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Communicating the ideas of free banking

In my first post on this blog I promised that I would address several questions in later posts. One of those questions I have not addressed until now is how writers on free banking should communicate our findings so that they receive the consideration they deserve.

For many years, it surprised me how closed the mainstream of economists was to new ideas and even to old ideas. The first case of competitive issue of notes occurred about 1,000 years ago, in China. Free banking has existed in more than 60 countries, including such major economies as the United States (in a qualified way – a subject for a later post), the United Kingdom, Brazil, India, and Italy. One would think that with such a deep and broad historical record, economists would be more curious about it. But to most economists, the past is a closed book.

There have been exceptions. The world has enough economists that some are interested in treading unfamiliar paths. If you got your ideas just from reading the standard textbooks in introductory economics or in money and banking, though, you would not know that central banking is more recent than a number of other monetary systems, including free banking; that it has not always been so widespread; and that its record regarding inflation and financial crises compares poorly to that of some other systems.

Despite the scholarly work that has been done on free banking; despite its having been advocated by Friedrich Hayek and Milton Friedman in the full maturity of their careers; despite the seriousness with which a few experts on central banking (for instance, Charles Goodhart) have treated free banking, it is not part of mainstream economics.

It is essential for established scholars who are interested in free banking to continue working on it, to demonstrate to youngsters wanting to become scholars that the topic is deep enough to spend a career exploring. I now think that while such scholarship is essential for free banking to become part of the mainstream one day, it will not the catalyst.

Instead, I think the catalyst will be the events in what one of my college professors called “the so-called real world.” Something will happen in electronic money, in economic policy, or to central banks that requires expanding the mainstream presentation of ideas to let free banking in. What has happened with the idea of nominal GDP targeting is a possible pattern. It had been discussed among economists since the 1980s, but what has pushed it into the public eye has been the determined efforts of one able blogger, Scott Sumner of Bentley University. His blog The Money Illusion became the focal point for a number of other intelligent bloggers to establish a small community that has debated the idea in detail, examining its strengths and weaknesses in a way that would have taken much longer before blogs. (A few of the bloggers who have written on nominal GDP have also written scholarly work on free banking.) Their presentation of the idea was so compelling that a number of big-name economists have also taken up the topic in newspaper articles. Among those who also write textbooks, I suspect that nominal GDP targeting will appear in the next editions. The old process, by which economics journals served as a filter and delayed  new ideas from spreading into textbooks for years, is changing drastically. Articles in economics journals used to be birth announcements for new ideas; now they are more like graduation announcements.

  • RickDiMare

    Kurt, assuming you have the time and willingness to respond, when you say “competitive issue of notes,” in cases where the issuer(s) want to make their notes redeemable, are you assuming redeemability for current U.S. coin? If not, does “competitive issue of notes” also mean “competitive issue of coin”? Or, are you assuming full paper/electronic fiat and coin is completely out of the picture? etc.

  • Kurt Schuler

    Historically, free bank notes were redeemable in the gold or silver coins of the country. Coinage was almost everywhere a government monopoly, officially at least. Because it was so entrenched, few people questioned the monopoly, even though the case for competition in coins is similar to the case for competition in notes. In historical free banking systems, when people redeemed free bank notes for government-minted gold or silver coins, what they wanted was the gold or silver, not so much the coins. Moving from the past to the present, in a free banking system today where banks issued their own coins as well as as their own notes, somebody who wanted redemption would not simply want to exchange $1 million of Citibank $1 notes for $1 million of Citibank coins. (I assume that, like government-minted coins today, privately issued coins would mainly be tokens, that is, their value as metal would be far less than their face value.) Somebody who wanted redemption not just want to convert one type of IOU from Citibank into another type of IOU from Citibank. He would want whatever constitutes the monetary base, whether that is gold, silver, a frozen stock of the Federal Reserve monetary base — as Milton Friedman once proposed — or something else.

    • RickDiMare

      In the Citibank example given, it’s true that I wouldn’t want to take physical possession of the metallic coin (whether it were made of gold or copper), but would it offend your sensibilities if I wanted to require Citibank to maintain a coin-only bank account for me because I believed: (1) I had a Constitutional right to require it; (2) it would restrain Citibank’s lending capacity; (3) it would tend to transfer economic power from Washington and New York to my local community; and (4) it gives me an opportunity to claim that my wages and salaries are my property, not income.

      • Kurt Schuler

        If you want something like this service you can already get it through e-gold. Look at their share of the market, though. And that’s all on this that I will say.

        • RickDiMare

          OK, Kurt, I appreciate your replies, and no more are expected. I just ask that you keep my ideas in mind. Truthfully, I’m not comfortable in talking about them either, but through no choice of our own, we’re living under a very unusual, revolutionary (Lockean) Constitutional system that seems to be crying out for reconciliation, and my prior post reflects the only way I can presently see this reconciliation happening.

        • RickDiMare

          Kurt, again, no need to reply, but I just looked up e-gold on Wikipedia: … which appears to be a money-laundering enterprise that is not even incorporated under U.S. law. Therefore, I must briefly defend.

          I’m definitely not making myself understood if you think that’s what I’m advocating. First and foremost, I would only expect rights to a current-coin-only bank account (under the Coining Clause of Article 1, Section 8, Clause 5) if the bank were incorporated in the U.S., thereby requiring the McCulloch v. Maryland (1819) balancing test to apply.

  • Richard Schulman

    On the subject of communicating the ideas of free banking:

    One televised Republican presidential debate after another and at most an occasional BB shot directed at the Fed or Chairman Bernanke. Still no candidate daring to broach the subject of free banking.

    Congressman Paul? Governor Perry? Are you listening?

    Congressman Paul, would you care to inform the public about HR 1098, the Free Competition in Currency Act of 2011, out of your own committee?

  • Martin Brock

    Statesmen like their monetary monopolies, and economists like to please their statesmen. Subjects of the state generally like to please their statesmen. People instinctively understand the alpha male, and for most people, submitting to the alpha is more productive than contesting him. Statecraft transfers this instinctive submission to the state. Thus “patriotism”, which etymologically describes loyalty to one’s father, in modern parlance refers to the state. Patriotism is thoroughly dehumanizing for this reason.

    If it’s a science at all, economics is a thoroughly political science, because the fundamental elements of an economic system, propriety, contract, money and credit, are inextricably bound to politics. A few economists resist this bondage, but most simply accept it. Money is not a fluid, theoretical concept. It is whatever the statesmen say it is.

    Physics is not so different really. Its terms are a bit less bound to statecraft, but physicists rarely think outside of the standard model. Theoretical revolutions occur occasionally, as when the quantum replaced the classical particle, but not frequently. Systematic physics couldn’t progress otherwise as a practical matter.

    Even the conversation at this site often seems unduly narrow to me. Economists adhere closely to the standard economic model, and Rick adheres closely to his interpretation of the U.S. Constitutional model. Both seem unduly concerned with reforming the established monetary system in the U.S. from the top down.

    Free banking fundamentally is not a top down enterprise. If the President or the Fed Chairman or the Treasury Secretary or the Chairmen of the House or Senate Banking Committees, or any combination thereof, decide how we’ll create our own money, then we don’t have free banking. If gold or silver is the standard of value exclusively, because statesmen say it is, then we don’t have free banking.

    Free banking is an entrepreneurial enterprise and can never be anything else. It never starts at the top. It always starts with a business model ultimately realized in a service offered to free consumers. It never starts with a policy decision applied simultaneously to everyone by fiat. It always starts with a single customer recognizing the value of a service. Free banking either emerges from the bottom up this way, or it never exists at all.

    Coins are irrelevant. Coins are a relic of the past. 21st century money has little to do with coinage. Money is already predominantly electronic, and this trend is not about to reverse. Money is a record of an obligation and a corresponding expectation. Money is information, not matter.

    If you want gold coins or bullion or anything else in your pocket or in a safe at your home or at a bank, nothing stops you from holding the commodity now. If you want to hold gold, you don’t want money. You want to exchange money for gold.

    If you think you need gold coins or any other coin to have money, then you fundamentally misunderstand money. Money does not come from the ground, and it need not come from a state. It comes from people agreeing to exchange anything indirectly. This indirect exchange involves credit fundamentally. Money is a record of credit.

    • RickDiMare

      Martin, apparently I’m not making myself understandable to you, either.

      In a U.S. coin-only based system, economic power does not continue to flow from the top down, but quite the opposite. Only when money is pure paper/electronic fiat does it flow 100% from the top down.

      Yes, in a coin-only system, the federal government has role, and there is an element of coin fiat (otherwise we’re back to bartering again), but the main role is assuring uniformity of coinage. If any currency manipulation does occur from fully coin-based accounts, it will be from the local bank’s free banking note issue or check-writing, but no bottom-to-top free banking model can ever happen if the central banking currency is not rejected by depositors.

      Also, don’t forget that the U.S. government, even though you’d hardly know it right now, is a fully-public “people owned” entity, so it matters greatly what entity owns and issues the monetary base (upon which varying degrees of note-issue manipulation will eventually occur under a free banking model). I don’t want private individuals owning the monetary base, I want the fully-public entity owning it, as Jefferson intended.

      • Martin Brock

        You give an me apple. I write you a negotiable note promising an apple or anything else of comparable value. In other words, my note promises anything the bearer wants from me or an apple at my discretion. If you or anyone else presents this note to me and demands my house or my car, I must give him my house or my car or an apple. If someone asks for my house, he’ll get an apple, but if he asks for peach, I might happily give him a peach instead.

        If other people accept the note from you in exchange for an apple or anything they deem comparable in value, then the note is money. The note does not flow from the top down (from a central, monetary authority). It flows from me to you. You and I create it. Its value as money reflects other people’s trust in us and nothing else; however, when people accept the note in exchange, they are not bartering, because they are not exchanging one specific good for another specific good. It’s money because it’s a general medium of exchange rather than a specific good.

        Gold or silver or U.S. coin of any material have nothing to do with this money. No central authority has anything to do with it. My subjective valuation and yours, and the subjective valuation of other market participants, determines the value of this money.

        I could give you a note promising a small quantity of gold in exchange for your apple. If I promise gold rather than an apple, nothing changes very much, because the note promises gold only to establish a standard of value. The note actually promises gold or anything of comparable value. Its promise is non-specific. If you demand gold and I have only apples, I must either persuade you to accept apples or exchange my apples for someone else’s gold, but the note does not imply that I possess gold.

        “Public ownership” seems meaningless to me. I understand what my ownership means, and I understand what your ownership means, and I understand what the state’s ownership means, but I have no idea what the public’s ownership means. It doesn’t mean much of anything. It’s a political slogan and nothing more.

        I want only private individuals owning the monetary base, but I don’t want one, universal monetary base established by the state. I want every individual free to choose a monetary base, and I don’t want anyone compelled to use a particular monetary base.

        If you want gold as your standard of value, then you’ll hold some gold to meet the demands of people holding your promissory notes (paper, electronic or otherwise), and you’ll deal with other people holding gold for the same reason. That’s up to you. Since I don’t want to owe you gold, you won’t extend me credit. That’s all.

        If someone promising you gold doesn’t have gold when you demand it, then you must work out some other bargain with him. You can accept something else or wait for him to obtain gold or accept the fact that he can’t deliver the gold and write off your loss. You don’t get to call on the central authorities to demand gold or anything else from me to keep the promise that someone else made to you.

        Jefferson merits my respect, but he died bankrupt, so let’s not make him the lord of our monetary system.

        • RickDiMare

          “If someone promising you gold doesn’t have gold when you demand it, then you must work out some other bargain with him. You can accept something else or wait for him to obtain gold or accept the fact that he can’t deliver the gold and write off your loss.”

          Martin, the complete impracticality of this position is the main reason mankind invented money with measuring standards (dollar, yen, etc.) that are more flexible that the physical measuring standards (pounds, ounces, etc.) that are typically used in bartering.

          “”Public ownership” seems meaningless to me.”

          Who owns Central Park in New York City or Yellowstone National Park? Everyone in general and no one in particular, especially no private corporation and no private shareholders. This was Jefferson/Madison’s intent in creating a fully-public “we the people” system of government, based on the corporate model, and then gave that entity a coining power (which is really the ONLY money-creation power the federal government has; any other forms of money, either created directly by the Treasury Department, or indirectly by issuing corporate charters, are money substitutes or “borrowed coin” under the Legal Tender Cases).

          So, in short, when Treasury-Direct, coin-only bank accounts are used, no one is “the lord of our monetary system.” That is what I mean by public ownership (and I totally disagree that private individuals not subject to Constitutional limitations should be in control of the monetary base.)

        • Martin Brock

          Accepting responsibility for your own credit, without expecting to socialize your losses through the state, is not impractical. You might not like the idea, but it’s not practical.

          “Dollar” does not describe a flexible measuring standard. It describes an instrument of state policy. How much is an apple worth to you in dollars in 2020? You can’t answer this question, because you do not control the value of the dollar. People do control it, but you aren’t one of these people, and you can’t easily predict their policy.

          How much is an apple worth in peaches in 2020? You can come much closer to answering this question, because the answer involves your subjective preference for one fruit vs. the other. You can’t know the relative abundance of the fruits in 2020, but any change in relative abundance is not simply a matter of state policy, and you can reasonably expect that the relative abundance won’t change substantially over a decade.

          But if you want “dollar” as your standard of value, knowing that statesmen regulate the value of a “dollar” as a matter of state policy (in their own interests) regardless of your preferences, you can have what you want. I could also promise a quantity of dollars in exchange for your apple. If you prefer this standard, I might be willing, particularly since your standard is likely worth fewer apples in the future.

          The particular standard of value that we agree to use is not the issue. That you do not socialize the risk you take by extending me credit is the issue. Of course, if you want to share risk with others voluntarily through some sort of insurance scheme, that’s fine with me.

          Who owns Central Park in New York City or Yellowstone National Park?

          The City of New York owns Central Park, and the United States owns Yellowstone. The City of New York is not “the people” generally. It is a particular group of people holding particular offices exercising particular powers including the power to govern the use of the parcel of land titled “Central Park”.

          Everyone in general and no one in particular, especially no private corporation and no private shareholders.

          If you think everyone in general owns Central Park, try holding a rally there without a permit. The NYC government owns the land and employs for its own purposes. You may like the way the NYC employs the land. That’s beside the point. I visited a friend’s lake house a few weeks ago, and I can bank on visiting it next week too if I want, but it’s still my friend’s house and not mine. He and I don’t generally own it. He owns it, and I don’t, but he permits me to visit him there.

          This was Jefferson/Madison’s intent in creating a fully-public “we the people” system of government, based on the corporate model, and then gave that entity a coining power …

          I don’t care what Jefferson and Madison or any other long dead man intended. It’s irrelevant to my support for free banking. The Constitution is just a God-damned piece of paper. I know it is, because the President of the United States reportedly said so, and I believe the report.

      • Martin Brock

        Let’s not make anyone the lord of our monetary system.

  • RickDiMare

    “Thus “patriotism”, which etymologically describes loyalty to one’s father, in modern parlance refers to the state. Patriotism is thoroughly dehumanizing for this reason.”

    Anecdotally, I recently researched etymology of the word “cronyism,” which is often mistakenly associated with the benign or benevolent “father time” Greek god Chronos, but a closer look at the origin of the word reveals that it’s derived from the parasitic Greek god Cronus who ate his children.

    Also, Martin, you might like Edward Miller’s facebook page. He is a proponent of Henry George’s philosophy:

    It may sound unusual to think of the central bank as a “rentier,” but here’s one of Ed’s most recent excerpts: “Essentially Rentiers are very much like parasites that kill their own hosts. People restricting access rights to the natural world in hopes of speculative gains causes enormous waste, misallocation, sprawl, dislocation, and poverty.”

  • gabrieloliva

    “The first case of competitive issue of notes occurred about 1,000 years ago, in China. Free banking has existed in more than 60 countries, including such major economies as the United States (in a qualified way – a subject for a later post), the United Kingdom, Brazil, India, and Italy.”

    Kurt, I’m brazilian and never was told about a free banking experience in Brazil in my economic history classes. Where can I read more about it?

    • Kurt Schuler

      There is, for instance, the book A política monetária do Brasil by João Pandiá Calógeras. I know it only in French (which may have been its original language):
      Also Bernardo de Souza Franco, Os bancos do Brasil — a 19th century book, but in a quick check I did not find it only, though it has been reprinted. Brazil’s free banking episodes were, I believe, 1836-1953, 1957-1866, and 1889-1892. Banks operated under a number of restrictions, but there were multiple issuers and a degree of competition.

      • gabrieloliva

        I found both books in portuguese and will buy them. Thank you very much!

  • Mike Sproul

    I’d like to take in deposits of 100 oz. of silver. Each 1 oz depositor will get a receipt that will be redeemable for 1% of my bank’s assets, 200 years from now. I will lend the silver at prevailing rates of interest today. I expect the interest earnings will just cover the cost of issuing, handling, and redeeming my receipts. I also plan to issue new receipts to anyone who wants to borrow them, assuming they have adequate collateral and pay a market interest rate.

  • Mike Sproul

    Any free bankers have any objections to the above?

    • Martin Brock

      Yes. A free bank following a silver standard doesn’t accept deposits of silver and lend the silver. This description fundamentally misconstrues the banking business.

      Banks extend credit. Extending credit with a silver as the standard of value requires no reserve of silver fundamentally. A bank accepts deposits of silver only to satisfy the demands of its note holders. The capital securing the bank’s notes is the collateral securing its credit, the titles to houses it has mortgaged for example. The value of depositors’ silver is a small fraction of this capital.

      If the bank is solvent, the value of collateral securing its credit exceeds the value of its circulating notes, so it can satisfy the demands of its note holders for silver by exchanging the collateral for silver in principle, but as a practical matter, maintaining a silver reserve by paying interest on silver deposits is valuable to the business, because this reserve permits the bank to meet note holders’ demand for silver in a more timely fashion.

      • Mike Sproul


        But my bank wouldn’t promise redemption in silver. It would only promise to liquidate its assets in 200 years and pay out a share of those assets to each holder of one of the receipts (money units) that it issued.

        But while I’m at it, let me generalize. The initial deposits might be anything of value, not just silver, and the redemption (liquidation) could be at some unspecified random future date.

        If you think my bank should be prohibited, please explain why you should be allowed to keep your libertarian badge.

        • Martin Brock

          I don’t think your bank should be prohibited, but I wouldn’t accept your offer, and I doubt that many others would accept it.

          If deposits may be anything of value, then if I own a house, I may deposit the title to my house in your bank, and you may divide the title into shares, and you may rent someone one else all shares of the house that he doesn’t own while he gradually buys shares from you.

          If you have this model in mind, then you need not dilute the value of my deposit when you accept other deposits. The value of my deposit is the value of the house plus the value of the rent less your fee (presumably a share of the rent).

          I would consider this bargain if I may collect my share of the rent on demand and if I may collect any unsold shares of my house on demand.

          • Martin Brock

            Correction: … you need not dilute the value of my deposit when you issue other notes.

          • Mike Sproul


            The inconvertible landlord’s IOU’s are quite a lot like inconvertible paper dollars, and people use those all the time. Not only that, but that’s the kind of money that has come to dominate around the world.

          • Martin Brock

            Right. Banking is more like this landlord IOU model than the “money lending” that people typically imagine. Banks don’t accept deposits of money and then lend the money. Banks create money by extending credit. Your dollar is like a share of the mortgaged housing stock, and you can have a corresponding share of rents paid by people with mortgages if you deposit your share in a bank.

            When a borrower repays credit, the money does not return to depositors. It disappears entirely. Money appears with the extension of credit and disappears with the repayment of credit.

            I don’t have a problem with this model, but I do have a problem with a central monetary authority bailing out banks that overextend credit. Some banks inflate house prices by extending credit at unsustainable prices. When prices fall, these banks are insolvent, but the central bank bails them out by distributing their losses among other note issuing banks.

          • RickDiMare

            Mike Sproul replied: “The inconvertible landlord’s IOU’s are quite a lot like inconvertible paper dollars, and people use those all the time. Not only that, but that’s the kind of money that has come to dominate around the world.”

            As soon as a paper or electronic means of representing coin enters the picture, the transaction becomes vulnerable to multiple payment, which vulnerability the banking system thrives upon. All I’m saying with my mantra about coin-only Treasury-Direct bank accounts is that, in order to maintain Constitutional integrity of the Coining Clause, the Treasury Department needs to make a payment system available that prevents double payment, much like state title recording systems prevent the double sale of real estate or automobiles.

            I image that when the U.S. was much less developed it may have been feasible to avoid the multiple payment problem by having buyer and seller simply agree to deal only in physical coin. (A cowboy flipping a coin to a bartender comes to mind.) But, obviously, in today’s global economy dealing exclusively with Treasury-Direct coin would be quite impractical without Congress providing a special (probably electronic) air-tight payment system.

          • Martin Brock

            By “double payment”, you presumably mean too many notes backed by the same collateral, so that the notes promise more than the collateral is worth. Since the market value of collateral may change, this problem has no solution fundamentally; however, a central database, like a title registry as you say, seems a reasonable remedy.

            I’m not an anarchist myself, so I don’t object to a limited state performing a function of this sort. A specific parcel of land has one owner only because a state decrees one person the owner. “Property” has no other meaning. I personally prefer Lockean propriety, the idea that value added by a person’s labor properly determines title, but I’m not a state ,and states decree title for countless reasons in reality.

            Any standard that must be respected universally implies a state, and titles to property clearly fall into this category; however, a monetary standard of value need not (and should not) be universal. A state should not decree a monetary standard that everyone must use, because a universal standard is unnecessary. From my minarchist perspective, this reason alone is sufficient; however, I can discuss many other reasons to avoid a statutory legal tender that do not suppose a minarchist principle.

            A monetary standard should not be a product of statutory fiat either. Again, a monetary standard created by the state itself is unnecessary, and that’s reason enough to oppose it, but I can also discuss many utilitarian reasons to oppose it.

          • RickDiMare

            Under Lockean philosophy the primary function of the state is to protect property, including the property right in human labor you mention (which sadly our system isn’t presently capable of dealing with).

            The protection of property can’t be accomplished by the state if it can’t control the money supply, and various forms of money (e.g., labor-based fiat coin vs. income-tax-regulated fiat paper or electronic money).

            With coined money the state can prevent multiple payment (“too many notes backed backed by the same collateral”), and with paper/electronic money the state can at least control and regulate multiple payments.

  • Mike Sproul

    Almost forgot. Each original 1% claim to my assets will be diluted by an appropriate amount when new receipts are issued.

  • Paul Marks

    Using China as a example is a mistake.

    Every time a dynasty went in for paper money – it destroyed the dynasty. The exception is the Ming – who stopped issuing fiat money before it destroyed them. Although sadly they also de facto banned large scale overseas trade (the two things are not the same – contrary to a certain vile British economist I once knew).

    What people choose to use as money should be up to them – and if buyers and sellers choose to use bits of paper as money that is up to them.

    I am not quite sure how, without government intervention, that could come to be – but, again, if you want to accept bits of paper for food (or property or…..) that I want to buy, that is fair enough. I might even print some words on the bits of paper (if you did not like plain sheet).

    However, I suspect, that people in a free market (without legal tender laws and tax demands) would not actually these bits of paper – other than as promises of something else (most likely gold or silver – although other commodities have been used as money).

    The problem with paper (and even more with computers) is that governments (and people given the support of government – such as bankers) can cheat people far more than they can with coins.

    Coins can be “debased” (the gold or silver that people want can be replaced with base metal they do not want – but have to accept, at sword point). That was the practice of the late Roman Empire and virually every other corrupt regime (by the way silber largely stopped being used in American coins in the early 1960s, future historians may think that this was a far more important even than people think it now). However, it is clear what is happening and it can only happen to a certain extent (you can inflate via debasement – but hyper inflation? No chance).

    But with paper (and computer book keeping entries) there is no limit to the level of fraud (I am using the word “fraud” in the common sense way – not in the technical legal way). One does not know whether the note really represents X amount of gold or silver (at a certain level of purity) or not. I.E. whether the stuff it says the bank has, it really has.

    Also other forms of fraud (again in the common sense use of the word) can creep in.

    For example, one can pretend that a loan is not a transfer of money from saver to borrower – but the creation of “new money” by “crediting the account of the borrower” money (without removing it from any saver). Indeed some people even call cheques “private money” (rather than a request to transfer money from one person or organization to an another person or organization).

    All this credit bubble absurdity (which inevitably leads to a boom/bust) is not inevitable – even under fiat money there need not be credit bubble (“money creation”) banking.

    The old Chicago School (back in the 1930s) were prepared to accept government fiat money – as long as banks were not allowed to lend out money that DID NOT EXIST (i.e. as long as banks had to act as honest money lenders who lent out savings – not as credit bubble entities who thought they could “create” money from thin air).

    However, once one has got away from commodity money fraud becomes much less difficult, and the SCALE becomes unlimited. This is so severe a problem that our very civilization is threatened by it.

    In short one must be careful what one means by “private money”.

    In one means (for example) the private minting of gold and silver coins (which was common in the West of the United State before Congress banned it in the 1850s) then that is fine. Ditto paper money (or computer entries) IF THE BANKS ACTUALLY HAVE THE STUFF THEY SAY THEY HAVE.

    I.E. If (for example) the bank says “this note represents one ounce of copper” – then they better have that ounce of copper.

    But things like “index monies” (not convertable – an obvious fraud, even before one gets into examing the absurdities of “indexes”) are to be avoided.

    As for “private money” that is based on book keeping tricks (such as pretending that one can lend someone money by “crediting to his account” X amount – without transfering money from a saver) then this is abomination. It automatically leads to a credit money boom/bust (it can not lead to anything else). And whilst it is true that Central Banking (or other government intervention) vastly increases the scale of the problem – the principle itself (the principle of lending being greater than real savings) is utterly vile.

    As always – real (sustainable) long term economic prosperity must come from work and savings (sacrifice), not book keeping tricks to lend out “money” that no one really saved.

    That is not “private money” – it is fraud. Although the bankers may have enough political power to prevent it being legal fraud.

    • Martin Brock

      I am not quite sure how, without government intervention, that could come to be …

      It comes to be when the words you print on paper denote an obligation that you accept, if you are trustworthy. Governments enforce contracts, but most libertarians don’t call this enforcement “intervention”.

      Coins don’t prevent anyone from cheating and certainly don’t prevent governments from cheating, but coins do prevent me ordering a gift from and having it delivered to my daughter at college in a neighboring state on her birthday two days from now, because I can’t deliver the coins to Amazon in time for Amazon thereafter to deliver the gift to my daughter two days from now.

      So I will use electronic money for this purpose.


      Banks following a gold standard primarily have titles to houses and such, not gold. The titles to houses and such are the stuff they say they have, if you bother to read the fine print. They don’t say they have gold in a vault for every circulating note. If you want to leave your gold at a gold warehouse and receive a warehouse receipt, you can do that now. It’s not illegal.

      You don’t want to call your warehouse receipt “money” or make it look too much like U.S. currency, but you can bargain with it. There’s no law against that either.

  • Martin Brock

    As for “private money” that is based on book keeping tricks (such as pretending that one can lend someone money by “crediting to his account” X amount – without transfering money from a saver) then this is abomination.

    A banker hands banknotes to me as I simultaneously hand him the title to my house, and the banker then hands a mortgage to a buyer of the house. The banknotes may promise gold, because my house has a market value in gold, but the notes represent the value of my house.

    The market value of my house in gold can change, so extending credit this way is a risky business. If you don’t like the risks, stay out of the business.