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Source link: http://archive.mises.org/15208/book-review-free-banking/

Book Review: Free Banking

January 3, 2011 by

While Sechrest’s book will be an asset for further research, his untimely death has not only cost many of us a dear friend but will also deprive the continuing debate of his sound scholarship, open mind, and willingness to actively engage in the search for truth. FULL ARTICLE by John P. Cochran

{ 8 comments }

Mr E January 3, 2011 at 1:00 pm

Free banking and choice in currency may not only be the solution to monetary reform but also trade reform. Remember, the money printing stimulus packages have allowed the US multinationals to receive record profits. So money was created out of thin air to fund their R&D, to pay for the outsourcing of US jobs and to bail them out when things went south. Contrary to what is told, the stimulus packages did create a lot of jobs but just not in the US. Besides that, the US faces trade competitors that create new money out of thin air faster so that based on paper exchange rates foreign labor is cheaper to employ with US technology and it allows foreign products to be artificially cheaper. Additionally, some countries back their private companies endlessly with the printing press whether they are profitable or not which allows these companies to dump products overseas below cost. So for example if it costs 5K to make a product they will sell it overseas for 3K in which the central bank will create money to cover the difference between the cost to make and price sold below cost abroad.

The Soviet style central economic planning from WTO, NAFTA and Central Banks have bankrupted the US. Maybe communities should issue their own currencies like Hayek spoke about in his works, Choice in Currency and the Denationalization of Money. Various cities and towns in the US run trade surpluses and deficits with each other. Only these communities themselves know what amount of credit is right for them. At least if communities issued their own currency, they would have sovereignty over their own trade policies. Communities that issued their own currencies could undervalue their currency against the dollar so that based on paper exchange rates labor costs could be just as cheap as China and other developing countries. And just to note, North Dakota doesn’t have their own currency but they have their own state bank which allowed it to remain largely unaffected by the credit crisis of 2008-2009.

This paragraph from Michael Hudson’ article, Why the US has launched a new Financial World War sums up the current financial situation:

Finance is the new form of warfare – without the expense of a military overhead and an
occupation against unwilling hosts. It is a competition in credit creation to buy foreign
resources, real estate, public and privatized infrastructure, bonds and corporate stock
ownership. Who needs an army when you can obtain the usual objective (monetary wealth
and asset appropriation) simply by financial means

F. Beard January 3, 2011 at 2:02 pm

At least if communities issued their own currency, they would have sovereignty over their own trade policies. Communities that issued their own currencies could undervalue their currency against the dollar so that based on paper exchange rates labor costs could be just as cheap as China and other developing countries. Mr E

Competitive impoverishment of communities does not sound like a good idea. I have no objection to communities issuing their own currencies but those currencies should only be legal tender for the taxes and fees in those communities. In other words, there should be free market exchange rates between those community monies and private monies.

Mr E January 4, 2011 at 12:28 pm

I’m not advocating communities undervalue their currency against the dollar, but it should be their choice if they want to. Trade today is really just a money printing out of thin air game. Some multinationals get newly created money out of thin air to fund their R&D, to pay for the outsourcing of jobs in the US and to bail them out when things go south. Besides that, the US faces trade competitors that create new money out of thin air faster so that based on paper exchange rates foreign labor is cheaper to employ with US technology and it allows foreign products to be artificially cheaper. Additionally, some countries back their private companies endlessly with the printing press whether they are profitable or not which allows these companies to dump products overseas below cost.

F. Beard January 4, 2011 at 5:37 pm

It seems silly, doesn’t it? Deliberately debasing one’s currency? And dangerous too since it involves stealing purchasing power from the poor, supposedly for their own good.

F. Beard January 3, 2011 at 1:52 pm

Fractional reserve banking can be done ethically. This requires that:

1) The banks that engage in it use their own private money supplies as liabilities, not a government enforced monopoly money supply. Thus they are not allowed to counterfeit.
2) There should be absolutely no government support for the banks that engage in it. This means no government deposit insurance for depositors.
3) The risks including temporary non-availability of their funds should be fully disclosed to depositors.

However, it is doubtful that ethical fractional reserve lending would be profitable in a true free market of private money creation. But let’s see, shall we?

F. Beard January 3, 2011 at 4:33 pm

This led to an eventual inclusion of an “agnostic” discussion of banking freedom in the context of sound money. John P. Cochran

And what is “sound money”? Austrians seem united in their worship of shiny, scarce metals and it is a good departure point for the study of money, the assumption that a “sound money” exists. If “sound money” does exist then I propose that government fiat is sounder than PMs, backed as it is by the taxing power of the government. And what is gold backed by except tradition, limited industrial use and the jewelry preferences of women?

Hence the move by some Austrians to have gold become a government money form; to have their favorite money form (and usury) backed by the power (guns) of government. That would indeed make gold “sound money” but would it be honest money? No, not at all.

ABR January 3, 2011 at 5:16 pm

A sounder alternative to FRB is for a bank to lend the money that shareholders invest in it. A depositor, then, would purchase shares in the bank with his deposit, and his deposit would add to the pool of money the bank could lend. His shares would qualify him for a dividend, should the bank make money on its loans.

This idea of “you might be able to withdraw some or all of your money at any time” is highly dubious. Its vagueness invites catastrophe. That is not to say that FRB should be banned. If fools are willing to risk their money in such a way, so be it — so long as the State does not attempt to bail out the bank or its depositors when things go awry.

JC January 3, 2011 at 10:36 pm

Isn’t that essentially the idea behind a firm/bank issuing bonds as well as stock (although I understand one is far more liquid than the other)?

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