[ExI] Fwd: Monopolies in banking

[Dan]

--- On Wed, 6/24/09, Stefano Vaj <stefano.vaj at gmail.com> wrote:
> Gmail for any reason addressed my
> msg below personally to Dan...
> 
> Thus, I have to forward it by hand.

Partly my fault.  My reply went to Stefano's email instead of the list.  :/

> On Wed, Jun 24, 2009 at 5:31 PM, Dan<dan_ust at yahoo.com>
> wrote:
>  Why not a free market in money and banking?
> 
> I am not so sure what this may mean. In principle, money
> belongs to
> the political community where the same is common currency.

I disagree -- or I think it's not relevant in the way you think.  You could claim that anything a lot of people use "belongs to the political community where the same is common" whatever.  For instance, culture or language.  Would this mean you'd want there to be a central controller for culture and language?  Some agency that tells everyone else what to do with culture and language?  That polices these and prevents anyone from doing anything on their own -- such as someone coming up with new traditions, art, poetry, or coining new words?  Tell me that's not what you believe!

Also, I would distinguish between the community as a group of people who have lots of interactions with each other and a political group which is just part of the community.  Thus, your comment seems similar to many people who confuse "society" and "state" or "community" and "state."  The two are not the same.  Community in this case is a spontaneous thing and not necessarily exclusive.  For example, even criminals and marginal people (e.g., the homeless, the poor, those who don't vote, bohemians, etc.) are members of the community.  But a political order tends to rely on exclusivity and is based not purely on interactions of any sort, but on specific form of relationship: dominance hierarchy.

Finally, money (like language and many similar "institutions") starts out and remains pretty much a spontaneous order.  It didn't start out because the political group decided this was money and not that.  (Though, later on, the state does attempt to and most succeed in defining what can be used as money.)  Political interferences in money tend to rarely improve on this.  In fact, the usual reason to interfere is for some gain to some small group in the elite, such as bankers who benefit when governments allow them to not convert to specie (of course, today, we're in a world of fiat money, but this was popular in former times) or inflating to help large creditors (the state being among the largest) -- both these at the expense of the rest of community (the benefits to banks or to large creditors are not free; they just happen to be spread over the rest of the community).

> To the
> "people", if you prefer. Nothing even today prevents
> somebody to sell
> piece of papers, and exchange them against goods or
> services if he or
> she so wishes. Nothing but the fact that you are probably
> going to be
> killed if you have any success at all. :-)

Something does prevent it in today's world: legal tender laws.  The US government recently cracked down on an alternative currency for just this reason.  So, it means business.  Similar laws exist in other nations.  Also, even absent these, it'd still be likely any modern nation state would meddle in any alternative monies.

The general solution here is to remove the state as much as possible from all financial matters.  For the benefit of BillK, who will read whatever e feels like into my comments:  This would not result in a perfect money system, but just one better than the current ones.
 
>> They truly don't have independence.  That's just
>> another pretense.
> 
> The problem is that unfortunately they do. :-)

And your proof of this independence is?
 
>>> Once the country concerned has some form or other
>>> of a democratic
>>> regime, you can call it "democratic" control.
>>
>> The illusion of control really.
> 
> OK, reality is all an illusion, and free will does not even
> exist in
> the first place, but if this is the case, no real reason to
> object to nationalisation of central banks, right?

My point was that "democratic control" is an illusion.  What does it mean?  The ruling elite controls the central bank now.  One solution to this would be to abolish the central bank -- meaning allowing a free market in banking and money.  (Granted, such an abolition should be coupled with removing legal tender laws and other prohibitions and regulations on entry into the money and banking markets.*  Merely removing the central bank, but leaving the nexus of controls and interferences in place will probably just create conditions for forming a new central bank rather than evolving a stable, free market money and banking system.)

A NON-solution, IMO, is just to have the central bank officials elected by the populace or have the bank itself under direct control of the legislature.  What would that improve?  There would still be no competition -- no way to exit from the system for most people.  It's also the case that the ruling elite would just use the trapping of elections and democracy to say, in effect, "We have a democratic banking system.  It's your responsibility as voters and your fault if something goes wrong with it."  Meanwhile, a lot of the same people will call the same shots at the central bank -- e.g., inflating to fund bad policies (because raising taxes would be less popular and most people, even intelligent people (even, it seems, people on this list), can't grasp what inflation is or the damage it does) and to fund politically connected large creditors like the big banks and big investment houses when they make mistakes.

Even if it were a totally different crew, that the central bank is still a monopoly means it'll suffer from the same incentives (no worries about most mistakes; it'll be in business unless it royally screws things up -- and I mean does something like the German hyperinflation of the early 1920s, but even then people like you might still argue for it:/) and calculational/knowledge problems (without competition, how would the bank tell it's messing things up? how would the central bankers know they've chosen the right course?).

Regards,

Dan

*  My guess is this would most likely result in a 100% reserve system of competing deposit banks.  Fractional reserve banks will likely not survive long.