Hello,
(1) Did Rothbard support the gold standard over any other monetary system or did he support it as the best and most probable way to exit the current fiat money system?
(2) I understand why fractional reserve banking should be considered a crime since money is controlled by central banks. But, in a free-money system, wouldn’t Rothbard say fractional reserve banking is not a crime but more a dummy business model that should not attract anybody?
Thanks for you answers
He supported a commodity money, and considered gold the most likely choice, seeing as it has been used as money over much of the world for most of human history.
He considered FRB to be fraud, and therefore concluded it ought to be illegal. He did, however, support free banking as the best alternative, and argued that free banking would keep reserves near, if not actually at, 100%.
IDk about the second but…
Rothbard felt that the gold standard was the most secure and best currency available, however, I’m sure that had the free market taken over and private currencies were produced he may have changed his views to whatever the market adapted to… Which would almost certianly be gold sooooo…
Exactly. He supported whatever the market chose, but just like you and me, guessed that it would almost certainly be gold.
In the footnotes in “America’s Great Depression” which is written by Rothbard, he advocated a 100% Reserve system (backed by a commodity), that would rely on stocks as a source of profit.
I hope that was clear and summed most of it up.
So in a free society, I could go to the Fractional Reserve Bank of Greenspan Bank and understand that the money I deposit there will loaned many times. If Rothbard were there, he could not do anything about it right? He would call me a fool but that’s it.
I have always wondered how some people can charge Rothbard to be willing to declare Fractional Reserve banking a fraud when he actually supports an anarchy. By definition, anyone can do anything and my fractional reserve banking with the Greenspand bank is certainly not an attack on his property right.
I am missing something?
Fraud would certainly be an attack on property rights. The questions then become, Is fractional reserve banking fraud? and, if so, Who are the victims? Rothbard definitely thought so. Assuming he’s right, who’s the victim of the fraud? The obvious answer is the depositor, whose funds are claimed to be able to be withdrawn “on demand” and also loaded out. If that’s the case, those who received the loaned money could be the victims of fraud and the depositors not. This could easily be many many people defrauded by one loan.
As an analogy, if a sell my car to both you and your neighbor, or even a dozen of your neighbors, that is, give each of you a copy of the title to the same car, which of you is a victim of fraud?
Yes but the depositor was willing and understood that he was taking a risk in exchange of some other advantages. So I don’t think this is a fraud.
The practice of fractional reserve banking between customers A, B, C and banks Alpha and Beta all using the same money M-1 would not affect other people going to bank Gamma using another kind of money called M-2.
Like I said, the borrowers, not the depositor, may also be considered to be the victims.
It would if customer A takes a loan from bank Alpha, uses the loaned funds to purchase goods from customer D, who then deposits the funds in bank Gamma.
…our fraudulent system of fractional reserve banking and for the disastrous inflations of the past two centuries.
..fractional reserve banking, in which more than one warehouse receipt is backed by the same amount of gold or other cash in the bank’s vaults…
“It should be clear that modern fractional reserve banking is a shell game, a Ponzi scheme, a fraud in which fake warehouse receipts are issued and circulate as equivalent to the cash supposedly represented by the receipts.”
“Thus, fractional reserve banking is at one and the same time fraudulent and inflationary;…”
that is, fractional reserve banks—create money out of thin air. Essentially they do it in the
same way as counterfeiters. Counterfeiters, too, create money out of thin air…"
“It should be clear that f_or the purpose of analyzing fractional reserve banking, it doesn’t make any difference what is considered money or cash in the society, whether it be gold, tobacco, or even government fiat paper money._ The technique of pyramiding by the banks remains the same. Thus, suppose that now gold has been outlawed, and cash or legal tender money consists of dollars printed by the central government. The process of pyramiding remains the same, except that the base of the pyramid is paper dollars instead of gold coin.14”
i dont know what the rothbard thought…but the above excerpts are from http://mises.org/Books/mysteryofbanking.pdf written by a rothbard.
"The objectives, after the discussion in this work, should be clear: (a) to return to a gold standard, a commodity standard unhampered by government intervention; (b) to abolish the Federal Reserve System and return to a system of free and competitive banking; (c) to separate the government from
money; and (d) either to enforce 100 percent reserve banking on the commercial banks, or at least to arrive at a system where any bank, at the slightest hint of nonpayment of its demand liabilities,
is forced quickly into bankruptcy and liquidation. While the outlawing of fractional reserve as fraud would be preferable if it could be enforced, the problems of enforcement, especially where
banks can continually innovate in forms of credit, make free banking an attractive alternative. But how to achieve this system, and as rapidly as humanly possible? First, a gold standard must be a true gold standard;…"
http://mises.org/Books/mysteryofbanking.pdf
if the rothbards thinking was expressed in the writing this should clear it up. consult the ‘other side’ guy who channels spirits to find out what he really thought…if he thought anything.
thanks for the links, here is what I don’t understand.
How can Rothbard be interested in “enforcing” a system when he believes in complete freedom without a common set of law enforced upon everybody. Enforcing without a state does not make any sense right? Rothbard can believe that free money is the surest way to a gold standard because it is the most likely outcome of free-market capitalism in the particular market of money but this is not an “enforcement”;
Why did he choose that word “enforce”?
Rothbard is talking about deposits where banks are obligated by contractual agreement to redeem all specie on demand without delay.
If the contract explicitly says otherwise, then there is no problem. But that is not what Rothbard is talking about, and I don’t think he would accept the notion that Fractional Reserve Banking can operate in any other way other then by deception.
He’s not interested in enforcing any particular system. He wants the practice to be understood and recognized for what it is; embezzlement and legalized counterfeiting. Assuming a free society would outlaw such property right violations, then FRB should get no special treatment.
The best place to get Rothbard’s position on this issue is in Mystery of Banking.
Seems like he agrees with you:
“While the outlawing of fractional reserve as fraud would be preferable if it could be enforced, the problems of enforcement, especially where banks can continually innovate in forms of credit, make free banking an attractive alternative.”
Whether fractional-reserve banking constitutes fraud turns on the nature of the contract between the bank and the depositor (this was pointed out to me by “Amdahl” on the Mises chat forum). Namely, if the bank contracts to “repay $x on demand” to the depositor, then fractional-reserves are not, in point of fact, fraudulent. However, if the bank contracts to “hold/store $x in bailment, to be repaid on demand” to the depositor, then subsequently loans the money out, yes, that is fraud.
Then, the question is whether individuals in a free market would contract with banks that only contract to “repay $x on demand” when their competitors across the street contract not only to repay on demand but to keep the deposits to be repaid on hand. I think the answer is obvious. Banks that keep deposits at full reserve status and offer certificates of deposit for interest-bearing accounts would wipe the floor against the duplicitous fractional-reserve types which would crash at every rumor of a bank run or panic.
Clayton -
Certificates of deposit for interest-bearing accounts are what the fractional-reserve banks would exchange, full reserve banks would exchange warehouse receipts, for a fee. Obviously, people prefer fees over interest.
in looking over a ‘consumer account agreement’ from wells fargo i dont even see the words demand deposit. i rememeber it from previous bank employment years ago.
there are just various reasons given for why a bank wouldnt quickly provide funds - large checks, out of state checks, new accounts etc.
it doesnt seem with wells fargo anyway that the demand deposit terminology is even used.
to the extent that a govt bank will provide the schlegal funds-on-demand requirement to meet a banks own deposit-contract i would call crooked and tyrannical…just to keep banks afloat and not my favorite taco stand for instance. if that actually happens.
maybe postings using demand deposit should refer only to those banks that still use the term demand deposit and not as a general rule.
but the rothbard and many at mises have called the ‘inflation’ an disease and an ill. i am still trying to figure out if that is true or not.
"to separate the government from
money; and (d) either to enforce 100 percent reserve banking on the commercial banks"
he or whoever the rothbard is shouldnt have said this or wrote poorly .
a few lines later th writer is advocating free banking schemes and saying “or at least” perhaps agitate for 100 percent reserves would have been more appropriate. did you get that?
if frb is a true phenomenon and a demand deposit still exists (probobly not common now though) then i guess as long as a bank was able to redeem cash or specie at one of its branches (bank property, iow) that to me anyway would still seem to legitimately meet the demand request.
but making so many posts concerning demand deposits if there are only account agreements now (not saying on demand, iow) doesnt make much sense though.
I am starting to think that Rothbard believes that fractional reserve banking is always fraudulent even in the case where there is free money (perfect world here) and that the contracts between the bank and the customers clearly explain that fractional reserve is employed.
Would not Rothbard argue that property rights trump contracts and that irrelevant of what the banks wrote in the contract and the customer agreed, this is is a fraud?