no third solution

Blogging about liberty, anarchy, economics and politics

What Does a Libertarian Economy Look Like?

July 24th, 2010

Quoth the Faux Capitalist, on libertarianism and “Austrian” economists:

For me, a libertarian is someone who believes that limited government is the most likely to protect the liberties of the people whom it governs, and that shouldn’t necessitate an economic system based on a scarce resource such as gold.

Any economy (I do not prefer the term “economic system”) is not “based” on currency. It’s based on the exchange (often consisting in currency) of scarce resources. Some resources happen to be more scarce than others. Historically it is those resources, in particular the precious metals, that have been chosen as monetary commodities. This is so for a number of reasons I need not explain at present.

So it’s a gross misunderstanding, I think, to characterize the Austrians as gold-fetishists (although there are certainly some worthy of that). In fact, it’s not advocacy of an “economic system”, but rather a belief that in the absence of any coerced “system”, a free market settles upon a common medium (or perhaps, media) of exchange.

Anyone who advocates an “economic system” based on anything other than freedom and exchange is not a libertarian.

What’s Better Than Mild Inflation?

May 14th, 2009

In response to A Belated Reply on Fractional Reserve Banking, Neverfox asked,

If everyone agrees to trust the third-party (bank) and “subscribe” to the token system (“I’ll accept tokens from you as a wage if you agree to sell me stuff with those tokens later”), where is the fraud and where is the need for a commodity money?

It begs the question to assume that money must be commodity money to be a legitimate medium (consequentialist considerations aside).

Does it really beg the question?  Surely, we should be able to point to historical examples of monetary evolution culminating in irredeemable token substitutes. For starters, this argument assumes money as the intentional product of human design, which suffice to say, is contradicted by the facts of history.

The very notion of token substitutes presumes that they are a substitute for something else, in the same manner that a check, deposit-slip, or warehouse receipt are substitutes for, not replacements for, physical goods. Instead what we see in the history of the world is that, except where governments have been able to intervene, commodity money of some form or another has been pretty much standard.

As to the token-money hypothetical put forth above, what do they say?  If ifs and buts were candy and nuts…  Of course we can frame a hypothetical in such a manner as to preclude the possibility that fraud might occur: “I’m going to define a situation where fraud is inconceivable, and then ask you, ‘where is the fraud?'”, but I’d be tilting at straw men.

My father used to say, “You can ‘what if?’ yourself to death.”  Dealing with “what ifs” is stupid, because the other guy can always pull a “27 Ninjas” on you.  No matter what you say, they can always come up with some fantastic “what if” statement that apparently validates their position.  But what the heck, I suppose I’ll play along for a moment.

Considering that in such a scenario, someone has contributed real, economic-value-added work, in exchange for tokens under an implicit assumption that he would be able to redeem those worthless tokens for something else of real, economic value, sometime in the future, even this cleverly constructed straw-man raises some interesting questions:

  1. What happens when the person who agreed to sell you stuff in exchange for those tokens decides he’s no longer interested in tokens?
  2. What happens when the person who created those tokens mints a Trillion more of them, overnight?
  3. Haven’t you been definitely injured?
  4. Would you have agreed to play the game if you knew the other party could change the rules on a lark?

Under a commodity standard, money is the product of human action but not of human design.

  1. Accordingly, no promises as to future value are made express, or implied.  No matter what happens to the subjective value of the monetary commodity, your banknotes are always redeemable for a fixed quantity.  The token system is a shell game.
  2. With fake money, you get totally screwed.  With commodity money, it’s impossible to mint a trillion dollars overnight to bail out special interests or to pay for imperialism, etc.
  3. Production buys production — and although from time to time a new product will emerge, reducing the market value of some of your assets or skills, it is terribly unlikely to happen with money in the first place, and furthermore can onlyhappen as the result of an actual increase in the total amount of wealth in the world.
  4. The rules are the rules, they can’t be changed, and they can only be circumvented by fraud, counterfeit, or theft — all properly condemnable behaviors.

Whether it takes the form of “debasement” or “coin-clipping” or “seignorage” or “inflation” is beside the point. If you condemn inflation when the government does it, why stand on your head to defend “private” inflation, if for any other reason than to argue that it will be less bad?

News flash: you know what’s even less bad than mild inflation?

No fucking inflation. Period.

The Fractional Reserve Banking “Contract”

May 13th, 2009

One of the arguments I’ve seen leveled in favor of fractional reserve banking in recent weeks, goes something like this:

Any law against fractional reserve banking denies otherwise free men their right to contract with one another.

On a purely technical point, there need not be any specific “law” against the practice in order to nullify the practice. Per common-law tradition, the only essential question is whether courts would tolerate or maintain contracts of this sort.

So, there need not be any grievance between depositor and his banking institution, for fraud or theft to occur as a result of fractional reserve banking:in fact, they may both be completely satisfied with the outcome of their arrangement at any point in time.  However, there remains the possibility that a third party has been injured by their agreement.

Though two men may form a compact to injure or defraud a third, no enforceable contract exists among them, which is to say that neither party may be contractually obliged to specific performance based on the existence of such a “contract”. Furthermore, even the existence of a valid contract (i.e., one with a legal purpose), shall not be construed in such a manner as to preclude a third party, unintentionally and accidentally injured during the fulfillment of the contractual obligations, from pursuing remedy from those who injured him.

If we can establish that fractional reserve banking does amount to fraud or theft, or that it causes harm (negative externalities) to others, we can safely assume that a free court would refuse to honor or enforce such “contracts.”

no third solution

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