To put it bluntly, what are the major differences between the two and whats the deal between the feuding?
I'll admit, as far as I know I have not read any explicit "Masonomics" books, but my understanding of the difference is that George Mason tends to stress Hayek more along with more "mainstream" (hopefully I'm not angering anyone with that) monetary theories and methdological approaches. They also seem to cite Mises as supporting their views (FRB etc) while downplaying Rothbard. Mises Institute is more Rothbard (who they say is more in tune with Mises) and the "traditional" Austrian approach. Am I missing any other significant distinguishes?
So whats the drama between them all? Judging by various posts on the internet they appear to have different academic ideas and some of their arguments can get a little personal at times.
Finally, what happened to Gene Callahan? I remember reading his book along time ago and loved it, and now I hear he isn't an Austrian anymore (although he frequents over at Coordination Problem and generally bashes Rothbard). Then I read on a post here he got mad over his book deal with the MI, but I don't know if this is trash talking or not.
And for a bonus question, if you had to pick a "side", which do you prefer? Honest.
For me, Mises Institute.
AJ:So anyone who is for full-reserve banking has all their money in a fee-based safekeeping service, not a bank? I have my money in a bank, and I'm not worried about bank runs. Am I being needlessly risky?
No, because if the need arises, taxpayers would be forced to make you whole at the point of a gun.
The argument is being spun out by both sides like it's obvious, but cursory assessment seems to indicate there is little worry of a bank run if you only have a few grand in the bank.
Most people don't treat their savings as "play money".
Can someone show me the math that says the risk is not worth it?
No math exists for calculating the probability distribution for a bank run over a given time frame. Empirically, the persistent unidirectional wealth transfer flowing toward the FracR bankers and away from their customers (the unwashed masses) hint at the direction and consistency of this risk mispricing. It seems that FracR bankers come ahead in the long run -- not their customers (Or are they their creditors? But who cares, it's just semantics.)
It boggles the mind that mere words (money and banks) have brainwashed the masses into accepting outfits (banks) that issue conflicting claims over a certain type of property (money) as something perfectly normal (if not desirable!). The concept is widely considered outrageous for any other outfit transacting with any other property.
EDIT: Centrally cartelized FracR bankers have the mainstream economists guarding their fort. FracR ("Free") banking supporters are merely their Plan B (second best) option in case Ron Paul does succeed in ending the Fed. Always have a Plan B. Even better if you call it "free".
Recurring to a common tactic of 100-percenters--and one which their critics have exposed many times--z1235 imagines that no-one will consider the long history of pre-deposit insurance and pre-implicit guarantee FRB. Where were the taxpayers who would be on the hook if a Scottish bank failed in 1840, or if a canadian bank failed in 1910, or for that matter of an FR goldsmith bank failed in 1670? That long experience formed an early point of my own exchanges on this very thread, and z1235 knows it. But he's not interested in truth: he's pushing or defending the orthodoxy that is precisely what I've been complaining of on this thread. He and his ilk are what's wrong with the MI, or at least what's wrong with the monetary doctrines that it has promoted. Those doctrines, the persistently fallacious reasoning used to uphold them, and the army of fervent acolytes who repeat them over and over against all manner of counterargument and evidence, and who run-around calling themselves "Austrian economists," are a great embarrassment to the Austrian School that it may never live down.
Removed.
Since this thread has long devolved into a rather heated debate over free banking versus a 100 percent reserve standard, I just want to mention how arguments against free banking in particular seriously undermine the case for free markets in general. In essence one is committing to the idea that the market, in the absence of monopolistic force, will not evolve an institutional framework of the proper mixture of incentives, preferences, beliefs, and rules to naturally regulate the power of banks. In other words one is saying the market cannot adapt to a society of free banking. If the market cannot generate a workable set of institutions in this one instance, then perhaps there are others as well. A case for market intervention is only a step away. In my opinion, there would need to be intervention by a monopolistic government to enforce 100 percent reserves--and it would take draconian measures to do so. If one truly values living in a free society, then he or she might as well just live with the fact that free banking is going to be a part of that.
Othyem, you may not be aware of the subtelty of the arguments at play. For example Mises favoured free banking rather than government regulated banking, yet he held that reserves would harden up to 100%
Where there is no property there is no justice; a proposition as certain as any demonstration in Euclid
Fools! not to see that what they madly desire would be a calamity to them as no hands but their own could bring
Thanks for the vote of confidence. Yes I'm aware of that argument. I think we can expect a higher reserve ratio, but it remains to be seen whether a 100 percent would be the eventual outcome. For what it's worth, I don't think that would happen.
LS, fixed it. No names called.
"it remains to be seen whether a 100 percent would be the eventual outcome. For what it's worth, I don't think that would happen."
No need to speculate, Othyem. As I and other free bankers have repeated again and again, free-banking--that is banking in a relatively free-market context, with no guarantees or other interventions that could be said to have served to sponsor artificially low reserve ratios, isn't a hypothetical concept. It has had quite a few historical tests. So we know what sorts of reserve ratios prevail under free market conditions. (Allegations to the effect that the Scottish case didn't qualify were long ago answered by White--as noted earlier in this thread; and there were many other free banking episodes or near approximations: Dowd edited a whole book on some of these).
I can't tell you how many times I've heard people on both sides of the debate treat the matter as one for which no evidence yet exists, and how many times I've intervened to point out all the evidence from past experience. It's highly unlikely that we will ever have a closer approach to freedom in banking than these historical episodes provide. No, they weren't perfect; all involved some government intervention. But there's also never been a perfect example of free trade. yet that doesn't cause competent economists to say that we really don't know for sure whether free trade has the beneficial effects that theorists from Smith onwards have claimed for it.
Now, maybe you don't think the tiny reserve ratios of the Scottish system in its heyday (<2%), or simiularly low ones for Canada's pre-central bank era, or the fact that ratios above 10% have been rare since the 18th century unless propped up by minimum requirements, supply any useful evidence towards the question at hand--that all of this information has to be rejected as somehow not germane. But if so, you need to explain why--that is, you need to explain why, in the face of it (and I even mentioned it earlier on this very thread!), you would continue to entertain any doubts whatsoever concerning the tendency for fractional reserves to emerge ion a free-market economy. I mean, Humean skepticism is one thing; doubting in the face of such an abundance of evidence is another.
I say all this in perfect awareness that you do in fact think the FRB position the one more likely to be correct. My complaint is that you aren't quite as confident about this as you should be!
I have long argued that this debate is not over recognizing or not recognizing the existence of a particular set of evidence, but rather, it is over what constitutes evidence as such.
White, Selgin, Horwitz, and some others are "practicing" different economics then Salerno, Hulsmann, de Soto, and others... It is nonsense to claim that there are minor differences. This misconception stems from the fact that both agree on many of the same conclusions. But so what.. Friedman would agree on many of Mises' conclusions, but one could hardly claim that they belong to the same school of thought.
Selgin, the "evidence" you offer is going past over the heads of many here because there is a fundamental disagreement about what constitutes evidence as such.
Othyem: A case for market intervention is only a step away. In my opinion, there would need to be intervention by a monopolistic government to enforce 100 percent reserves--and it would take draconian measures to do so. If one truly values living in a free society, then he or she might as well just live with the fact that free banking is going to be a part of that.
A case for market intervention is only a step away. In my opinion, there would need to be intervention by a monopolistic government to enforce 100 percent reserves--and it would take draconian measures to do so. If one truly values living in a free society, then he or she might as well just live with the fact that free banking is going to be a part of that.
I, for one, am not suggesting prohibition of any voluntary exchanges. I see the FracR vs FullR debate as merely one about predicting (and affecting) the level of risk education in the market (masses). The economic (financial) parasites are benefiting from this prevalent economic ignorance in the same way that political parasites are benefiting from the prevalent ignorance about the necessity of government. It is only natural that they join forces as is the case everywhere today.
While we're talking empirics, if the risk/reward distribution in FracRB was indeed so beneficial for everyone involved, why has every (supposedly "free") FracRB instance inevitably converged toward socialization of such risks via a central coercive monopoly? My guess is that muddling property rights (via conflicting claims over same) is merely a step toward further erosion of property rights and, with that, an erosion of freedom.
George,
My seeming lack of confidence on this issue is more to prevent stepping on toes in this forum. I think the evidence is definitely on the side of free banking. I do think fractional reserves would obtain. However given the unknown economic landscape of the future, what the reserve ratio would be (among other things) is something I wouldn't bet on with any confidence. That's all I was saying. I think the internet is full of self-professed experts, and when I can I try and stay away from that kind of self-righteousness, especially since I lack any authority in the subject, like you have. I'm a life-long student, like everyone else.
Although I don't want to insult anyone and that's not my intent, I think it's the 100 percent reservists who lack subtlety--or at least institutional context. The incentive for banks to expand liabilities would be enormous. And as we free market supporters like to routinely argue, the market is an ingenious system for inventing and innovating solutions, operating through the incentives in place. We've all seen what good, naturally occuring incentives can do in bringing about efficient outcomes. But the market's ability to invent and innovate does not stop when faced with perverse incentives. I think we have every reason to believe that if 100 percent reserves were required, banks would try and find a profitable way around it, evolving new financial instruments in the process, which would only become harder and harder to monitor until it finally became cost-prohibitive. I honestly don't see why a private insurance company, which in a free market is presumably who would be monitoring banks to make sure they weren't expanding liabilities, would undertake such a task, especially since beyond a certain point it would become too expensive to do so.
According to the Online Etymology Dictionary, the word "deposit" is derived from the Latin depositus. That meant to "lay aside" or "put down." Therefore, banks should offer storage boxes below knee height somewhere out of the way for people to drop money into. They should also begin using the Latin form of the word to avoid future misunderstanding.
In any case, I like GMU more. I dislike the methodological puritanism of MI. It reminds me of irritating Christians who believe that all worldly wisdom can or must be traced back to The Bible. I am too much of a Popperian to care where an idea comes from or how it was arrived at. What matters is to bring all methods of critical exanimation to bear to see which of competing hypotheses best stand up. Praxeological reasoning is a tool of criticism, e.g. if an economic hypothesis is inconsistant with the action axiom, then it has a big problem. However, I do not consider hypotheses illegitimate, invalid, unacceptable, or whatever else just because it has not been expressed praxeologically. Praxeology may not always be an appropriate or necessary tool of criticism, and, in any case, it is not nearly as rigorous as many of its proponents suggest.
There are two issues here: what is likely to happen to banking in the future, and what would a future free banking system (however unlikely that may be) look like?
The overwhelming tendency in past arrangements has been for technological change and other factors to lead to declining rather than increasing reserve ratios (see for evidence my reply to Bagus and Howden). So, if Scottish and Canadian banks had specie rr's of <2% during the 19th century (and in Scotland's case in the early 19th century), it is hardly likely that a future free banking system would have higher researve ratios, much less one's approaching 100%. Indeed, (as I also have mentioned), even the earliest goldsmith FRB's managed with ratios of about 30%.
DD5 suggests that all this doesn't really constitute relevant evidence. I want to know (1) why not, and (2) what would?
Thanks George. This is good to know.
On a slightly different note, is there any plans to re-release your book on free banking? I've been wanting to read it for quite some time but it's always too expensive.
To my mind, fractional reserve banking is beautiful. I can hardly think of a better example of emergent order in a free market. A problem that few realised needed a solution was solved by institutions which were not designed for that purpose -- this is the kind of thing that makes me love economics. Unfortunately, no sooner had fractional reserve banking begun to flower than chains were clamped upon it. Then, those who ought to be championing fractional reserve banking began accusing it of all manner of sins -- ironically buying into the same arguments as those responsible for the chains. It's sad that an institution which epitomises the unplanned nature of the market place, its dexterity, the tacit knowledge unknown to any one mind, has become an object of such controversy among friends of the free market.