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Source link: http://archive.mises.org/10612/american-banking-news-reviews-rothbard/

American Banking News Reviews Rothbard

September 7, 2009 by

In particular, the ABN reviews Rothbard’s Case Against the Fed:

While everyone should get a copy of Ron Paul’s “End the Fed,” to be available on September 16 but can be preordered now, there is another great book by Murray Rothbard called “The Case Against the Fed,” where anyone wanting to discover the history of the Federal Reserve and the real motivations behind creating it by some of the major bankers of that time, can delve into the highly readable book and have their eyes opened to the extraordinary events and personalities involved with it, and more importantly, what the terrible effects of its creation has brought about.

At the beginning of the book Rothbard deals with the biggest weakness in our present banking system: fractional reserve banking. He talks about and exposes how the banking system would collapse if there were runs on the bank because reserves are so low in contrast to the money floating around and being used in the economy.

When you hear about increasing reserves in the financial media, this is what it’s talking about: banks having more money in reserve to fight off circumstances like we’re in today, where the taxpayers have to bail out the banks which can’t meet their commitments.

The other major point made by Rothbard is in reference to inflation, which he asserts is caused solely by the Federal Reserve. If Americans and others around the world ever really understand the causes and devastation of inflation, it would incite a revolution in the financial industry, and one that would help sweep away the dross of the Federal Reserve and its fruit of inflation. Anyway, Rothbard hits it hard to show the reality of that powerful dynamic and how we need to fight against it.

Read the whole thing. Also see the ABN’s review of End the Fed by Ron Paul.

{ 11 comments }

fundamentalist September 7, 2009 at 9:05 am

That’s very encouraging! It reminds me of what Mark Skousen wrote in his “Structure of Capital” that professions other than economics have come around to Austrian thinking through trial and error and reading history. Mainstream econ will continue to be neo-classical because mainstream economists refuse to change. No crisis is big enough to get them to reconsider. Maybe the best hope for the nation is for economics to decline in prestige and banking to rise.

Shed Plant September 7, 2009 at 9:25 am

Glowing article, but what’s the ABN? I haven’t heard of it, so is it mainstream and reputable, or what?

Derek Blain September 7, 2009 at 9:49 am

I agree, fundamentalist – mainstream economics is will only change when enough people stop listening to them that they don’t have a job anymore!.

However I can’t say I see a rise in the prestige of banking for at least a generation, maybe two – think of the average person alive today who experienced the Great Depression. So many of them have so much resentment for banks and bankers because of what the government did then – how much more with people have those feelings once Keynesian economics works its “magic” during this current crisis?

I think we’ll see a dramatic fall in the status of bankers and economists alike, and people will start respecting farmers and miners and such (people that are actually adding to their quality of life in the current market).

Derek.

Ken September 7, 2009 at 10:10 am

I have read The Case Against the Fed (it was the first thing I read after Economics in One Lesson). Rothbard is dead right about inflation, of course, and more likely than not right about fractional reserve banking.

However, I think it would be a good idea for Austrians to address the arguments made by people like Karl Denninger. Denninger, though no fan of the Fed, is not an Austrian; I’d call him a market populist, if that is at all helpful.

Anyway, Denninger argues that the lack of “or else” in banking laws has contributed to the mischief, and his solution calls for a 10% reserve requirement “with teeth” (stronger enforcement provisions). I know that will not resonate with market anarchists, but I bring it here because, so far as I can tell, Denninger makes the argument with good will and his argument ought to be engaged by Austrians. Shedlock has done a little of that, but I think more would be beneficial.

Why not me? A fair question, and the answer is that I am (at the moment) insufficiently expert on the fractional-reserve question. It strikes me that with sound money, banks would be free to roll the dice — or not — on fractional reserve practices upon their own resources and convictions. So long as a fractional reserve bank discloses its reserve practices, and either submits to the public — again, or not — the results of private audit of its books, investors would be able to make informed decisions.

Zach Bibeault September 7, 2009 at 11:40 am

So great to see Rothbard and true economics coming into style finally.

danny September 7, 2009 at 12:59 pm

Ken

“…Denninger argues that the lack of “or else” in banking laws has contributed to the mischief, and his solution calls for a 10% reserve requirement “with teeth” (stronger enforcement provisions). I know that will not resonate with market anarchists…”

The problem wih this is obvious on its face — when has any regulation had “teeth” that were so strong that political action could not overcome it? Countless regulations are on the books today, and all are bent, broken, and changed at will. What new “or else” does Denninger suggest…the death penalty?

So this is not a concern even of “market anarchists” but of a group that is more easily accepted in mainstream conversation — the political and market realists — at least the two that exist that aren’t also market anarchists…. It is absolutely and completely unrealistic to believe further regulation will solve this problem — anyone who believes the next regulation will have teeth “and we are not kidding this time” is at best naive and ignorant of reality. At worst…fill in the blank, maybe delusional.

Seattle September 7, 2009 at 2:01 pm

Ken: I think Ron Paul said it best. The problem is not so much the fractional-reserve system in and of itself, but modern banks attempt to function BOTH as moneylenders and as monetary warehouses. In a free market, you could either lend your money to a moneylender (and accept the risks that came with it) or you could put your money in a warehouse bank. However both roles are mutually exclusive: How can you have a system where people are guaranteed to always have all of their money available, yet the actual money available to them is only a small fraction?

The core problem is this contradictory system is very harmful to consumers, yet it is artificially propped up and kept stable (at our expense) by the Fed and the State.

danny September 7, 2009 at 3:05 pm

Sorry, I missed something even more obvious. Who is Denninger to say 10% is “right?” Somehow his insight is better or smarter than the insight of all the economic geniuses that came before?

The fact is, no one individual or small group knows the right answer — but a truly free market would figure out the right answer(s), and almost certainly not a “one-size-fits-all” answer as is typically offered by the government or the pundits.

danny September 7, 2009 at 3:05 pm

Sorry, I missed something even more obvious. Who is Denninger to say 10% is “right?” Somehow his insight is better or smarter than the insight of all the economic geniuses that came before?

The fact is, no one individual or small group knows the right answer — but a truly free market would figure out the right answer(s), and almost certainly not a “one-size-fits-all” answer as is typically offered by the government or the pundits.

Ken September 7, 2009 at 3:18 pm

While I think that danny is right about the history and future prospects of enforcement, I also think it’s a tougher sell in a world where “Do it again, only harder!” seems like a perfectly reasonable course to the average person who hasn’t been paying close attention. How do those of us who know better break that meme? Will enough counterexamples do the trick? Hasn’t so far…maybe we should do it again, only harder. ;-) (I kid, I kid.)

Seattle’s moneylender/warehouse bank example is so simple even I understand it. :-) Both replies, though, are what I hoped for; my thanks to you both.

K Ackermann September 8, 2009 at 1:11 am

That was a neat little book. The history lesson in it says everything that needs to be said about the bailouts, and the lies behind them.

I could see the ghost of Morgan whispering in Paulson’s ear everytime he was called on to lie before congress.

The bank run could be the most powerful social weapon against the government, and IMO should be used. Something tells me the banks are not done yet either. Not only were they bailed out, but they see now they have the green light to shunt risk to the taxpayer. Too-big-to-fail has grown even bigger, and is levering up again. The largest transfer of wealth from the public to private hands has not resulted in a single change in the way banks manage risk. They have already repealed regulatory oversight, and are working on the accounting laws now.

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