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Source link: http://archive.mises.org/13803/patenting-regulation/

Patenting Regulation

September 6, 2010 by

Bryan McKenzie of the Charlottesville Daily Progress reports that small banks are confused by new federal “regulations” that seem to appear at random:

With a quarter-century in the industry, Patricia G. Satterfield has long recognized that regulation of banks is a subjective practice. But the president and CEO of the Virginia Association of Community Banks says the current regulatory environment is the most difficult and “over-reaching” of her career.

“Banks are receiving uncertain and mixed messages in the examination process. They don’t know what to expect,” she said. “What was once A-OK is no longer A-OK, but no one knows that until after the examination.”

That, bank officials say, is what happened recently to Old Dominion Bank in North Garden, which entered into a formal agreement with the Office of the Comptroller of the Currency to make changes to its lending practices, accounting and capitalization.

The agreement states that federal regulators found “unsafe and unsound banking practices” and requires the bank’s board of directors to develop new plans for capitalization, loan reviews and contingency funding. But Old Dominion officials say the bank is safe and sound and that the agreement is a result of ever-changing requirements and regulations used by the bank examiners.

“We’re doing everything right, it’s just that the rules are changing,” said Charles V. Darnell, president of Old Dominion Bank. “We are solvent and we’ve addressed all of their concerns mentioned in the letter.”

Regulators declined to give any details on where or how Old Dominion failed to meet federal standards or what those standards are or if the standards had changed without the bank’s knowledge.

Neither would examiners say whether Old Dominion was on sound financial footing or otherwise, or what criteria were used to determine the bank’s condition, or if the agreement was the result of changes in federal requirements.

The definition of regulation is “to make regular,” yet most of what the government touts as regulation is just the opposite. The prevailing model of “regulation” since the Progressive Era has been to make things irregular and subject to the subjective discretion of government officials — usually unelected, extra-constitutional agencies. This is not a model of regulation at all, but really a perverse category of patents. While we generally associate patents with creation rights over literature and inventions, the patent power applies to a wide range of state activities designed to monopolize (or cartelize) private industry.

Entities like the Comptroller of the Currency or the Federal Trade Commission are not government agencies at all but semi-private corporations that hold valuable patents over economic activity. And unlike the more limited patents granted to writers and inventors — which are not so much “patents” as they are licenses to sue — agency patents are self-executing and indefinite in time and scope.

The Old Dominion Bank story is a case on point. The “regulator,” the Comptroller of the Currency, holds a patent to “charter, regulate, and supervise all national banks” in the United States. As the patent-holder, all banks ultimately depend on the Comptroller’s discretion to stay in business, irrespective of whether they are profitable or satisfy customers. If there’s any conflict, the Comptroller’s patent overrules the market.

Even if you believe it’s necessary to have the Comptroller walking around dictating to banks how they should operate via secret agreements, this still does not make it “regulation.” True regulation only comes from a decentralized market process, where standards can develop through trial-and-error. Government patent-holders act primarily to defend and expand the scope of their patents. Any “regulation” that derives from this centralization process is purely incidental.

{ 15 comments }

Phinn September 6, 2010 at 9:14 am

“What was once A-OK is no longer A-OK, but no one knows that until after the examination.”

The government is trying to cure examinees of their false belief in a rational, stable reality that exists independently of government/mega-bank policy. Reality is whatever the “regulators” define it to be.

The purpose of enforcing inconsistent dictates disguised as “rules” is to break the subject’s will, to show the subject that he can’t win, that the examiners are the ultimate authority.

Some people have a hard time getting that message through their heads.

D. Saul Weiner September 6, 2010 at 9:30 am

This article brings up a critical point; the loose usage of the term regulation with respect to certain types of government activity.Arguments are often won or lost based on terminology and this is clearly one of them. After all, how can a prudent person be against regulation? Its connotation actually goes beyond the literal “making regular” to bringing order to (otherwise chaotic) market activities. Proponents of free markets should not use the term regulation to refer to this type of government activity. As alternatives, I have suggested the alternative phrase “interference with the free market” and Sheldon Richman has used “interference with free exchange”.

Shay September 6, 2010 at 3:02 pm

How about we call them government irregulations?

Etymology Nazi September 6, 2010 at 11:04 am

Actually, the word regulation stems from the latin word regulare, which means (to) rule or (to) govern.

scineram September 6, 2010 at 2:27 pm

Don’t let the truth get in the way of libertarianism!

Matthew Swaringen September 6, 2010 at 2:46 pm

Wow, it must have taken a long time for you to think up that statement.

Matthew Swaringen September 6, 2010 at 2:45 pm

The stem of the word is not all that makes up it’s definition.

The word is taken to mean control for the purpose of making something consistent or regular. It implies standards and rules are being used rather than entirely arbitrary decisions.

Augie September 6, 2010 at 7:18 pm
Rick September 6, 2010 at 12:11 pm

Activist government gridlocks the people.

Seattle September 6, 2010 at 1:09 pm

Your “patent” idea is a little silly. It extends the term to cover all state activities, thus rendering it meaningless.

Matthew Swaringen September 6, 2010 at 2:49 pm

I don’t think it renders it meaningless. Patent can mean “exclusive right or privilege” which is what I took the word to mean here.

All words have some of their meaning based on context. What he’s referring to could also be called monopoly privilege. I suppose that state’s by their nature have a monopoly on what they do you could say, but this isn’t necessarily true. One can certainly imagine a government that allows competition in some areas or doesn’t seek to interfere in everything.

Augie September 6, 2010 at 6:27 pm

That which encompasses everything is meaningless? Government! It’s meaningless! No worries… lol

Augie September 6, 2010 at 6:24 pm

Note; The definitions Nazis and their Soviet dictionaries! What was it about Orwell, and controlling the language?

Horst Muhlmann September 7, 2010 at 8:40 am

Orwell was late to the game:

“When words lose their meaning, people lose their freedom” — Confucius

J. Murray September 6, 2010 at 6:54 pm

It’s nice to see a few more people picking up on the real definition of regulate. I’ve been harping on this for a few years and it’s good to see it spreading, though unlikely through my efforts.

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