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Source link: http://archive.mises.org/14713/14713/

Block’s Building Blocks

November 22, 2010 by

Murray Rothbard, in his life, was known as Mr. Libertarian. We can make a solid case that the title now belongs to Walter Block, a student of Rothbard’s whose own vita is as thick as a phone book, as diverse as Wikipedia. FULL ARTICLE by Llewellyn H. Rockwell, Jr.


Michael November 22, 2010 at 10:19 am

Walter Rocks!

Dave Albin November 22, 2010 at 12:16 pm

Defending the Undefendable is so well-written and thought provoking that it is hard to put down.

David Hillary November 22, 2010 at 1:56 pm

I’m not surprised Lew Rockwell puts Block and Rothbard in the same category, both seem to share the same strengths, weaknesses and style, as well as views. Rockwell is also a fan of both, including their anti-fractional-reserve-banking stance.

Block goes to extreme length to find fault with fractional reserve banking, in particular, to the point of consistent absurdity (see http://www.lostsoulblog.com/search?q=block )

Dagnytg November 22, 2010 at 3:51 pm

David H,

I’m not sure where the absurdity is. His point is pretty simple. Two people cannot claim title to one property. Two people cannot claim title to 19 ounces of gold where there exists only 10 ounces. A sixth grader can understand this.


David Hillary November 22, 2010 at 5:02 pm

I’m not sure what you’re trying to prove there Dagnytg, I’ve answered that post at length here: http://www.lostsoulblog.com/2009/12/answering-blocks-bank-impossibility.html and

Perhaps you’re showing that you just like to go off without even looking into what you’re talking about. Actually it is Block who is being infantile in suggesting a conflict of rights — at common law a bank deposit and a bank note are claims on a bank rather than its assets.

Sione November 22, 2010 at 5:40 pm

David Hillary

Actually it is you who is being obtuse on this occasion (and rude).

I read your posts and to say the least, they do not hold. The use of arbitrary definitions, legalisms and rhetorical sleights of hand in the attempt to disguise the core nature of the fractional reserve banking fraud is deceptive and dishonest practice. Very naughty of you to engage in it.

Some years back we had a fraudster who was into fractional reserve chicanery on the island (Villiami lived in the next village along). The result was a disaster. Even now, many years later, there remains lasting alteration to the culture- the loss of trust which cascaded throughout the entire community at the time has not diluted.

Frauds, no matter how sophisticated, no matter how cleverly argued, no matter how professionally polished, contain falsehood, dishonesty and deception. They are extremely corrosive.


David Hillary November 22, 2010 at 9:40 pm

Well, for the sake of civility and all that, sorry for being rude, obtuse and impolite. Now where were we?

That’s right, we were at the point where you criticise my posts for:
arbitrary definitions
rhetorical sleights of hand
the attempt to disguise the core nature of the fractional reserve banking fraud is deceptive and dishonest practice

Wow, that’s quite a list of charges, Sione. As far as I know all definitions are arbitrary. The definition of blue could be green and visa versa, but if I define green as the colour of healthy grass and blue as the colour of the sky on a cloudless day, I’m trying to make the terms clear so that you can understand my points. Legalisms? This topic is a legal topic, it is about what people’s rights and obligations are to each other when they engage in contracts using particular words and that work in particular ways. The issue is about whether, in some conditions or under some contracts person A, the banker, is obliged, to hold particular assets in a particular form, in relation to person A’s account conducted for customer B, or in relation to instrument BN that has been issued by A.

Rhetorical sleights of hands? what are you meaning exactly?

Disguising the nature of fractional reserve banking? no, I’m trying to make it clear the terms of the contract, and how the contract works, and using the law, including the common law, to explain it and to impute meanings to terms such as banker, current account, customer and so forth. Fraud and dishonesty are legal terms. You should support your claim that it is fraudulent or dishonest. For example, has a deposit of money with a bank on current account of a customer EVER, under English common law, been ruled to be a bailment or anything other than a simple debt, with some superadded obligations in relation to honouring customer’s cheques? Or has a bank note or other promissory note ever been held to be a bailment or to have implied an obligtion to keep a particular fund of reserves of a particular size and in a particular form?

FRB (in relation to current accounts) is not sophisticated, in fact it is made up of only two parts:
1. a simple unsecured debt, being the balance of the account that the banker conducts for his customers and
2. an agency relationship, where the bank acts as the customer’s agent in relation to the payment and collection of orders (cheques) drawn by the customer on the bank, and deposited with the bank for collection and credit to the customer’s account with the bank respectively.

FRB in relation to bank notes issued, is even more simple, being a simple promissory note made by the bank, payable to the bearer on demand. Negotiable instrument law perhaps is not so simple, but in the case of bank note merely supports the negotiability of bank notes by physical delivery (i.e. the new owner can get good title to the instrument notwithstanding that the person he got it from had defective title).

Beefcake the Mighty November 22, 2010 at 10:03 pm

“Well, for the sake of civility and all that, sorry for being rude, obtuse and impolite. Now where were we?”

You really are a snide cunt, aren’t you?

“As far as I know all definitions are arbitrary.”

Definitions as such may be arbitrary, but all definitions presuppose the existence of distinctions seprating the thing being defined from other things, and particular, poorly-chosen definitions can serve to obscure rather than highlight those distinctions. Do you disagree?

“For example, has a deposit of money with a bank on current account of a customer EVER, under English common law, been ruled to be a bailment or anything other than a simple debt, with some superadded obligations in relation to honouring customer’s cheques? ”

Could you please explain the relevance of the “common law” (English or otherwise) to the issue here? Or better: the relation between some kind of common law that libertarians might find acceptable and the current statist law governing banking today?

David Hillary November 22, 2010 at 10:27 pm

Well I did draft a snide comment, but thought better of it, since most offended people, in addition to being over-sensitive, have little sense of humour, I decided to just say sorry instead.

No disagreement with your comments on definitions. If you think my definitions are unhelpful or invalid, why not be specific and say so and what’s wrong with them and why, and what you propose instead.

English common law is relevant when people use the English language to engage in contracts. Words have meanings, and what those meanings are is something that court cases decide. So, if a person calls himself a bank, and his customer asks him to conduct a current account for him, and he deposits money with the banker, then the court has to determine what all those words mean if one person says they mean one thing and the other person another. So, given that we use the English langauge, and that our laws are mostly informal and unwritten (as they should be, see Kinsella’s work on this here http://www.lostsoulblog.com/2010/10/legislation-anarchist-critique.html , and that English common law has already considered the issue and what are the implied terms of the bank-customer contract, let’s just accept that, and if you want to make a different contract, use different words, or modify the implied terms with express terms. English common law accepts that it is up to the parties to determine the terms of their own contracts, and I think libertarians and free-marketeers are generally happy to accept it. the current common law on banking is not statist, it is the legislation on banking that is statist.

Dagnytg November 22, 2010 at 8:34 pm

David Hillary,

I meant no disrespect to you and I apologize if my response was interpreted that way.

I checked out your link and thought you gave well-intended responses. IMHO, your arguments are convoluted and Sione (above) summarizes this well in the second paragraph of his post and I concur.

My sixth grade reference was not a reflection of you or your intellect. It is my interpretation of most Libertarian and Austrian concepts and in this case Block’s argument. The beauty of being a Libertarian is the eloquent simplicity and trust in basically one axiom-property rights.

But as an aside, your (surprising) emotional response is indicative of many responses I get from non-libertarians and libertarians alike when confronted with an axiom based argument. Anger, then denial, and later obscurification in order avoid the consequence of accepting the obvious or the “essence”.

Prior to reading your original post, I was “on the fence” when it came to this issue but your link led me to the “response to Posner” link and from there I was so impressed with Block’s counter arguments that I am off the fence. I’m sure that wasn’t your intention when you made your post but I thank you for spurring my curiosity:)

David Hillary November 22, 2010 at 9:55 pm

Dagnytg, you make a good point about single axiom based positions, as these do seem to be a fair description of both Rothbard and Block, and something I’ve argued with Stephan Kinsella about before. For me, if an act is sufficiently bad or wrong, and it causes someone else’s loss, then, in general, I think the person affected should be able to sue the wrongdoer for the damage caused, even if it does not specifically relate to a property right or contract, but Kinsella wants to reduce anything and everything down to property rights or contract, and so, if it doesn’t fit that rule or mould, the person affected has no remedy.

I have been thinking about re-writing those posts, updating them, expanding them, and perhaps this would result in them being less convoluted. I’m not really sure why you feel they are convoluted, I guess they do address the same topic from a variety of angles.

Dagnytg November 23, 2010 at 3:01 am


Thanks for the reply.

You have far more expertise in the area of finance/accounting than I do and I defer to you on those issues. I will use your site in the future as a counterpoint and reference.

On the issue of convolution…I meant what I said if one defines it as complicated or intricately involved but my context is based on perspective.

In the case of your arguments on FRB, I’m looking for the essence or axiom but you’re presenting a detailed legal argument. In retrospect, the two are not compatible. From my point of view, it’s convoluted, intricate, and complicated but from your perspective, it is simple (because you’re well versed and you give a very detailed explanation.)

In the end, it’s really a point of style, presentation, and line of reasoning…so I’m not sure you need to rewrite anything.

David Hillary November 23, 2010 at 3:15 am

Dagnytg, what axiom do you use and what is FRB’s problem with it?

Dagnytg November 24, 2010 at 6:00 am


I’ll summarize it like this:

Sound money and FRB are incompatible.

David Hillary November 24, 2010 at 1:07 pm

Dagnytg, that’s just assuming what you’re trying to prove.

Dagnytg November 24, 2010 at 1:58 pm


It’s not an assumption, it is a conclusion.

The closest I’ve come to discussing this subject was with Kaz, who is a free banker and has his own site. http://butnowyouknow.wordpress.com/those-who-fail-to-learn-from-history/history-of-economic-downturns-in-the-us/

See (Bernanke’s Solutions Are the Problem 11/5/10) if you wish to review my discussion with him.

Based on Kaz’s historical timeline (and comments) of booms and busts from the 19th and 20th centuries, I concluded that, institutionally speaking, we can’t manage money. Inevitably, banks print more money than specie and Fed banks… just print more money.

Henceforth, my conclusion…Sound money and FRB are incompatible.

David Hillary November 25, 2010 at 2:02 am

Dagnytg, the US has had a broken banking system for 200 years — so what? The US, other than some parts of it for some periods, has never been an example of free banking and a consistent and sound monetary standard.

Dagnytg November 25, 2010 at 1:05 pm


I question if free banking will led to sound money.

If I look at the history of banking that doesn’t seem to be the case in the U.S. or elsewhere. If you look at the business model of banking, economics of banking, or the psychology of banking…they all lead to FRB and then demise of the currency.

If you really wanted to twist my arm, you could point out that I am an anarcho-libertarian and that presupposes free banking. You would be right.

But, if free banking leads to FRB by the majority banks (I don’t see how banks can make any money otherwise) then you devalue the currency, you have inflation, malinvestment, a bust and then a whole lot of people screaming for a government to save them.

So, no matter how anarcho-libertarian you and I want our society to be, with out sound money….we end right back where we are today. I question whether free banking and the ensuing FRB will work.

Therefore, Block’s property rights argument against FRB appeals to me as a way to get out this dilemma.

David Hillary November 25, 2010 at 1:57 pm

Dagnytg, your delema is based on faulty economics, and can be resolved by reviewing your economic theories and assumptions. Under a metallic standard, the value of the monetary unit is anchored by the relative price of the metal to other goods and services, and does not depend on the stock of money, metallic or bank-issued.

Dagnytg November 26, 2010 at 6:22 am


I stated this from a previous post. (see above Kaz)
“…banks print more money than specie…” If you accept FRB, it doesn’t matter if money is backed by gold or water bottles. You will create monetary inflation.

David Hillary November 26, 2010 at 9:37 pm

Dagnytg, well if you’re going to just assume the quantity theory of money then at least you know where to start. Start questioning that theory. That is the faulty economics I’m talking about.

Beefcake the Mighty November 26, 2010 at 10:36 pm

“Start questioning that theory.”

You first; what’s *your* theory of money? Chartalism? What? Please tell.

Peter Surda November 23, 2010 at 5:31 am

Assuming, of course, that bank accounts are a claim on property (rather than, for example, a form of investment).

The Kid Salami November 23, 2010 at 7:27 am

Peter – did you ever read this Hulsmann article on this topic?


Peter Surda November 23, 2010 at 7:59 am

I don’t remember if I read that paper, but I read Ethics of Money Production by the same author.

It might be that historically, fractional reserve deposits evolved from full reserve deposits. That does not mean that per se, the action of extending credit without appropriate backing is fraudulent or in general a violation of property rights, even though it causes inflation. You might recall that I consider physical invasion necessary for the violation of rights. Inflation does not physically invade the property, rather it changes the market value of your property (and obligations and liabilities). There are all kinds of services that are offered without 100% reserves, yet libertarians typically do not call them fraudulent. It’s a question of business risk.

The closest explanation I received regarding why such an action is fraudulent is maturity mismatching. But I don’t think that’s a praxeological term.

I am unconvinced by the arguments that extending credit without appropriate backing is, per se, fraudulent. Whether such a definition matches that of FRB I don’t know, but I think that FRB opponents are misled by the historical developments.

The Kid Salami November 24, 2010 at 6:06 am

I don’t think maturity mismatching should (or even could) be illegal either. I think the key is earlier in the process and what Hulsmann says in this article (I don’t recall how much he discusses or emphasises this specific point in TEOMP, I think only a little though) ie. that if we have gold money and one day someone prints up an IOU that doesn’t correspond to an amount of gold then it is a different product. In his words:

“…I analyze an important case in which the market participants do not distinguish between two inherently different banking products – namely, money titles and fractional-reserve IOUs … I argue that these consequences [booms and busts] result independent of whether their cause – namely, lack of product differentiation – is brought about accidentally or intentionally.”

I think his analysis is correct but requires something more, unravelling this issue is complex and that there is something fundamental missing from the discussion still – and my gut feeling is that at root it is the same thing that is missing in the IP debates, although I don’t quite see it 100% clearly yet. The key problem is: you make an exchange and get a piece of paper which you intend to take down the road and swap for, say, a loaf of bread. You get what you want whether the piece of paper is a money (ie. gold) title or a printed up IOU looking exactly like a money title. So there is an argument that you have not been defrauded, if you are told that this is an IOU and not a money title. There is an argument that you don’t care or need to care what others do, that you have what you need to buy your loaf and you literally cannot determine, from inspection of your ticket, whether it is a real money title or an IOU and so it is just not your problem. Is this, broadly, what you would say?

I have big problems with this though – there was a jump from the use of a tangible scarce good to an intangible non-scarce ticket. It is, quite simply, a totally different good, and the fact that you can use it in the same way as genuine money title for most purposes is immaterial. If I go to buy a paperweight made of gold, then the guy finds out I only want it as a paperweight and tells me he has painted up some tungsten instead, I would pay him less – the fact that it will perform the same function is neither here nor there. And the argument against time preference using ice-creams – saying that I’d prefer an ice-cream in summer rather than now (in winter) is answered by saying it is a different good. The ice-cream itself is identical – its relationship with everything else is different. Same with the ticket – the paper itself might be indistinguishable from the stock of genuine money titles, but its relationship with the world is different. And, crucially, so now is the relationship of the other genuine money titles (the item you copied) with the rest of the world.

Now, if people are genuinely confused about this, ok. People have, say, treated food cooked with microwaves and heated on a hob as the same for many years, but there is growing evidence that it is not the same – that the microwave alters the amino-acids so as to significantly reduce the nutritional value of the food. So, for many people at least, a microwaved soup is not the same good as a hob heated soup. But people selling microwaved soup are not committing fraud – they just don’t understand (assuming this is true). Most people now printing up money are not committing fraud – they just don’t understand. So, to me, it comes down to causation and intent and all the pet-topics discussed to death on the IP threads – an altogether non-trivial problem.

Peter Surda November 24, 2010 at 7:28 am

lack of product differentiation

I see your (i.e. Huelsmann’s) point Kid. One could argue that the lack of product differentiation can mean that fraud is perpetrated. But I still unconvinced that this accurately represents FRB. FRB banks do not issue bank notes or coins, only the central banks (or, in the US, the Treasury) do that. FRB banks extend credit. I think credit and notes are sufficiently distinct, but people use them interchangeably for convenience purposes.

there was a jump from the use of a tangible scarce good to an intangible non-scarce ticket
This is more a problem of fiat money rather than FRB. The issue I have with this is similar to that of FRB: it assumes that because the media of exchange began, historically, as commodity money, media of exchange not based on commodities are fraudulent. That’s a non-sequitur. There are media of exchange which have been fiat from the beginning. Euro, for example, unlike US Dollar, was never based on commodities.

I think this is a very complicated topic and I am not qualified to make final judgements. Nevertheless, so far I have problems with all of the explanations presented to me.

The Kid Salami November 24, 2010 at 8:08 am

I still don’t have a cast iron view of this issue either, despite having pondered it for about 2 years – I think it is very complex and there are many issues which are interacting which obfuscate the issue. Technical ones eg. distinctions between commodity money, money titles and fiduciary media and distinctions between fiat money/legal tender and free market money like you say. And also the state run systems which teach huge swathes of people that monetary policy must be state run – this makes the entire lifestyle of many others dependent on it continuing ie. on the ability of the state to steal wealth in a sufficiently roundabout way from the productive part of the economy to fund welfare and public sector lunacy – I won’t hold my breath for the people sitting around in local government offices playing solitaire all day to agree with me.

I would differ though in that I think it can be considered fraud – that, with a commodity money in place, people start this ball rolling by intentionally defrauding the customer by giving them one product in place of another that they knew would cause some problem down the line for someone else but would benefit them in the here and now. So now the information is so distorted that we can’t reasonably accuse any individual of fraud – but it should be prohibited nonetheless. A truly ludicrous and lamentable state of affairs.

Peter Surda November 24, 2010 at 11:38 am

defrauding the customer by giving them one product in place of another

As far as I see, this is just a hypothetical construct. It is not necessarily what happens. Maybe your preception is skewed because cheques are still common in the US. Not so much here in EU. With the minor exception of UK and Ireland, I have not seen a cheque in like 20 years. Banks do not give their customers cheques as a replacement for currency notes, and people do not give other people cheques as a replacement for currency notes either. Rather, the FRB “money” is exchanged via electronic transactions, e.g. debit cards or online banking.

While I see how one could confuse cheque for cash, I find it difficult to believe that one can confuse cash for electronic transactions. I for example prefer paying with debit cards to paying with cash, and I prefer to be paid electronically too. That shows that to me, cash and bank credit are two distinct products.

But you’re right, it’s a very complex topic.

David Hillary November 24, 2010 at 1:13 pm

Bank accounts are claims on the bank rather than the bank’s property. The bank can use its property (not its customer’s property) to discharge the claim, and thus it may hold its property in whatever form it likes. The claim of the customer on the bank can be discharged by converting the bank’s property from one form to another, by issuing a replacement claim to another willing customer or creditor or by the customer exchanging his claim for another asset being sold to him by the bank.

A claim on a person is, of course, a form of property, called a chose in action, however it differs from ownership of a physical item such as a coin, which is a chose in possession.

mohammad November 22, 2010 at 3:04 pm

This man sounds very familiar. I’m very anxious to meet him

Barry Loberfeld November 22, 2010 at 3:40 pm

We’ve exchanged e-mails a few times over the years — cool dude. And at FEE he was a very engaging speaker.

Ralph Fucetola JD November 22, 2010 at 5:14 pm

Walter has been admired by many of the freedom-folk for many years… In this case, being considered the 21st Century’s Murray Rothbard is well-deserved!

Beefcake the Mighty November 25, 2010 at 2:54 pm

David Hilary, review your own economic assumptions. You conflate value with price, they are NOT the same thing. Read Man, Economy, and State for an elaboration, if you are interested.

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