I've been busy lately preparing a long-delayed review essay on Charles Calomiris' and Stephen Haber's Fragile by Design. Although, having argued the same point for many years now, I was bound to approve of that book's thesis to the effect that banking systems, rather than being inherently unstable, are made so by bad government policies, the fact that I did only made it all the more disappointing to encounter in the same work the opinion that talk about free banking (referred to obliquely and inaccurately as "libertarian utopianism") is a waste of time because governments aren't about to embrace the idea.*
That encounter goaded me to reach for my copy of John Morley's superb 1898 essay, On Compromise, in which he asks,
How far, and in what way, ought respect either for immediate practical convenience, or for the current prejudices, to weigh against respect for truth? For how much is it well that the individual should allow the feelings and convictions of the many to count, when he comes to shape, to express, and to act upon his own feelings and convictions? Are we only to be permitted to defend general principles, on condition that we draw no practical inferences from them? Is every other idea to yield precedence and empire to existing circumstances, and is the immediate and universal workableness of a policy to be the main test of its intrinsic fitness?
In a nutshell, Morley's answer to all of these questions is, "Not a bit"–not, at least, so long as one wishes to avoid the "disingenuousness of self-illusion" and consequent "depressing deference to the existing state of things, or to what is immediately practical," that are the inevitable "result of compromising truth in the matter of forming and holding opinions":
An excessive devotion to what is 'practical' tends to make people habitually deny that it can be worth while to form an opinion, when it happens at the moment to be incapable of realization, for the reason that there is no direct prospect of inducing a sufficient number of persons to share it. 'We are quite willing to think that your view is the right one, and would produce all the improvements for which you hope; but then there is not the smallest chance of persuading the only persons able to carry out such a view; why therefore discuss it?' No talk is more familiar than this. As if the mere possibility of the view being a right one did not obviously entitle it to discussion; discussion being the only process by which people are likely to be induced to accept it, or else to find good grounds for finally dismissing it.
"Seen from the ordinary standards of intellectual integrity," Morley says, it is contemptible enough that many politicians should be unwilling to entertain an idea until they're convinced that it is "capable of being at once embodied in a bill." Still "there are excellent reasons why a statesman immersed in the actual conduct of affairs, should confine his attention to the work which he finds to do." But the fact that politicians are so preoccupied
furnishes all the better reason why as many other people as possible should busy themselves in helping to prepare opinion for the practical application of unfamiliar but weighty and promising suggestions, by constant and ready discussion of them upon their merits… As it is, everybody knows that questions are inadequately discussed, or often not discussed at all, on the ground that the time is not yet come for their solution. Then when some unforeseen perturbation, or the natural course of things, forces on the time for their solution, they are settled in a slovenly, imperfect, and often downright vicious manner, from the fact that opinion has not been prepared for solving them in an efficient and perfect manner.
If, while reading that last sentence, the words "Dodd-Frank" bounced around your cerebrum, you get the point.
Calomiris' and Haber's uncharitable treatment of the free banking literature–and, within the academy at least, nothing can be more uncharitable than to dismiss ideas while also taking care to avoid referring to, let alone actually addressing, the works professing those ideas–compels me to quote one more passage from On Compromise. This time the words, instead of being Morley's own, are ones he himself quotes from Isaac Taylor's Natural History of Enthusiasm:
An opinion gravely professed by a man of sense and education demands always respectful consideration–demands and actually receives it from those whose own sense and education give them a correlative right; and whoever offends against this sort of courtesy may fairly be deemed to have forfeited the privileges it secures.
I have a lot more to say about Fragile by Design, and especially about how its authors' commitment to a reductive sort of Public Choice theory causes them to adulterate a generally sound understanding of the legislative causes of financial crises with an excessively pessimistic, if not a fatalistic, view of the possibility of reform. But if I ever wish to get around to saying it, I had better stop blogging.
*See pp. 491-2. Although Calomiris and Haber never refer to "free banking" as such, except in its degenerate antebellum U.S. variant, that it is free bankers of the Freebanking.org sort they have in mind is evident enough from the views they attribute to "libertarian utopians," such as their treatment of the Scottish system as most closely approximating their ideal.