Mr. Sanjay: the choice isn't simply one between fractional reserve banks enjoying government support and 100% reserve banks. The alternative that has proven its worth historically is that of fractional reserve banks unsupported by any government insurance scheme.
It isn't possible to review all the reasons favoring such an arrangement on a blog: Mises blog readers must resist the temptation to imagine that the compexities of banking and monetary theory and histopry are ones they can master simply by following blog comments, and especially so in light of the fact that many such comments are from anonymous contributors whose knowledge of these subjects may be very limited, to say the least. One has to take the effort to read relevant works. I'd suggest starting with W.S. Jevon's Money and the Mechanism of Exchange, followed perhaps by Adam Smith's chapters on money. Mises' Theory of Money and Credit is more difficult and should come later. On the particular subject of free banking White's Free Banking in Britain is essential. The second edition of White's book addresses Rothbard's attempts to dismiss the Scottish case.
No one likes being assigned homework. But there's really no substitute for it in dealing with the hard questions concerning banking. You can only get little bits of valuable knowledge from a blog, and these are often adulterated with heavy doses of ill-informed assertions.
Professor Selgin,
Concerning Theory of Free Banking, most copies you can find are used copies and only a few in 'acceptable' conditions are generally affordable (under $50). Has there been any interest in finding a new publisher for the book, or printing another batch (or however it works)?
A man who asks "How was [Adam] Smith not a statist" doesn't deserve to be taken seriously. To say that Smith wasn't a consistent liberatarian, let alone an anarch-capitalist, is all well and good. To go from there to calling Smith a "statist" (and let's please not pretend we don't know what "statist" means in this forum) is ludicrous, notwithstanding Rothbard's attempts to blacken Smith with that brush.
Tell me: was Menger a statist? Bohm-Bawerk? Was any "Austrian" economist apart from Rothbard and Mises "not a statist"? They were all no less guilty of rejecting anarcho-capitalism than Smith was.
The Austrian economics movement suffers very much from the nonsense perpetuiated by the army of die-hard Rothbardians who imagine that they are "doing" good economics by simply aping Rothbard and calling anyone who doesn't a statist.
This is not a matter of my own dislike of anarcho-capitalism, by the way.
For Jonathan: Liberty Fund plans to put Theory pof Free Banking in its Online Library of Liberty series sometime soon.
To go from there to calling Smith a "statist" (and let's please not pretend we don't know what "statist" means in this forum) is ludicrous, notwithstanding Rothbard's attempts to blacken Smith with that brush.
Do you believe Rothbard's analysis of Adam Smith to be wrong? While Rothbard is particularly harsh, I don't think his opinion of Smith is his own. I think that Rothbard was heavily influenced by Schumpeter, who was probably the first economist to be known for 'bashing' Adam Smith (History of Economic Analysis). I, unfortunately, have not read Schumpeter's book, and so I can't comment on the differences between Schumpeter's analysis and Rothbard's. From a review of Schumpeter's book,
The most surprising fact about this part of the book is the debunking which Adam Smith suffers. After paying due deference to Marshall's view on Smith, Schumpeter begs to differ. It may well be true that '.. . the Wealth of Nations does not contain a single analytic idea, principle, or method that was entirely new in 1776' (p. i84). This is not the only ground for complaint, for '...in codifying, he dropped or sterilized many of the most promising suggestions contained in the work of his immediate predecessors.... The blame is at his door for much that is unsatisfactory in the economic theory of the subsequent hundred years. . .' (p. 308). In more detail the complaints are (p. 309) that he barred progress in value theory by pointing to the 'paradox of value', a paradox already resolved by his French and Italian predecessors (especially Galiani); that '. . .he dropped precisely the most promising suggestions proffered by Hume and (if he knew the Reflexionsb) y Turgot-still more those that he might have found in Locke-so that his successors started off from a formulation that was much more Barbonian [interest identical with yield on real capital] than that of any of these writers' (p. 333); that his criticism of the Mercantilists was unintelligent, and even dishonest (p. 36i); and that, so far as the mechanism of international economic adjustment is concerned, he '. . . did not advance beyond Hume but rather stayed below him' (p. 367). Moreover, he did not advance the analysis of the benefits of the territorial division of labour (p. 374), and Petty's inspiring message 'wilted in the wooden hands of the Scottish professor' (p. 212). Soon after beginning to read Schumpeter I found myself making a cryptic note, 'P.O.S.A. '-Poor old Smith again!
It seems to me that Rothbard and Schumpeter were generally correct in blaming Adam Smith for setting back economic science. There was a wealth of knowledge developed by the Schools of Salamanca, Cantillon and the French liberal school, and not only did Adam Smith not pick up on much of it, but he successfully blotted these schools out of the picture thanks to the success of Wealth of Nations. On how much Smith plagerized I can't comment, but neither do I think that was the most negative impact of Wealth of Nations on economic science.
As an interesting aside, William Stanley Jevons generally held a positive view on Wealth of Nations, but recognized Cantillon's Essai as the true original treatise on political economy (as I understand, there is another book that might hold that honor, but which one doesn't come to mind right now). Furthermore, in his review of Essai, Jevons critisizes for quoting and agreeing with Cantillon, and then misinterpreting Cantillon and getting the theory all wrong.
What specifically do you disagree with?
For the record, I'm not defending the view that since 'Smith was a statist' his economic analysis was valueless. Obviously, Adam Smith was not an anarchist. On the other hand, Smith does contradict himself in Wealth of Nations, and makes certain caveats which probably had more to do with his personal interests than actual intellectual agreement.
How do you think economic science would have progressed without the Wealth of Nations?
Not to drive this thread off track, but why are you opposed to anarchy?
Democracy means the opportunity to be everyone's slave.—Karl Kraus.
Judging from your constant, yet vacuous, appeals to authority you have a problem understanding the very concepts of learning and knowledge acquisition. For you, it seems, they're nothing more than cataloging what other people (more "prominent" and "respected" than yourself) have said on any matter. Try thinking with your own head for a change -- it's very liberating.
I don't think I've ever said one shouldn't think things through on their own. But if you're going to be arguing about money and banking, it'd be good to have taken at least a course on the subject so that you know what you're talking about.
"You don't need a weatherman to know which way the wind blows"
Bob Dylan
In regards to meeting demand for money, Hülsmann wrote a piece on demand for money and time preference. He argues against Mises' and Rothbard's beliefs that the demand for money was time-neutral. In it, he points to a footnote in Man, Economy, and State, where Rothbard makes a minor note,
Strictly, the ceteris paribus condition will tend to be violated. An increased demand for money tends to lower money prices and will therefore lower money costs for gold mining. This will stimulate gold mining production until the interest return on mining is again the same as in other industries. Thus the increased demand for money will also call forth new money to meet the demand.
hayekianxyz:I don't think I've ever said one shouldn't think things through on their own. But if you're going to be arguing about money and banking, it'd be good to have taken at least a course on the subject so that you know what you're talking about.
You don't know how much I know about what I'm talking about.
Z.
Selgin: A man who asks "How was [Adam] Smith not a statist" doesn't deserve to be taken seriously.
A man who asks "How was [Adam] Smith not a statist" doesn't deserve to be taken seriously.
Quite an inflammatory introduction. Let's see if you substantiate it.
Selgin: [L]et's please not pretend we don't know what "statist" means in this forum.
[L]et's please not pretend we don't know what "statist" means in this forum.
People use the same words differently, by the way. Based on the definition of the word "statism" that people on this forum use, Adam Smith was a statist. For, "statist", in that sense, just refers to anyone supporting compulsory monopolies of provision of law and order, which almost everyone does. So, again, in that sense, to call someone a "statist" is not very remarkable. But perhaps not everyone uses the word like that.
When I asked you to define your use of "statist", I was just asking you to clarify what you meant. To respond to that with "let's please not pretend we don't what what "statist" means in this forum" is, not only an inflammatory accusation that I was bullshitting, but is also an evasion of my question. You are continuing to use the word; yet, despite my requests for clarification, you have yet to define it.
Selgin: To say that Smith wasn't a consistent liberatarian, let alone an anarch-capitalist, is all well and good.
To say that Smith wasn't a consistent liberatarian, let alone an anarch-capitalist, is all well and good.
Cool.
Selgin: To go from there to calling Smith a "statist"[...] is ludicrous[.]
To go from there to calling Smith a "statist"[...] is ludicrous[.]
Not based on the definition of it that most of us here use.
Selgin: [W]as Menger a statist? Bohm-Bawerk? Was any "Austrian" economist apart from Rothbard and Mises "not a statist"?
[W]as Menger a statist? Bohm-Bawerk? Was any "Austrian" economist apart from Rothbard and Mises "not a statist"?
Did they support compulsory monopolies of provision of law and order? Or are you defining it differently?
Selgin: The Austrian economics movement suffers very much from the nonsense perpetuiated by the army of die-hard Rothbardians who imagine that they are "doing" good economics by simply aping Rothbard and calling anyone who doesn't a statist.
Sure.
Selgin: This is not a matter of my own dislike of anarcho-capitalism, by the way.
Of course not.
If I wrote it more than a few weeks ago, I probably hate it by now.
Really, Mr. Olovetto: I never said that I wasn't. I said that my position is beside the point.
For Jonathan: My argument about Smith concerns whether he deserves to be called a statist. In fact, Rothbard did try to portray him as such, aqnd that's were I reject Rothbard. As for Schumpeter, it is well known that his idea of good economics--in his history of thought mode, that is, rather than in his own positive contributions--was Walrasian economics. (He denied, for instance, that Bastait deserved to be considered an economist at all.) So his strictures against Smith must be taken with a grain of salt.
It is news to me that anyone who isn't an anarcho-capitalist, or who merely supports government-based legal arrangements, is a "statist." The usual definition, even among libertarians, refers to an advocate of central-government direction of economic activity, whether by outright socialism or through systematic interventionism. Friedman surely doesn't deserve to be called a statist; likewise any minimal-state classical liberals, of which Smith was an example. Apart from Rothbard, none of the most famous Austrains were anarcho capitalists--not even Mises. Would you label even him a "statist"? I hope not! It is easily shown that Menger and other Austrians did excuse government monopolies in such things as coinage. I think they were wrong, but I wouldn't dream of labelling them statists!
But then, you do suggest that "practically everyone" is a statist. So I suppose you might well say that Mises was one. A gold star for you for consistency, then.
But perhaps I misjudge this forum--perhaps the majority here share your view. If so, that's a shame, because no good can come from having the idiosyncratic use of "statist"as a synonym for "non-anarcho capitalist" become widespread.
Selgin: It is news to me that anyone who isn't an anarcho-capitalist, or who merely supports government-based legal arrangements, is a "statist." The usual definition, even among libertarians, refers to an advocate of central-government direction of economic activity, whether by outright socialism or through systematic interventionism. Friedman surely doesn't deserve to be called a statist; likewise any minimal-state classical liberals, of which Smith was an example. Apart from Rothbard, none of the most famous Austrains were anarcho capitalists--not even Mises. Would you label even him a "statist"? I hope not! It is easily shown that Menger and other Austrians did excuse government monopolies in such things as coinage. I think they were wrong, but I wouldn't dream of labelling them statists! But then, you do suggest that "practically everyone" is a statist. So I suppose you might well say that Mises was one. A gold star for you for consistency, then. But perhaps I misjudge this forum--perhaps the majority here share your view. If so, that's a shame, because no good can come from having the idiosyncratic use of "statist"as a synonym for "non-anarcho capitalist" become widespread.
Words are not sacred. Try not to get so entangled in them.
I don't think there is any reason for hostility.
I. Ryan:Words are not sacred. Try not to get so entangled in them.
Using unconventional definitions is a reliable way to become entangled in sterile debates about the meaning of terms.