Date: Wed, 29 Jan 1997 11:11:20 -0500
From: dhenwood-AT-panix.com (Doug Henwood)
Subject: Re: M-TH: Free association, monopolies and markets


At 6:32 PM 1/28/97, Chris M. Sciabarra wrote:

>This will open up a whole can of worms that I am not sure can be
>helpful without a full discussion of the theory of banking and of crises.
>I think that there is lots of persuasive evidence to show that money
>itself was a spontaneous institution, developed over time, and that many
>early banks were warehouses, issuing certificates with the full backing of
>gold.  The Fed allowed systemic inflation in a way that ultimately
>culminated in the great depression; the deposit insurance protects the
>banks and was intended to protect the banks even before "ordinary
>citizens" entered the equation.  And there is a lot to be said for the
>fact that business cycles are profoundly connected to monetary causes, and
>one can no more speak of monetary causes without the state, than one could
>speak of survival without food.

I swear, libertarians/anarchists are more starry-eyed and utopian than
socialists. It's simply impossible to imagine capitalism without a state,
whether we're talking about the role of vagrancy laws in creating a "free"
labor force or the role of a central bank in a financial system. Many early
banks may have been "warehouses," but lots of them were whorehouses too,
issuing notes that turned out to be worthless in a crisis. Almost half the
post-Civil War years in the U.S. were spent in recession or depression,
because there was no central bank to regulate the booms and busts. For what
it's worth - not much as real history, but worth something in relation to
this debate - Friedman argues that it was *inaction* by the Fed (the delay
in tightening in 1928, insufficient loosening from 1929-32) that made the
Great Depression happen. (My complaint against Friedman here is that he
absolves capitalism itself of crisis tendencies, and blames them all on the
state.) Doesn't the fact that we (in the First World) haven't had a
depression in 60 years serve as any evidence that the state can do
something to stabilize capitalism?

Doug

--

Doug Henwood
Left Business Observer
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