Free Market Banking

Have you ever had too much money? I have. I once had so much money, that I had no idea what to do with all of it, so I went to my local bank to see if they would hold onto some of it for me. You know, keep it safe until I needed it for a large purchase. This should be a familiar sounding story for most people, yet the process by which banking truly takes place is extremely large and complex. The story of too much money, however, is exactly where banking starts. Banking is a result of the law of association. Its existence is based on specialization. When people build up a large store of wealth, they can either employ their own resources to protect that wealth, or they can seek out those who already have the necessary “set-up” to protect large amounts of money.

Originally, banking took place when people paid banking institutions a fee or some kind for protecting their stores of value. For our purposes, we will use gold as an example of a store of value. In any scenario, an individual would bring his or her gold to the bank and deposited it into a vault of some sort. The bank would then charge a fee large enough to cover all costs and still make a profit while remaining competitive. In exchange for the gold, the bank would issue units of promissory notes that reflected the amount of the gold he had stored. This note would state that at any time, the individual may come back and exchange the promissory notes for the gold he had stored in the bank. By this process, promissory notes make way for currencies. It is much easier to measure values in exchanges by using units of promissory notes instead of deciding the value of gold. They’re also much easier to carry around. As long as the bank kept their word, then the notes could be exchanged for other goods and services, and the party that ended up with the notes could return to the bank where the gold was stored and redeem the store of value.

Banks, then, have a very strong incentive to keep their word, and also to keep a 100% reserve storage of all of their customers’ valuables. This strict policy of honest banking, like any honest exchange, is kept alive by market competition. Banking institutions that don’t keep promises would go out of business, or at least lose business, overtime because customers would be willing to pay someone else for better service. Many banks, however, may be incentivized to cheat on their promissory notes by lending out a greater number of promissory notes than the given store of value that they held. In doing this, they have both stolen from the person whose store of wealth they promised to keep on hand, and they have committed fraud against the person who was lent promissory notes that may not be redeemable for the promised amount in the future.

Through the market process, however, competing banks with competing promissory notes would diminish the incentives to commit such crimes and inflate the supply of money. This is because not only can customers bring their gold to other banks, but competing banks could put rivals out of business by exposing their bad behavior and buying up a large amount of the promissory notes that the competitor has issued. In doing so, the competing bank could attempt to redeem said notes for the given amount of gold. If the rival bank was, indeed, issuing more notes than he had gold, he would be unable to give back enough gold to all of the people that he promised, and that bank would go out of business, and potentially be subject to the law.

Sadly, this is not the banking system that is utilized in America today. There is not market process to provide checks and balances to the operations of competing banks. Banks are not subject to the will of consumers, but rather to the will of the government and the Federal Reserve. When money is deposited into a bank today, there is no fee that is paid for the storage. In fact, in most cases the bank pays the customer a very small amount of interest. The money that is stored is not kept safe in a vault with the customer’s name on it; it is loaned out to others or used in various investment ventures. Granted, there is FDIC insurance, which allows for a portion of an individual’s deposits to be paid back were anything to happen to the bank, but this type of “insurance” comes with a heavy price: Inflation. Because banks do not see the same incentives to keep an honest store of value in the same way that they would in a free market banking, they may engage in riskier loans and investments. When these loans are unable to be paid at the same time as people come to redeem their deposits, banks (theoretically) would not be able to come through on all of their promises. Because of the Federal Reserve, banks can simply ask for an influx of cash from the central bank in order to fulfill their short-term obligations. This activity, coupled with the issuance of a multiplicity of promissory notes, leads to a severe increase in the supply of money over time. This drastic increase in money ultimately leads to inflation, and a decrease in the purchasing power of each unit of money.

 The only cure to such a disease is to allow people to bank freely, without force or coercion from the government or the Fed. Through the market process, competing currencies would once again emerge with a sound store of value, providing incentives to keep customers happy and keep dollars strong. Free the money... free the people.

Congress approves military spending for projects the pentagon just don't want

Recently congress has been issuing many different projects to improve military defense that cost a lot of tax payer money and in many circumstances the pentagon does not want the money for these projects. "On Monday, noted deficit hawk Rep. Jim Jordan (Oh.) told the Associated Press that in the interest of national security, Congress needed to give the Pentagon $436 million to make improvements to the 70-ton Abrams tank."    
He added to his request stating that "the one are we are supposed to spend taxpayer money is in the defense of our country." The pentagon stated that it had no use for the tanks and does not want them.  The tanks would be an effective weapon during World War 2 while fighting the Nazis but has no effective use in a modern world. The army chief of staff reported that they would use the money in a different way if given the opportunity. The reason that the bill was brought up and able to get through congress is the result of pork barrel politics.  The congressman who introduced the bill would have his district benefit in the form of money and jobs. 

This demonstrates how the government operates on an ineffective level and as Murray Rothbard states the defense of the country should be in the hands of the free market.  The government is always stuck to the way things have been done instead of accepting change and continuing to build tanks, an outdated device is a perfect example of that.  If the defense was operated in the free market it would not have waisted spending like this and would be forced to innovate and improve.congress approves military spending for projects the pentagon just don't want

IRS stalled conservative groups

Recently the IRS had been caught for targeting conservative groups during the same time period as the 2012 election.  Today Tea Party activists protested in Washington saying they plan on Suing the IRS for what they believe to be a gross over reach by the government and a violation of their constitutional rights.  Michelle Bachmanm attacked the federal government for targeting specific groups who were applying for tax exempt status.  Tea party members say the were subjected to long questionnaires thats cost them hundreds of hours and thousands of dollars.  The IRS revealed they targeted groups with the phrases tea party and patriots in their names, but further reports show other instances from 2010 onward.
               "This is not only unconstitutional, it is illegal, said Jay Sekulow, chief counsel for the American Center for Law and Justice, a conservative civil-rights group that says it is suing the IRS on behalf of 17 clients who were targeted for extra scrutiny because of their groups' leanings."
      
This is another example of the government operating on an inefficient bases, and doing things that would not had been done in the free market.  As Rothbard states the government has a long history of violating the civil liberties of individuals, and even though it is supposed to protect are individual rights the state is greatest oppressor of our liberties. People who work for the government do things they would never normally do because of the institution of the government changes their perception on what is acceptable.  This is just another example of the government violating the non aggression axiom and over stepping their boundaries. Vowing lawsuit against IRS, teapartiers descend on DC

private property and elephant poaching

The population of elephants in Africa has declined dramatically in the last twenty years due to the overwhelming desire for ivory. In 1989 an international ban on the sale of ivory was implemented in an attempt to prevent the needless slaughter of these animals. Many objected though, including economist and nations whose citizen’s asserted property rights over these animals. In an essay written by Michael A. McPherson and Michael L. Nieswiadomy, African Elephants: The Effect of Property Rights and Political Stability, they conclude that 

…controlling for other factors, countries with property rights systems or community wildlife programs have rapid elephant population growth rates than do those countries that do not. Political instability and the absence of representative governments significantly lower elephant growth rates. (McPherson and Nieswiadomy)

Enacted by the Convention on International Trade in Endangered Species of Wild Flora and Fauna (CITES), the ban on ivory was not uniformly adhered to by many countries; especially the countries located in the southern tip, Namibia, Botswana, Zimbabwe, and South Africa, who all have a system devised in which property rights of elephants are governed and adhered to. For example, in, “Botswana…the elephant population has risen from 20,000 in 1981 to over 80,000 today. Zimbabwe, the roughly 30,000 elephants that existed in 1978 have increased their numbers by a factor of nearly 3 by this year (McPherson and Nieswiadomy).” Because of property rights there exists an economic incentive to protect the elephants by the very people who once hunted and killed them to prosper from the ivory trade. Like anything, if it’s held common to all, the resource will be used until it no longer exists. There exists more of an incentive for people to protect the elephant from illegal poaching when it is their property that’s directly affected by it.

http://onlinelibrary.wiley.com/doi/10.1111/j.1465-7287.2000.tb00002.x/pdf

Libertarianism in practice: 4 May Blog Post

Libertarianism in practice:

Hayek really had me thinking about Libertarianism in practice. Although Hayek refrained from dissecting party politics, I want to know how a libertarian, assuming the Libertarian Party is a viable third party in this two party system, would vote in hot button social issues.

Marijuana, abortion, euthanasia, and gay marriage are just a few social issues that can cause arguments between the best of friends.  Sure other social issues exist, but for this exploratory/though experiment/blog I’m narrowing it down to one: Gay marriage. I recognize that there are members of both parties that do not always vote along party lines. But for simplicities sake I am going to put all politicians in an “us vs. them” spectrum (although Hayek disagrees that conservatives staunchly oppose modern liberals).

There is no doubt that gay marriage is a hot button topic. Modern American liberals (Democrats) have advocated for gay rights and gay marriage for a while now. Modern conservatives (Republicans) however have, as a collective, opposed various forms of gay marriage on religious grounds and on the argument that gay marriage violates traditional family values. Americans at this point would have to vote for a politician aligning with the left or the right.

Now enters the Libertarian and the Libertarian Party.

How would a Libertarian candidate vote on a matter like gay marriage? I think a Libertarian would most likely say that gay marriage is a state issue, not a federal issue and that the citizens of the respective states ought to have say over whether or not the state ought to allow gay marriage.

Or perhaps the Libertarian would posit that government ought to get out of the business of marriage altogether because marriage is an inherent religious sacrament or ceremony and government ought not to mingle in such affairs. Government may conduct civil unions but civil unions would be extended to both heterosexual (who do not want to marry in a church) and homosexual couples (who don’t want to marry in a church or can’t marry in a church). Churches would not be forced to marry anyone.

Are there any other alternatives that I’ve missed?

How would a Libertarian vote in economic matters? Suffice it to say that I don’t believe a Libertarian politician would vote for TARP or HAMP. I know a Libertarian would oppose price supports, tariffs, some or even all taxes.  I know a Libertarian would oppose Quantitative Easing measures implemented by the fed.

How else would a Libertarian legislate in economic affairs?

Libertarianism in practice…I’m interested.

Altering Immigration Bill Risks Losing Senators’ Votes

A panel of the Judiciary Committee are meeting to talk about the immigration proposal which will include talks about improving border patrol and defining what goals need to be met to allow immigrants to become U.S. citizens.  "Republicans will mainly focus on strengthening the bill’s border security goals, which Democrats say can’t be made so stringent that they become unreachable and prevent anyone from becoming a citizen. "  Whether you look at it from either political background, it is still impeding liberty in a sense that you are saying, "You can't come here because you have no right to be here".Considering America's history of immigration, this would seem hippo critical.  Granted the ability to just open the borders in this time of recovery after the great recession, it would be cumbersome to say the least.  But trying to improve security for the borders may not be the way to go, improving background checks of immigrants who want to be citizens is a must though.  After the bombing in Boston, clearance into the U.S. or standards must rise.  This may be contrary to liberty but for the safety of the public, it may be necessary.

 http://www.bloomberg.com/news/2013-05-09/altering-immigration-bill-risks-losing-senators-votes.html

Drug dealers are entrepreneurs not criminals

     We have discussed a lot about liberty. Liberty means freedom. Freedom means that you can do whatever you like in this world. But in order to avoid anarchy, we must have a rule to stop people from harming each other: The Non-Aggression Axiom or the Harm Principle. A person can do whatever they like in this world, as long as they do not harm anyone else's property. With this in mind, it is easy to see why drug dealers should not be classified as criminals.
     Drug dealing is simply the selling of drugs to customers. There is no coercion or force involved. People in pharmacies and cigarette companies do it all the time. But when people hear the name drug dealer, they think about weed, cocaine, crack, Ecstasy, PCP, meth and whatever "bad" drug we can think of. As long as this drug dealer is voluntarily exchanging his goods, there is no crime. Even if the drug can kill the person that is using it, that is the consumer's choice. The dealer did not force anyone to buy his product. Because drug dealing is just a voluntary exchange, we should all look up to this entrepreneurial spirit.
     Think about it: if drug dealing was legal, this person can set his own schedule, does not have to answer to a boss, can choose his days off, does not have to worry about sick days, does not have to do that much labor and his product can bring happiness to his customers' lives. It sounds like a pretty good set-up.
     What makes the business bad is the fact that it is illegal. If someone steals from the dealer, he cannot go to the police for help. He has to put himself in a dangerous situation to get his property back. Sometimes drug wars and turf wars can cost the lives of people in the business; because of the competition between dealers, they do not have to beat their competitor by having a better business, they can beat their competitor by having force. But we must consider that it is the fact that people are killing each other that is against the harm principle, not the selling of drugs. If we were to realize that drug dealing is consistent with liberty, and to make it a legal practice, then we could stop a lot of crime in our society and gain a lot of entrepreneurs.

Conservatives: Master Brake Operators

I have heard, and even said myself that it is hard to distinguish between liberals and conservatives these days. Perhaps myself and others have misspoken, but fortunately Hayek is here to eliminate (at least minimize) the confusion with his essay Why I Am Not a Conservative.

“It is that by its very nature [conservatism] cannot offer an alternative to the direction in which we are moving. It may succeed by its resistance to current tendencies in slowing down undesirable developments, but, since it does not indicate another direction, it cannot prevent their continuance. It has, for this reason, invariably been the fate of conservatism to be dragged along a path not of its own choosing.” (Hayek, 1-2)

Conservatism, as defined by Hayek in this essay, is an "attitude of opposition to drastic change".

Part of what Hayek is trying to highlight in this article is that based on that definition, conservatives political positions will inevitably be in constant flux. If I am in opposition to drastic changes in the status quo, yet despite my opposition, drastic change occurs, then a new status quo will emerge. If I remain steadfast to my conservative position, I will still be opposed to drastic changes to the (new) status quo, which entails taking a position that I was opposed to before the last shift in the status quo. Thus, conservatism is not founded on any particular set of unwavering values, and is subject to relativistic change in response to the outside world - what Hayek called being "dragged along a path not of its own choosing".

Following Hayek's dissection, conservatism cannot be seen as an effective political strategy. This is made particularly obvious when he states "The tug of war between conservatives and progressives can only affect the speed, not the direction, of contemporary developments"(Hayek, 2), thus implying that a conservative really serves no function other than to slow down the progress of the liberals - in whatever direction they might be headed.

Therefore, Hayek determines that the most likely source for political change is the progressive party - whether their values are currently based on liberty or not, for they are the politicians who desire most to change the status quo and move us to new places, figuratively speaking. Conservatism, he concludes, for its lack of "guiding principles", is not equipped to "influence long-range developments", and has only really retarded the progress of liberals over time, for better or for worse.

Following Hayek's analysis, it would seem that in a nation founded upon liberty, true liberals and true conservatives would both be advocating to maintain the original system. How then, has our nation moved from its original political position fixed upon liberty is another story, but certainly one worth investigating; it seems the root of this problem comes from the liberal party's deviations from the principle of liberty as their absolute standard, and it seems that part of Hayek's vision was to restore liberty to liberalism.

"If it is only given freedom, enlightenment is almost inevitable" - Immanuel Kant 

Last week, my Modern European History class analyzed documents from the Enlightenment. These documents ranged from John Locke to Voltaire, but one that caught my interest was written by the renowned philosopher,  Immanuel Kant.Though most of Kant's philosophy hardly lines up with libertarianism, a few of his points do ring true in regards to a man's freedom to think and act for himself. 

Towards the beginning of his writing, "What is the Enlightenment?", Kant defines enlightenment as "man's emergence from his self-imposed nonage." Nonage being a person's incapability to think on his own without aid of another. Kant observed that laziness and cowardice were the roots of humanity's preference to "gladly remain minors all their lives". It may be tempting to believe that the Enlightenment was an international cultural awakening that lived only in the 18th century. However, I believe that the Enlightenment lives on today through the libertarian spirit and is in constant battle with nonage in the form of government interventionism. 

Though Kant lived a little under three centuries ago, his philosophy certainly applies today. We celebrate many freedoms in America, but could we call ourselves truly "enlightened" in Kant's sense of the word? I opine that were are not so enlightened. A libertarian's definition of freedom consists of one's property rights being established and protected: What's "mine" is NOT "yours" and the government's sole purpose is to protect what's "mine" and what's "yours". But how many times a day does our government trespass against our freedom under these slightly patronizing excuses: I'm doing this for your own good or I'm taking a chunk of your income for your own good or I get to tell you how to run your business because I'm looking out for your success. Many citizens fall for this facade and believe there's nothing wrong with assistance from Big Brother. Unfortunately, this mode of thinking eventually makes us believe that we cannot do anything without government assistance. As Kant put it so bluntly, we become glad to remain children for the rest of our lives underneath adult supervision. This is nonage under governmental influence and this trespasses against human kind's natural right to grow and flourish. Kant notes that "Once such men have thrown off the yoke of nonage, they will spread about them the spirit of a reasonable appreciation of man's value and of his duty to think for himself"

Yes, we have our flaws, but the human spirit isn't meant to be stupid and suppressed. We hold an innovative spirit that explodes exponentially when crossed with freedom. As students, we don't need the guidance of the government- telling us what to do with our creative skills and ambitions. We are educated thinkers- we have been equipped with knowledge to construct and to prosper.

Plastic or Metal can anyone own it?

After reading an article by Rebecca Morelle, from BBC I am curios to see what the government is going to say about 3D printed guns.

Just this week a man developed the blue prints for the first 3D printed gun. Now anyone who has a 3D printer, access to the internet and about 60$ worth of materials can own an operating gun! I find this to be interesting as the Obama administration is trying to control all guns in the US you would now not even have to leave your house and you could create thousands of guns. 

I was wondering what this is going to do with the gun control, and the right to bear arms. This give everyone no matter age, criminal back round, mental state the ability to own a gun and no one has to know. I feel like our class would say that, weather the gun is plastic or metal anyone should be able to own a gun; as long as it does not go against the aggression axiom. This opens a whole new issue that "the force" is going to feel that they are going to have to control. 

http://libertarianalliance.wordpress.com/2013/05/07/a-farewell-to-victim-disarmament/#more-19717

The Greatest Blog Post Ever Written

Deirdre McCloskey’s blog post entitled “Factual Free-Market Fairness” was called the “greatest blog post ever written” by an economist from George Mason University.  I agree.   With wit and charm, she dissected the arguments in favor of government intervention and replaced it with the truth of economic liberty. 

Current economic theory takes for granted that externalities exist and the government needs to do something about it.  Suffice it to say that McCloskey shot a whole in that argument in a matter of two sentences: “Externalities do not imply that a government can do better.  Publicity does better than inspectors in restraining the alleged desire of businesspeople to poison their customers.”   It is truth.  The free-market press is more than able to regulate free-market business. 

She goes on to back up her ideology with precision: “How do I know that my narrative is better than yours?  The experiments of the 20^th century told me so.”  Her argument is hard to deny.  Today we have a plethora of data that shows that experiments with central planning have failed; governments built on the principles of economic liberty have thrived. 

In the latter half of the post, McCloskey poignantly clarified the ultimate consequences of government regulation: it always hurts the poor and common man in favor of those well-connected and in control.  Example after example drove home her point: labor unions and minimum wage help some at expense of everybody else (particularly the poor).   The SEC and FDIC has done little to help small investors or depositors when the government uses tax-payers money to bail-out the banks that had incentive to give out risky loans.   “Foreign aid has enriched tyrants not helped the poor”.    And the list goes on; profound example after profound example.   

This Greatest Blog Post Ever Written needs to be required reading. 

To open the border or not to open, that is the question

Every few years politicians from both sides always seem to start debating the issue of legalizing the 11 or so million illegal immigrants in the United States. Some argue that it is inhumane and against our moral fabric, it goes against our values and or ideals of liberty to force people to live in the shadows of our society. I tend to see it a different way, I see it as if government officials decide to give blanket citizenship to all people we might as well just have open borders. For what is the use of having general rules or laws if we allow people to break them time and time again. I do not mean to be harsh, I speak of this being born in another country and being an immigrant myself. My parents came to this great country when I was about the age of three in search of opportunity and prosperity. I personally feel that the founders of the United States felt that having a restricted border was not against liberty but the only way to preserve liberty. What is the use of trying to preserve the individual rights of citizens if anybody from other countries walk right in and call themselves citizens? We as a country have chosen to give the central government the power to exclude and allow people from all over the world to apply for a chance to come here and call this country their home. My point is if we have this discussion every few years and ever 30 or 40 years decide to give citizenship to vast numbers of immigrants, then we might as well have permanent open border. I personally believe that no one should get rewarded for breaking the law and our sovereignty. We should make it easier to apply for visa or citizenship but to just give to those that break the law is just foolish in my book and should expect to see this same scenario again in 30 years down the line if this is allowed to take place.