At the recent Mises Seminar in Sydney there was a speech by Chris Leithner that explicitly called for the banning of fractional reserve (FR) banking. Leithner and other Australian libertarians (including Michael Conaghan & Benjamin Marks from Liberty Australia) follow the lead of some American libertarians (Walter Block, HH Hoppe, JG Hulsmann — BHH) and argue that FR-banking is fraud and should be banned, and further that it is economically damaging and causes inflation.
These two issues need to be addressed separately. The first is a deontological issue about whether FR-banking is consistent with a free world. The second is a consequentialist issue about whether FR-banking leads to bad outcomes. It is possible that FR-banking is consistent with freedom and yet leads to bad outcomes, and then those libertarians who accept the “non-aggression principle” would have to tolerate FR-banking even if they don’t like those outcomes. But before delving into that debate, it is worthwhile quickly explaining what we are actually talking about with FR-banking.
Vaults, loans & banks
Anything can be money. In jail (and POW camps) cigarettes have been used as money. In the early years of Australian settlement, rum was used as money. In some small island nations, shells have been used as money. Through much of history, precious metals (especially gold and silver) have been used as money. And today, the most common sort of money is “fiat” paper money that is created by government but is intrinsically worthless (ie it has no value except as money). This is not the place to go into a debate about what should be money or who should decide, but the important point is simply that there is some original supply of money that then becomes the standard “unit of account” and “store of value” and “medium of exchange” in an economy. For the sake of this discussion, this original supply will be called “base money” and in Australia it is created by the Reserve Bank of Australia (RBA).
WARNING: VERY LONG POST
In a recent court decision, conservative commentator Andrew Bolt was found guilty of breaching the Racial Vilification Act (Eatock vs. Bolt, see http://www.austlii.edu.au/au/cases/cth/FCA/2011/1103.html ).
From the classical liberal perspective, the good intentions behind the Racial Vilification Act do not justify the existence of the Act; Free Speech is an absolute right which is only bounded by fraud (for example, in the case of actual defamation) and coercion (i.e. making threats of violence or similar forms of extortion).
I am not a viewer of Andrew Bolt, although in full disclosure I did once send him an email which corrected a philosophical mistake of his; he accused Postmodernism of being Metaphysically Subjectivist (i.e. people’s minds literally remake reality). I believe that to be mistaken since Postmodernism is Epistemologically Subjectivist, typically on philosophical grounds derived from German Idealist thought. This has been my only interaction with his work in the past, and I know little about him. Although I was pleasantly surprised when reading his Wikipedia page that he’s an Agnostic rather than a religionist.
But the reason for this post is that I found a specific comment about the Bolt case interesting from the perspective of political philosophy.
Commentator Brian F. McCoy argued that the ultimate issue in the Bolt case wasn’t freedom of speech. He identified the core issue as “freedom of identity” (see http://www.eurekastreet.com.au/article.aspx?aeid=28512).
What a fascinating concept.
“Identity” in the context of the case was referring to social identity or the groups with which one identifies.
The following article is not so much a deliberate argumentative essay per se. Rather, it is a set of commentary on a series of interconnected issues raised by the Bolt affair. In it, I will cover epistemological and philosophical considerations relating to the concept of “social identity” and I will also discuss the various analytical frameworks and assumptions that are used when dealing with the concept. Ultimately I will launch into a discussion of Brian McCoy’s “freedom of identity.”
Read more »
Missed this one but was alerted to it by Angry Exile, who saw it on Trooper Thompson’s blog, where its pointed out that the media seems to have missed it..
Ron performs well under quite aggressive questioning. If he doesn’t get the nomination, perhaps he would be a better Secretary of the Treasury than the current one.
Update: This now seems to play after reloading it.
Trooper also gives links to CNBC cancelling its poll when Ron was well ahead, and how the Guardian avoided mentioning him by name.
All small government people should be outraged at the manipulation of the electoral process by media organizations. The manner in which Governor Gary Johnson has been excluded from the process is bizarre and disgusting. It appears that the ‘mainstream’ press are determined to create a contest between Romney and Obama.
The first paragraph of the article quoted below, which disparages a ‘libertarian political party which represents just 12 per cent of voters and barely 0.2 per cent of the eurozone’s voters’ reminds me of the old movie, “The Mouse that roared,” in which a mini principality goes to war with the US and through a series of unlikely events, wins.
The world is becoming used to the daily round of news of European nations in financial crisis, Greece being the current centre of attention. There are constant updates on efforts by the more solvent members of the Euro zone to prop up failing members in exchange for financial reforms. Meanwhile, long-suffering taxpayers are becoming increasingly outraged.
A current effort to expand the European Financial Stability Facility to 440 billion Euros has been blocked temporally by tiny Slovakia. The ruling coalition there failed to approve the measure when the libertarian orientated Freedom and Solidarity (SaS) Party, voted it down. The measure is expected to pass with the support of the opposition, probably requiring an early election as a condition.
The rise of the vast administrative apparatus of state has resulted in numerous unelected agencies wielding power over the lives of ordinary citizens. There is no pretence that these organisations are independent from the executive branch: they exist to carry out the will of elected representatives, albeit with an eye to the “public interest”.
Central banks are a different story altogether. They are considered ‘independent from politics’. Although not quite as independent as national constitutional courts, they sit apart from ordinary government bureaucracies. The Treasurer, no matter how much he may disagree, is bound either by law or practice not to interfere with the monetary policy decisions of the bank.
This has insulated them from accountability. Parliament does not control the Reserve Bank’s budget, as it does for the independent court system. Full disclosures of monetary policy dealings domestically and internationally are not accessible. The RBA’s exemption from Freedom of Information laws prevents the public from finding out the extent of its relationships with external actors. Like the Fed, no parliamentary committee truly oversees every aspect of its decision-making, meaning it is probably more secretive than the Australian Security Intelligence Service.
Comprehensive audits can reveal useful information about how a central bank is employing its discretionary powers. These audits have been said to impinge on independence, but many fail to consider the protections can be put in place to minimise this risk. Not all documents discovered during an audit need to be made public. Some can be viewed privately by the inspector-general in charge of accountability. Appropriate safeguards, such as time lags between the time of a monetary policy decision and an audit of the decision, can be put in place.
Politicians already have many ways to interfere in monetary policy – using the bully pulpit of parliamentary committees is one of them – and it is unlikely that expanding the scope of audits would significantly affect central bank independence.
SUKRIT SABHLOK on scandals concerning Australia’s primary financial institution.
The Reserve Bank of Australia has been in the news recently, thanks to a corruption scandal splashed across the front pages of newspapers throughout the country. According to reports, two currency firms overseen by the Reserve Bank funnelled bribes to government officials in Indonesia, Malaysia and Vietnam, to win banknote deals. Securency and Note Printing Australia are partly and wholly owned (respectively) by the RBA, and many prominent political figures sat on the boards of the two companies.
This scandal, however, is just the tip of the iceberg. Other aspects of the RBA are equally shady, but are rarely exposed to public scrutiny. A new book by investor Chris Leithner, The Evil Princes of Martin Place: The Reserve Bank of Australia, the Global Financial Crisis and the Threat to Australians’ Liberty and Prosperity, documents in detail the nefarious schemes of Australia’s central bank.
Leithner is an adherent of the Austrian School of Economics, which argues that central banks are behind the boom-bust cycle that characterises modern economies. They are, in other words, the culprit responsible for recessions and depressions. By controlling the overnight cash rate (the rate at which banks borrow from the central bank), the Reserve Bank is able to control the money supply and thereby influence interest rates. This sets in motion a process that influences the rate of interest on housing loans, deposits and business loans.