Date: Tue, 28 Jan 1997 15:48:07 -0500 (EST)
From: Justin Schwartz <jschwart-AT-freenet.columbus.oh.us>
Subject: Re: M-TH: Free association, monopolies and markets



Chris,

This is craziness. "State rooted debasement of coin and banking?"
Unregulated banking or a gold standard? If there ever was an industruy
that needed heavy regulation, it is banking, both for the sake of the
market economy and for the sake of the depositors. The contrast between
the regular financial panics before regulation and the relative stability
of the financial system since underline the point about why the market
economy needs banking regulation. And the impact of bank closures without
deposit insurance on ordinary citizens is too horrifying to contemplate.

A legal point people may not be aware of. When you deposit money in the
bank, it's not "your" money. Rather, it creates an obligation on the part
of the bank to pay you a specified amount on demand or as determined by
the terms of your contractual arrangement (getting a bank account is a
contrctual relationship). You are the bank's creditor. Without insurance,
you are in the same place as any other unsecured creditor if the bank goes
belly up, namely, out of luck. They owe you the money, but they can't pay,
so too bad for you. It's no good to say that people should investigate the
financial stability of their bank: most people are not qualified to do
that, including some people who are knowledgeable about business and
economics in a general way, such as me. Nor is private insurance the
answer, because private insurance schemes can also fail. Nothing but
government insurance is any good to protect citizens against the stupidity
and recklessness of bankers playing with what is in effect, though not
legall speaking, other people's money.

--Justin

On Sun, 26 Jan 1997, Chris M. Sciabarra wrote:

> 	I think that if you look at modern history, you will see that the
> banking sector has virtually ALWAYS had incestuous ties to the state.
> Just looking at U.S. history, one can see state-rooted debasement of
> coin and banking from the very beginning: thru successive national banks,
> greenback movements and the spreading of fiduciary media, fractional
> reserve debasement, state-banking regulation later superceded by federal
> banking regulation and the whole panoply of alphabet soup agencies and
> non-gold standard inflationary techniques, and World Bank, IMF links as
> well... The panics throughout the 1800s are almost all rooted in
> government-banking schemes, and you can check out a large literature on
> the subject starting out with Rothbard's THE PANIC OF 1819 (Columbia
> University Press), his MYSTERY OF BANKING, his AMERICA'S GREAT DEPRESSION,
> and the like.  
> 	One thing we must never forget either is the fact that the reason
> for this incestuous relationship between the banking sector and the state
> is almost always due to the state's war-making capacity.  Central banking
> especially has exponentially improved the capacity of states to fund wars,
> and the capacity of banks to counterfeit and cash-in on successive
> monetary manipulations.  The state-banking nexus has been at the root of
> much of capitalist economy's instability, and this is something that even
> Marx recognized in his writings on the business cycle.  The nexus has been
> a red thread running through the fabric of capitalist history practically
> since the beginnings of modern capitalism.
> 	Could there be an alternative?  Austrians themselves aren't
> agreed... some would favor the complete denationalization of money and
> free banking, others would favor the added proviso of a 100% gold standard
> with no fractional reserve banking at all -- because they define
> fractional reserves as fraud per se.
> 						- Chris
> =================================================> Chris Matthew Sciabarra, Ph.D
> Visiting Scholar, NYU Department of Politics
> INTERNET:  sciabrrc-AT-is2.nyu.edu
> http://pages.nyu.edu/~sciabrrc
> =================================================> 
> 
> 
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