Woops, I thought I eluded to that. You are correct though. 
How will the government pay for national defense, courts and jails?
Very interesting discussion going on. Not being an expert in Austrian economics I can’t really lend a hand either way.
I think there’s a lot that can be said of the moral implications of fiat currency, legal tender laws, etc. The bottom line is that anything a government requires or prohibits must be done through force. Where you fall on that argument really defines your moral compass.
What I really want is payment by check or debit card or credit card. I don’t want to handle physical paper cash or gold coins or silver coins or barrels of oil. I really don’t want to have to store, secure, protect and guard a real commodity if I don’t have to. That is, if I can trust that the money issuing authority (paper or electronic money) will not screw me by inflating the money supply and there is a reliable, secure, and highly tamper resistant clearing and accounting of my money.
It won’t.
I don’t understand. Can you please elaborate?
Hmmm. Very interesting Anarcho-capitalism. But without a strong central government with a big defense budget how would you have fought Imperial Japan or the Nazis or the threat of communism. These guys would have taken your freedom and liberty.
Ignoring the casual relationship between WWI and WWI, you’re making the central bank argument again. That somehow the central planner can do the job the market cannot. If you are right, then we should centrally plan everything. Money, defense, law, police.. Education? Food? Housing?
If I have to accept government over the market, how much freedom and liberty do I really have?
Ok. So you are saying that the market would have eventually self-organized against Hitler if americans thought their liberty was threatened. Something like how the American Revolutionaries self-organized against the King.
I am not answering for LS. I am answering the assumption.
The market finds agreeable terms to any parties involved in a transaction. The Nazi’s and Japanese dealt with the American government, and its ability to tax its productive markets, not the individuals inhabiting the continent. Absent the American government, the Nazi’s and Japanese wouldn’t have seen America as a threat, and probably would have left her inhabitants alone. Also, there probably would not have been a WW2 were it not for American intervention in WW1. America was fresh and on the allies side, the allies used her to rob german populace by equivocating them with their state. Hitler arose after they had enough of that.
Hitler was worthless, but Government intervention, (Specifically American government intervention.) played a pivotal role in bringing him to power.
You need to consider the entire human history and not just WWI and WWII. There have been plenty of governments/rulers/empires/groups out there looking to subjugate/enslave/tax easy targets. Would not America have become an easy target for such behavior from the outside? Target for Imperial Japan? Nazis perhaps? Communists (likely)? What about the war of 1812?
This thread changed from money and credit to national defense. IMO a new thread should be started. I’d feel better knowing we addressed Mr. Khan’s questions regarding banking.
No one has commented on the above reply I gave to “bbnet”. I would really like to understand the reasons Austrians have for insisting on commodity backed money as opposed to just 100% reserve base fiat money.
Note that by base money I mean not debt based fractional reserve money but physical paper cash or its true electronic equivalent.
What would be the advantage of 100% reserves over fractional in a fiat money system?
Austrian’s insist on a market emerged monetary unit. We only speculate as to what that may be.
Paper money would have a hard time competing as unit of exchange on the free market due to the fact that it is so easily reproducable. A commodity based unit of exchange will have some form of real value, probably due to it’s scarcity(Speculated). Paper money is not scarce and can be manufactured in any ones home with the right equipment.
On a free market, paper money could not compete with commodity based money. As the demand for money grew it could cheaply get filled in with paper money. This will reduce each paper dollars value and make other competing currency’s more desirable. The marginal utility of each unit of exchange from paper money would constantly shrink as people introduced more units of exchange into the market. On the other hand, a commodity based system is limited by it’s scarcity. Now there very well could be checks or debit cards that manage the transactions of commodity based money. Hopefully someone can elaborate more on what I am getting at.
All paper money is dept based. It’s an “I Owe you”. As opposed to a commodity based system where after the transaction is complete you don’t owe them anything. You received a commodity for their service/good.
This is not the Austrian position.
What is physical paper cash? How does it enter the market? How is it produced, and who purchases it?
The only way fiat money can come into the market, is by fiat. Via the state, typically as a note redeemable for tax payment. It is wholly an artificial money that could never originate in the market as there are no paper dollar trees to farm or paper dollar veins to mine.
Fine, cite specific examples then. An appeal to “all of history” isn’t really an argument.
Sure. Americans left King George the 3rd, who was taxing them 2 or 3 %, and decided to tax themselves 35~45%. All governments exist to tax. There is no easier target than a nationalistic and socialistic electorate.
How?
Why?
No WWI and no WWII, why would the Nazis be an issue?
Socialists truly are the scoundrels of our times, but how many countries did the communists actually invade?
You mean the war the Americans started?
Austrian economics is not libertarianism, but many of us in this community, which doesn’t necessarily reflect the views of the institute or its scholars, are radical libertarians. So any premise about government intervention, is not generally going to get much review because the premise is often rejected here.
If we’re doing value free economic analysis, then it’s strictly an unemotional (so no pandering to foreign boogeymen) analysis of the market vs. the state.
In order to have a central bank or fiat money, you need a state which subverts market processes. Which then leads one to ask, if the premise is that we NEED central banks and we NEED fiat money (100% reserve or otherwise) and both require subverting the market, then why would we need markets at all? If markets have any virtue, then why must we use the monopoly coercion of the state to subvert some but not others.
In other words, what makes fiat money and central banking so exceptional to things like food and medicine and education and entertainment and so on? What are their unique characteristics that require force because the market will not choose them freely, and if they would not be chosen freely, isn’t that an argument that they are not in fact “needed”?
I disagree. Paper dollars inside my wallet are not debt! Yeah, I know it has printed on it “Federal Reserve Note” implying debt. But in reality this “note” acts more like an equity claim. An Equity claim on the economic output of the United States of America. This paper is not really anyone’s liability (like a typical bank deposit is). That is why I don’t need FDIC insurance for the paper dollars inside my wallet.
Now, physical paper money or 100% reserve bank deposit (this option is not currently available to the public) has other problems. It can be (easily) diluted (i.e., more units created) which is definitely a huge issue. But we don’t have to have a fiat monetary system where most bank deposits are debt (fractional reserve money).
The distinction is extremely important. Because If the public has a choice of 100% reserve bank deposits then they won’t need FDIC insurace and a financial institution (no matter how large) can be allowed to fail without causing chaos. When a fractional reserve deposit bank (i.e., today’s banks) fails its deposits are destroyed (unless it is bailed out). Deposits of a failed bank cannot be used to pay bills or make purchases. It is as if we burned-up that amount of currency. The currency is removed from circulation and may cause severe deflation very suddenly (as during the great depression) and raise debt burdens needlessly.