Libertarianism Declared Dead

[Tippit]

Are you referring to your position that banks, by allowing withdrawal of depositors' money on demand, implicitly claim not to lend any of it out?

I don't find that position convincing either, and I can't figure out why you hold it.

Almost always, relatively few depositors want to withdraw their money simultaneously. Therefore, it is possible for banks to lend out most of the money deposited with them and still, almost always, to allow withdrawal by any depositor who in fact wants to withdraw his money. Since it's possible to do both---it is obviously possible, because banks do so---how is doing one an implicit claim that the other isn't done?

But, never mind implicit claims. What if a bank were completely explicit about what it does? What if it had a big sign in the window, like this:

We lend out most of the money deposited with us. This means that if too many depositors should happen to want to withdraw their money simultaneously, they won't be able to. If you don't like this, don't deposit your money with us.​

Would that be acceptable to you? Would you consider such a bank to be acting in any way fraudulently?

Yes, I would. Since the promise to redeem a demand deposit cannot be guaranteed by any bank, and since the system introduces a degree of instability which while uncommon, when realized is catastrophic, the practice should be outlawed. Even if the bank makes it explicit in such a way as that everyone understands, it should be outlawed. There are some instances in law where contracts are not binding. People cannot contract themselves into indentured servitude for good reason. The simple solution for banks is to use 100% reserve demand deposits, and simply sell time deposits for customers who want to take on more risk.

The system only works as it does because money is fungible. If you ran a public storage company and operated the same way because you can get away with it most of the time, then you would go to jail for fraud.

There are other questionable legal practices which are examples of logical contradictions besides fractional reserve banking. Take the practice of short selling. How is it that one can legally sell something that they don't have title to, but is in fact borrowed? You wouldn't let someone borrow your car with the intent to sell it, because cars are not fungible. Why should the practice be any different with stock shares that are fungible? If I had knowledge that a recall was going to be issued on your car before most everyone else, I then borrowed your car and sold it on the used car market with the anticipation that I could buy a similar car back at a much cheaper price, I would go to jail for fraud.

Simply making these things legal because some form of consent is granted either implicitly or explicitly doesn't change the fact that they're morally wrong, and destabilizing.

 

[Francesca R]

How is it that one can legally sell something that they don't have title to, but is in fact borrowed?

With this nonsensical question you confirm that you would outlaw all borrowing. Unless the purpose of the borrowing is to sit the money on the table and look at it until it's time to repay.

Lend it out again? Heavens no! It isn't yours by legal title. Spend it on something? Hell no! It isn't yours by legal title. Never a borrower nor a lender be, dammit! It's destabilising. . . .

 

[Giggywig]

The 'Guido Clause' in the contract would not be legally enforceable under a Libertarian government. Bob's right to not have force initiated against him is inalienable. 'But he said I could hit him' is not a defense against assault charges in a Republican, Democrat or Libertarian government. Fortunately for Bob, resources besides the government and Tony exist.

So violent sports are banned in Libertopia? No boxing, football or martial arts? No practice in self defense classes? We wouldn't want there to be a breach of the inalienable right to not have force initiated against somebody.

 

[YoPopa]

So violent sports are banned in Libertopia? No boxing, football or martial arts? No practice in self defense classes? We wouldn't want there to be a breach of the inalienable right to not have force initiated against somebody.

I think you missed the point Giggywig. You already have inalienable rights under the current system. You can not give up those rights yet you can play at sports either for recreation or professionally. This fact would remain unchanged even if you had greater freedom to enter into other contracts.

 

[The Central Scrutinizer]

Yes, I would. Since the promise to redeem a demand deposit cannot be guaranteed by any bank, and since the system introduces a degree of instability which while uncommon, when realized is catastrophic, the practice should be outlawed. Even if the bank makes it explicit in such a way as that everyone understands, it should be outlawed. There are some instances in law where contracts are not binding. People cannot contract themselves into indentured servitude for good reason. The simple solution for banks is to use 100% reserve demand deposits, and simply sell time deposits for customers who want to take on more risk.

The system only works as it does because money is fungible. If you ran a public storage company and operated the same way because you can get away with it most of the time, then you would go to jail for fraud.

There are other questionable legal practices which are examples of logical contradictions besides fractional reserve banking. Take the practice of short selling. How is it that one can legally sell something that they don't have title to, but is in fact borrowed? You wouldn't let someone borrow your car with the intent to sell it, because cars are not fungible. Why should the practice be any different with stock shares that are fungible? If I had knowledge that a recall was going to be issued on your car before most everyone else, I then borrowed your car and sold it on the used car market with the anticipation that I could buy a similar car back at a much cheaper price, I would go to jail for fraud.

Simply making these things legal because some form of consent is granted either implicitly or explicitly doesn't change the fact that they're morally wrong, and destabilizing.

What color is the sky in your world?

 

[ponderingturtle]

I agree with your general points about the folly of Libertarianism, but the "auto companies destroyed mass transit" theory is very questionable.
The whole Story, popularised by "Roger Rabbit", that the LA trolley system was eliminated by the auto companies is cut out of whole cloth. The fact was, it was cheaper to change to buses then to continue to run the trollies when the conversion happened.
ANd old time residents of LA laughed at the line about how LA "how the best public tranportation in the world". Even in the Trolly days, LA Public transportion stunk. The Trolly routes were very limited.

I do remember hearing someone on an NPR show citeing that in the 50's Ford and Goodyear got fined for doing exactly that.

 

[YoPopa]

I do remember hearing someone on an NPR show citeing that in the 50's Ford and Goodyear got fined for doing exactly that.

Like all the most persistent conspiracy theories there is just a tiny thread of truth. But even the La times puts this down as urban legend as in this article.

 

[SaulOhio]

Really now, which regulation caused the banks and hedge funds to issue tonnes of junk Mortgage Backed Securities and ~$60 trillion of completely unregulated Credit Default Swaps?

Because that's what turned this minor problem in the housing market into a global problem.

You want me to present some regulation which specifically required banks and hedge funds to do that, with specific penalties for not issueing enough junk securities? It doesn;t work like that.

Such things are what is called "unintended consequences" of "perverse incentives". Ever heard those terms?

The Fed pumps a couple trillion dollars into the economy through the banking system, and we have all sorts of other incentives for banks to issue more mortgages, like the CRA, Clinton's "National Homeownership Strategy", the two biggest actors in the mortgage industry, Fannie Mae and Freddie Mac, are GSE's, Government Sponsored Enterprises, and are given a mandate to help people with poor credit get loans, and to top it off, we have government measures to try to alleviate the risk of doing business such as FDIC insurance and the Fed as a lender of last resort for failing banks, and you have a recipe specifically for the exact kind of mess we are in.

Banks are motivated to lend a lot more money than they would be in a free market. Sometimes they are required to. Fannie Mae and Freddie Mac try to garantee mortgages, allebviating risk. Mortgages are seen by banks as both assetts and liabilities, depending on how much risk there is that they will not be repaid, and since the risk is alleviated by FDIC and the guarantees of the GSE's, they are now seen almost entirely as assets. Is it any surprise that they are then bought and sold like any other assetts?

 

[ponderingturtle]

Like all the most persistent conspiracy theories there is just a tiny thread of truth. But even the La times puts this down as urban legend as in this article.

Well it puts it in perspective, and makes clear that the fine was from an attempt by said companies were fined about the right ammount from my memory.

So it seems that they were being fined for trying to make a mass transit monopoly, which crashed when they pulled out.

 

[Mister Agenda]

So violent sports are banned in Libertopia? No boxing, football or martial arts? No practice in self defense classes? We wouldn't want there to be a breach of the inalienable right to not have force initiated against somebody.

Of course not. But you can't be forced to participate.

 

[Mister Agenda]

Every single contemporary Libertarian presidential nominee, including Ron Paul, Harry Browne, Michael Badnarik, and even Libertarian imposter Bob Barr has called for the abolition of the Federal Reserve System, and has offered scathing indictments of our corrupt monetary and banking system.

Do you represent most Libertarians in some alternate universe?

I don't find abolishing the Fed in our platform for some reason.

 

[Tippit]

I don't find abolishing the Fed in our platform for some reason.

You're correct, it isn't in the current party platform. Are you a Johnny-come-lately? It has been in the campaign platforms of the past with the exception of (Republican) Bob Barr. In addition the abolition of the Fed has been explicitly articulated by Browne, Paul, Badnarik, and even Barr himself, whether or not it is formally in his platform. Are you claiming this isn't the case?

 

[Mister Agenda]

You're correct, it isn't in the current party platform. Are you a Johnny-come-lately? It has been in the campaign platforms of the past with the exception of (Republican) Bob Barr. In addition the abolition of the Fed has been explicitly articulated by Browne, Paul, Badnarik, and even Barr himself, whether or not it is formally in his platform. Are you claiming this isn't the case?

I've been an active party member since the 90s, 'insert irrelevant speculative personal claim here' back at you. I am claiming that this being on the agenda of our past few presidential candidates does not establish the claim that the majority of rank-and-file Libertarians advocate abolishing the Fed. It's a large minority, sure, but it's a fine point of Austrian theory that has not yet been demonstrated to work in the real world (the bad money has already driven out all the good money). Most of us simply want a government that is more fiscally responsible while infringing on our civil and privacy rights as little as possible, based on our Constitution.

Neither of the major parties stands for fiscal responsibilty. This should be a good time for Libertarians. One of the things holding us back is a focus on esoteric economic theories that cause a first reaction in the average citizen of 'that's nuts!'. I don't mind excluding the people who would be with us if we didn't want to legalize pot. I do mind driving off people who would vote for us and with us if they didn't think our party is composed mostly of anarcho-capitalists and other economic extremists. There's a lot of good we could do with sensible and common-sense spending cuts and firm opposition to erosion of our liberties. Frankly, it would be more than most of us dare hope for. The reason we can't do it is we have so few like-minded people in Congress (thank you Freedom Democrats and Republican Liberty Caucus). Our basic principle is liberty, and you don't need to go to the fringe to support and advance liberty. Hundreds of thousands of people vote Libertarian every presidential election, many of them have never even heard of the idea of abolishing the Fed. Many of those who have, wouldn't vote for us if they thought we could actually win, they're just trying to send a message. More people voting for us sends the message we want to send.

We need purists such as yourself constantly refining libertarian ideas, but there is a difference between ideas and principles. The principles are more important than enacting a specific idea. The greatest men of our nation had to compromise with the worst to secure our independence, so we could move forward. There are many who would like to keep our party small and ideologically pure, too small to even acknowledge that a former Republican like Bob Barr even has the right to call himself a Libertarian when the difference between him and his opposition is like day and night--if the Libertarian tent isn't big enough to cover those of us who lean a little to the right or a little to the left or are moderate in any way, we might as well close the tent because we're just wasting our time. The purists can become full-time bloggers and save the rest of us the effort of actually trying to make progress in the only way possible: incrementally.

As far as the Fed goes, our efforts are more practically applied in trying to find ways to make what we have work better. Getting rid of it is obviously politically impossible, and it's reckless to make fundamental changes to our monetary system that haven't been proven--and ad hoc interpretations of history don't prove anything. Economics is a science where experimentation is possible. Find a way to test the theory that is repeatable and people will be convinced by the evidence.

 

[Gurdur]

I've been an active party member since the 90s, 'insert irrelevant speculative personal claim here' back at you. I am claiming ............

This was rather a very good post, very honest and thoughtful. I'm rather stunned a Libertarian could make such a post, and I look forward to more of your posts, Mister Agenda; you seem like a person being a real person and being able to actually discuss things. Good on you.

 

[Alex Libman]

Truth cannot die. It can only be denied to your own peril.

 

[Gurdur]

Truth cannot die. It can only be denied to your own peril.

Then, Alex, some day you really should try making an acquaintance with the truth. Really. Cheerio.

 

[SaulOhio]

As far as the Fed goes, our efforts are more practically applied in trying to find ways to make what we have work better. Getting rid of it is obviously politically impossible, and it's reckless to make fundamental changes to our monetary system that haven't been proven--and ad hoc interpretations of history don't prove anything. Economics is a science where experimentation is possible. Find a way to test the theory that is repeatable and people will be convinced by the evidence.

I agree with much of what you say, and things like abolishing the Fed, instituting a gold standard, and finding a non-coercive means to finance government would be very late reforms. They would be reforms we would debate and even experiment with when we could afford them, and they have become politically possible. Before that, we need to radically cut spending, end the war on drugs, abolish the welfare state, and so on. Even a lot of that would involve phasing out programs instead of simply abolishing them.

However, that is all beside the point, because the whole point of this thread was a claim that libertarian ideas had been tested, and had failed.

All that should be required to disprove this asssertion is to point out that Libertarians have not been in control of any significant part of the government, and no libertarian policies have been implemented. And in fact, many new government controls have been imposed, many specifically on the very part of the economy that caused all the trouble.

I do blame the Fed for most of the problem, with the low interest rates it set in 2003 and 2004. Because I agree that abolishing the Fed is not a political possibility in the forseeable future, I would simply advocate more responsible policies from the Fed. Their policies should be entirely focused on controlling inflation, and not at all on trying to stimulate the economy or save failing banks.

Also, I might be willing to be convinced that free market capitalism does need central banks, and ones that simply follow responsible policies, IF someone were willing to try to persuade me by some means other than accusing me of spouting conspiracy theories!

My whole point is simply that blaming the free market under the present conditions is ludicrous.

 

[Francesca R]

Libertarianism hasn't ever been tried. The point is that now, more than ever, it surely won't be.

 

[The Central Scrutinizer]

Libertarianism hasn't ever been tried. The point is that now, more than ever, it surely won't be.

Sure it has! The tribal regions of western Pakistan (along the border with Afganistan) are a perfect example of Libertarian ideals in action.

 

[Mister Agenda]

Sure it has! The tribal regions of western Pakistan (along the border with Afganistan) are a perfect example of Libertarian ideals in action.

No initiation of force? Rule of law, not of men? Well-defined property rights? I had no idea the tribal regions of western Pakistan were so progressive.