volker, or anyone else can know better than the MARKET what interest rates should be. One must be omnipotent and omniscient…besides the market only GOD knows the rate of interest.

2) A Central Bank colludes with other banks informing a cartel and thereby putting pressure for all banks to inflate in unison.

3) It causes moral hazard; in that Banks believe they will be bailed-out if they take on risky behavior.

All of these three would occur under a Central Bank. Why you ask…so long as government Bureaucrats have the power to inflate, manipulate, bailout, or over regulate they will act out, in their political interest to do so.

Besides these reasons above, a Central Bank is not needed to ‘anchor’ a currency. The simply act or decree of private banks to redeem gold with certificates, nullifies the need for a Central Body/Bank to interfere with currencies, interest rates, and their purchasing power.

MJ June 24, 2009 at 3:46 pm

Fox,
False analogy fallacy? Comparing the ownership of a tool is very different from the setting of policy that effects economic transactions.

FarSide June 24, 2009 at 3:48 pm

Dick -

I am having trouble with your analogy of guns and the central bank. While I don’t have time at the moment to think through a detailed rebuttal, my instincts are telling me that to call a central bank a “tool” in the same vein as a gun is to vastly understate the complexity of the central bank and it’s relationship to the government and people in it.

A central bank may start out such that it “only maintained the stability of a currency using a gold anchor.” But by government will it may morph into anything much less innocent – look at what is happening now, for example. A rifle cannot be changed into a H-bomb just because the operator wants it to be so.

This is my insta-argument, perhaps I can expand later.

Justin June 24, 2009 at 4:01 pm

This is a different Justin by the way.

I have to agree that a Central Bank is not just a “tool.”
It is an institution that can and has been manipulated by politicians to nefarious ends.
That is the whole point of ending it. A Central Bank, in our case the Fed, is way to easy to manipulate by the politicians, creating Moral Hazard.

Inquisitor June 24, 2009 at 4:56 pm

A central bank – a violently imposed monopoly that regulates the price of credit – is somehow like a gun? Well yes… a gun in the hand of an aggressor. Banning guns OTOH takes it out of the hands of anyone who wishes to protect themselves. Banning the CB is banning a coercive monopoly.

karl deeter June 24, 2009 at 5:30 pm

why does everybody insist on ‘gold’ standard? why not a basket of precious metals? there is not enough gold to back dollars (unless it was valued at $40,000 and oz!), you could use silver/platinum/gold/palladium, the real aim is to stop the rapid growth of the money supply

on a separate matter, if the state is the beneficiary of the tax base then why is there even ‘interest’ applicable? the point is this – the existence of interest hinges on the expansion of the money supply, so perhaps we need to find other ways of rewarding risk?

alan June 24, 2009 at 7:56 pm

> “I don’t understand your position. You support a gold standard and yet advocate a central bank? What is the function of the central bank in your scenario? I assume you disagree with my earlier quote, although you didn’t address it:”

Dick Fox – if I recall correctly, you once claimed that Mises was not against a central monetary authority. I wonder if you could direct me to the relevant references?

I’m not against having a central monetary authority either – but history shows that they sooner or later become “rotten” one way or another. The temptation to inflate is too great. The Swiss National Bank, as well as the Hong Kong Monetary Authority, is the best contemporary example.

alan June 24, 2009 at 7:57 pm

> “I don’t understand your position. You support a gold standard and yet advocate a central bank? What is the function of the central bank in your scenario? I assume you disagree with my earlier quote, although you didn’t address it:”

Dick Fox – if I recall correctly, you once claimed that Mises was not against a central monetary authority. I wonder if you could direct me to the relevant references?

I’m not against having a central monetary authority either – but history shows that they sooner or later become “rotten” one way or another. The temptation to inflate is too great. The Swiss National Bank, as well as the Hong Kong Monetary Authority, are the best contemporary examples of this.

newson June 24, 2009 at 9:14 pm

to dick fox:
“For just as long as the minting of coins has been a government function, governments have tried to fix the weight and content of the coins as they wished.”

mises, tmc p64. ditto for paper money.

P.M.Lawrence June 24, 2009 at 11:45 pm

Dick Fox wrote “…the First National Bank of the US… [took] the US government credit rating from nothing to the highest credit rating in Europe”.

Can you substantiate that? Trollope’s North America tells us that in general the USA had very poor creditworthiness indeed, at any rate in the first part of the 19th century.

Jeremy June 25, 2009 at 1:11 am

Dick Fox wrote “…the First National Bank of the US… [took] the US government credit rating from nothing to the highest credit rating in Europe”.

And we all know how reliable credit ratings are when central banks are involved in screwing up prices.

Your gun analogy would be a good one if you made the right comparison. Allowing freely competing currencies would be like giving the right to anyone to have a gun if they would like one, instituting a central bank and legal tender laws is akin to taking away everyone else’s guns and giving the central bank a much bigger one.

Thinker June 25, 2009 at 4:41 am

The gun-central bank analogy does not work. Guns are products manufactured to meet consumer demand; central banks are government constructions that satisfy only bankers’ desire to secure their inherently bankrupt business and government’s desire for greater power.

Free competition in money is what naturally occurs in the early stages of a free market. One (sometimes two) commodity wins. That is the one that becomes the standard money. Allowing competition in money after years of fiat currency is the only sensible choice-it allows competition to reestablish the optimal money.

Dick Fox June 25, 2009 at 7:33 am

Justin,

I gave you a wrong impression. I do not FAVOR a central bank I only recognize that is is a too that is only as good as the central bank policies.

There are many good examples of where a central bank actually helped the economic situation. In the early 1800s the government was selling land in the west (the Ohio basin) and state banks went crazy with not control on their abuses. Inflation was driving the economy nuts. The second Bank of the United States was chartered to get things under control. Now I have read Rothbard on the second bank but he distorts the truth. Congress forced the bank to accept the inflated state currencies. It was not until the bank was allowed to redeem the state currencies and force an end to the abuses that the economy began to come under control. There were Andrew Jackson’s “pet banks.”

Andrew Jackson fought the second national bank and through his economic ignorance plunged the country into the biggest recession in its history by first creating massive inflation by releasing the “pet banks” of any control allowing them to massively inflation the currency, then slamming the economy into depression with the Specie Circular. It was like accelerating a car at top speed then throwing it suddenly into reverse.

Concerning the gold standard the Bank of England did in fact hold the gold standard together for over 100 years.

The Federal Reserve is just one incarnation of a central bank and for my money the worst. It is not that the Federal Reserve is a central bank that is the problem, but that the policies and mandates of the Federal Reserve are horrible. I very much favor getting rid of the FED. It has contributed to the severity of every economic decline since it was created and has created more misery in the US than any other institution except congress.

Dick Fox June 25, 2009 at 7:44 am

I assume you disagree with my earlier quote, although you didn’t address it:

“Austrians hold that artificially low interest rates set by the central bank are largely responsible for the boom-bust cycle.”

Justin,

I do not agree with your statement as written. Let me rephrase it.

“Austrians hold that artificially low interest rates…are largely responsible for the boom-bust cycle.” It doesn’t matter if it is done by a central bank, or congress, or a king. Think of a central bank as simply an office of government.

In a civilized society there must be some form of government that means institutions. The role of politics is to determine which institutions government creates. I would prefer to have any provision of goods and services in the private sector because the government is awful at providing them.

A central bank kind of falls into the crack, but I always believe it should be independent of government. Consider a situation where we had 50 states with 50 currencies and 50 different trade policies. Like it or not many currencies create friction between trading partneres because they have to engage in determining the veracity of different media of exchange. One currency lubricates the wheels of commerce and so is more efficient. This is best administrated by a central bank, but it is critical that the currency have an anchor, gold, to control the abuses of the central bank. But the central bank should have only one mandate, to maintain the currency stable in relation to gold, period!

Dick Fox June 25, 2009 at 7:59 am

P.M.Lawrence,

You are correct that prior to the 1790s the US had the worst credit rating of any country in the commercial world. Alexander Hamilton put us back on a gold standard and reestablished the value of our government financial instruments paying at specie value. Doing so the credit rating of the US went to one of the highest in the world in Europe. Tallyrand wrote that the bonds of the United States were “safe and free from reverses. They have been funded in such a sound manner and the property of this country is growing so rapidly that there can be no doubt of their solvency.”

But after Hamilton resigned and the Bank of the United States was not rechartered the state banks went crazy with inflation and abuse of the monetary system especially in the west. This created another credit rating crisis for the US.

So Trollope is correct that the credit worthiness of the US was awful for most of its early history, but that is because most ignored the words of Alexander Hamilton.

Remember that prior to the Federal Reserve the US existed significantly without a central bank. But for those who would place policy mistakes on the central bank as an institution, the lack of a central bank did not prevent Lincoln from debasing the currency.

Misesian June 25, 2009 at 11:56 am

@ Dick Fox

I’m still a little confused by your argument that seems pro-Central Bank…if and only if it was given “appropriate” powers.

If a nation decides to adopt free banking, and suppose banks have the option of backing their reserves with a precious metal, or none at all, or decide to loan out 100% of their deposits, of what use is a Central Bank? Banks and information about how ‘safe’ your deposit is will be based on the free market’s ability to judge whether or not people choose to deposit with an institution that; for examples loans out 100% of its deposit. The only reason for having a FED or a central bank EVEN in this scenario is to continue the moral hazard of for banks to possibly consider the foolish idea of loaning out 100% of its deposit. Since a creation of a central bank will be the lender of last resort. (Which again…exacerbates the problem)

Now, if a nation decides that all reserves must be backed by gold or any sort of precious metal, then again the need for a central bank would still be nullified. I don’t see the need or purpose to have a central bank even in this scenario, unless you are a Friedmanite and believe that money needs to be “elastic” crankery. (“Elastic” here meaning it needs to be increased in times of recession and decreased in the boom years.)

I’m not sure I understand your argument Fox…I really don’t see a need for a Central Bank, whether we have “Free-Banking” or “100% reserves backed by gold”. The shear existence of a Central Body/Bank is too much temptation for any bureaucrat or politician to to limit their influence in markets.

Dick Fox June 25, 2009 at 3:57 pm

Misesian,

The argument has morphed into my defending a central bank and that is not what my point was. My point is that we are attacking the wrong thing by attacking the central bank. The UK had a central bank that functioned just fine for over 100 years, but that bank had only one mandate, maintain the value of the pound to a specific weight of gold. It was not the lender of last resort, or the provider of liquidity to stimulate the economy, or trying to maintain a specific inflation rate. It had only one purpose and that was maintaining the stability of the pound.

It is not the institution of the central bank that is the problem. The problem is an unstable dollar and the fact that FED policy is the reason the dollar is unstable. If you get rid of the FED but still have the policies being implemented by Treasury you have gotten nowhere.

That is my point with the gun analogy. You take the gun away from a killer and he will simply find a knife. It is the killer that is the problem not the gun.

A 100% gold standard is an awful system. It would require an enforcement mechanism probably government intervention. It would be subject to the supply of gold and expose the monetary system to manipulation by gold suppliers. And most importantly it would be impossible to administer with any precision unless you made gold itself as the only medium of exchange and that would be totally impractical for a host of reasons.

If I were the supreme ruler I would rather see free banking under the umbrella of an independent national bank with only one mandate, the stability of the dollar against a specific weight and finess of gold. Banks would be allowed to issue their own currency but most would not choose to do this since the national currency would have a greater acceptance. The most important characteristic of any money is that traders have confidence in its ability to function as a medium of exchange. An adequate monetary system that maintained the value of the dollar would actually need almost no gold to back the currecy as no one would want to exchange for gold because if the inconvenience.

newson June 27, 2009 at 6:05 am

“A 100% gold standard is an awful system. It would require an enforcement mechanism probably government intervention. It would be subject to the supply of gold and expose the monetary system to manipulation by gold suppliers.”

…as opposed to the supply and manipulation of paper money by bankers. the “enforcement mechanism” is the law against fraud, as it currently applies to other fungible goods like oil.

Robert September 8, 2009 at 7:10 pm

“…as opposed to the supply and manipulation of paper money by bankers. the “enforcement mechanism” is the law against fraud, as it currently applies to other fungible goods like oil.”

There are laws against banking fraud, yet it continues.

There were laws against gold fraud too, but eventually gold had to be abandoned for backing the currency.

Absolute power corrupts absolutely, the private sector is not immune from engaging looting (gold in this case) as history has shown.

In a national central bank, private bankers wouldn’t control the currency.

By the way this is the same government that created the internet, which you are now able to enjoy.

mpolzkill September 8, 2009 at 7:25 pm

“By the way this is the same government that created the internet, which you are now able to enjoy.”

Don’t forget the other part of it: developed in part (as if they created it whole-cloth) with funds forcibly taken from us.

This can’t be the first time you (or the other thousands who use this tired gotcha) have been corrected in this way! How do you all carry on with it?

“There are laws against banking fraud, yet it continues.”

Yes, one goal is to make far more people far more wary, so that they aren’t such easy marks.

“Absolute power corrupts absolutely, the private sector…[yada, yada...private sector bad.]

OK, now THAT formulation IS a new one on me. Thanks for the laugh.

Robert September 9, 2009 at 7:21 am

The government and government research did develop the internet and the internet structure. Everything else consists of applications built on top of that same basic structure.

The projects were obviously assets and not liabilities in the long run, as they created a new productive capcity.

“Yes, one goal is to make far more people far more wary, so that they aren’t such easy marks.”

Great the bankers are delighted to be informed that with they would be able to horde gold just the same!!!

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