Uitgebankierd: The Day after

[Antid Oto]

REPLY TO: D66 at nic.surfnet.nl

Martijn Meijering wrote:

>
> Hoewel ik erg enthousiast ben over free banking, verwacht ik dus
> niet dat het er snel van gaat komen. Aan de andere kant denk ik dat
> we met z'n allen nu wel beginnen te zien dat het huidige systeem
> van fractional reserve banking toch wel instabiel is. Het zal wel
> ergens in het midden uitkomen, in een systeem waar banken
> transparanter moeten zijn en hogere reserves moeten aanhouden, zij
> het minder dan 100%.
>
> Een tweede belangrijk punt is het rentebeleid van centrale banken.
> Dat heeft sterk bijgedragen aan de zeepbellen en dat moet misschien
> ook maar eens aan banden gelegd worden. Liefst zou ik het helemaal
> afschaffen, maar ook daar geldt dat we waarschijnlijk op een
> tussenvorm zullen uitkomen.
>
Free banking? no way.
Stephen Zarlenga, van the American Monetary institute
(www.monetary.org) heeft stevige kritiek op het zgn free banking. Ik
citeer:

9. A “Free-Banking Monetary” Reform

The present day call for free banking is among the least informed and
most arrogant of monetary reforms yet put forward in our nation. It
seems that to promote an idea without real examination today all one
has to do is put the word “free” into its name. The term “free
banking” is vague, because its supporters have not uniformly defined
it. We take it to mean a system where bankers are allowed to create
the money supply in the form of their credits, or notes, which are
allowed to circulate without restriction or regulation, to the extent
that the markets will allow. But isn’t it really up to these advocates
to define their own terms?
The strident anti-government attitude of many of those promoting free
banking has created a prejudice in them to view all regulation as bad
and, contrary to the lessons of history, to place their trust in the
bankers to act honorably! But to promote free banking requires that
one dismiss the universal historical condemnations of it by expert
observers such as Gouge, Knox, Raguet, Bullock and Sumner, to name a
few. The 19th century reformer Henry George observed that: “The evils
entailed by wildcat banking in the United States are too well
remembered to need reference… and no-one would now go back to them.”

Now 150 years later along come the free bankers who assure us that he
and the other observers were wrong. Why? Because their theory tells
them so! This modern “free banking” movement was spawned by Hayek’s
essay titled Denationalization of Money,21 which was mainly an attempt
to throw a monkey wrench into the early plans for the Euro, and is
really an affront to serious monetary thought. Here are some of the
problems with the free bankers “arguments”:

1) They have misread history as is clear from their mislabeling the
American “free banking” period as 1836 to 1864, when it was mainly
pre-1836. They make this huge mistake because the New York law in 1836
that imposed much greater legal restrictions on banking, was called a
“Free Banking Law.” Naturally the post 1836 period gives better
banking results, but anyone can see that its a period of greatly
increased government regulation, which required real reserves, better
supervision; double liability for bank shareholders; diversification
of loans, etc.

2) They have disregarded as “anecdotal,” the universal condemnations
of free banking by expert witnesses. One can’t ignore these
indictments from highly qualified observers from across the political
spectrum. For example John Jay Knox, Controller of the Currency and
generally friendly to banker interests wrote in the official 1876
Treasury report: “The history of banking in the various states before
the (civil) war will make plain to anyone that the note issuing
privilege was much abused to the great detriment of individuals and
the public. Banks were started for the sole purpose of foisting
worthless notes upon a trusting public….The idea that the government
should issue the paper money, as well as coin the gold and silver has
taken a firm hold of the American mind.”

3) They use extremely poor logic. For example they think they have
logically “proved” that bankers will be honest, because in the long
run it is good for business. That is mind-boggling and demonstrates
gross ignorance of history and of business ethics in particular. I’m
purposely gruff with the Austrians and Libertarians, because its what
their viewpoint deserves. They have gotten away with it so far only
because of the general ignorance of monetary history which allowed
them to substitute a fictitious “theoretical” history, as Menger and
the “free bankers” do.

4) They treat the banks statistically as if they were deposit
institutions, but they were always banks of issue. Partly because
statistics on the banks are very patchy, they have focused on certain
measures which cannot convey a full and accurate picture of banking.

5) They ignore the stock fraud in bank shares, that always accompanied
banking, etc, etc, etc. Recent history of the crash of 1929 indicates
losses through stock markets, from a banking created crisis was about
40 times as much as the direct losses in bank deposits.

In The Lost Science of Money I go into considerable detail on all
these and additional points, because I feel it is important to expose
this destructive movement by describing it objectively.

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