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What modern free banks might look like

by Kurt Schuler August 29th, 2011 11:45 pm

It has not been discussed so far in this blog what modern free banks might look like. Partly that is because several of us who blog here have the same picture in mind. It would be good for the rest of you to know what it is and decide what you think of it.

What activities would banks be allowed to engage in? Anything they wanted. In particular, they would be allowed to combine banking with commerce, so if Wal-Mart or Facebook wanted to start a bank or if a bank wanted by them, it could. If banks wanted to combine banking with brokerage or insurance, they could. In practice, some combinations of commercial banking with other lines of businesses would be common and others would not. I would not expect any bank-restaurant combinations, for example, because the businesses are so dissimilar. Even much closer combinations such as bank-plus-hedge fund might be rare because the businesses are not as alike as many people think.

How would banks be regulated? There would be no special regulations on banking, and in particular no minimum capital requirements or requirements that assets be invested in specific ways unless the bank itself promised to do so. There would continue to be some special features of law that apply to banking, just as there are some special features that that apply to other industries (fishing, trucking, warehousing, retailing, etc.) because of industry-specific features. In banking, two such features might be requirements to ensure that financial statements state certain assets and liabilities in detail to give an accurate picture of the business, and a bankruptcy regime that, one would hope, improves on the cumbersome procedures currently in place in most countries.

Advocates of free banking see no need for special regulations because they think bankruptcy would provide the ultimate check on imprudent behavior, as it does in other industries. Whether that would be the case in reality, or whether on the contrary governments would still treat some financial institutions as too big to fail, is a hugely important question that is a subject for another time.

What liability arrangements would banks have? Banks would have the choice of operating under limited liability of stockholders, unlimited liability, or combination arrangements where some shareholders would have limited liability and others would have unlimited liability. As long as the liability arrangement was clear to people who did business with the banks, there would be no special need to force banks to follow a uniform arrangement. Today, almost all banks have limited liability. Until the mid 1800s, limited liability was a privilege granted only to select companies, often in return for bribes or other favors. Then the principle became established that limited liability should be a matter of choice for stockholders. Partnerships with unlimited liability do persist, though, such as the venerable English bank Coutts and Company and many hedge funds.

What would be the monetary base? One possibility is the current fiat monetary base, frozen, as Milton Friedman proposed in an essay in a 1984 book called To Promote Prosperity. Under this proposal, banks would be free to issue notes, so over time, Federal Reserve notes would likely go out of circulation as currency and be used mainly by banks as reserves.

Another possibility is a return to gold. The gold standard has received much scorn from economists who don’t understand that the gold standard under free banking works differently from the gold standard under central banking.

Other possibilities seem far less likely. Banks could adopt a standard based on some unit not currently in use, such as the economic value of a frequent flyer mile or a British thermal unit or a basket of goods. Or they could issue currencies not tied in any set way to a good, as central banks to now and as Friedrich Hayek imagined in his pamphlet Denationalisation of Money. In a system of Hayekian banks there would be nothing corresponding to the monetary base as it now exists. No such arrangement has ever existed in any historical free banking system.

These are my educated guesses based on historical experience. Advocates of free banking would be content to allow whatever arrangements emerge through competition, and not to push the monetary system towards in one direction or other through restrictions. If people wanted to use gold, or frequent flyer miles, or adopt a Hayekian system of competing fiat currencies, it would vain for economists to protest that they were wrong to do so. It would be like saying that people are wrong to want to speak English instead of the supposedly more “rational” Esperanto (or even the truly more rational Interlingua [see page 307 of this for a speech in Interlingua by Leland Yeager, who has also written on laissez faire banking]).

Would there be fractional reserve banks or 100% reserve banks? In principle, both side by side. In practice, I know of no past banking system where the two have long coexisted. Fractional reserve banking has always outcompeted 100% reserve banking. By 100% reserve banking which I mean an arrangement where the bank holds assets for clients as a kind of warehouse and does not grant credit.

What about coins? Like the business of issuing notes, the business of issuing coins would be open to all comers. Banks might issue competing brands of coins; they might issue a common coinage through a cooperative arrangement; or they might leave coinage to other issuers. Coins might have substantial value as metal, or, as I think more likely, they might be mere tokens. Historically, where people trusted in the financial system, coins having substantial value as metal tended to be reduced to minor importance as currency over time because it is inconvenient to carry a lot of metal around in purses and cash registers. The tokens might not be redeemable in notes and deposits, or, as I think more likely, they might be. Again, historically tokens that were redeemable typically found greater acceptance than those that were not.

63 Responses to “What modern free banks might look like”

  1. avatar Martin Brock says:

    Right on. The theory and history of money and banking are obviously important, and this blog should educate readers on both, but established and historical models do not limit the potential of free banking. Free banks will not (and cannot) simply be less regulated versions of conventional banks.

    Free banks will be something new and will emerge the web. Ebay and Craigslist seem better starting points than Walmart or Facebook, but any model seems more likely than Citibank or Bank of America. These banks are based on a model constructed in 1913. Never mind the politics. Any model that doesn't involve the net fundamentally is a dinosaur waiting to die.

    As self-styled "mutualist" for over thirty years, I've thought a lot about what a free bank could be and came up with this model. I'll just call it "Favorati" from now on. If the name or the whole concept seems geeky, that's because I'm a geek. Why else would I be reading a blog called "Free Banking"?

    I'm not selling "Favorati" here, but I am looking for partners in the "open source" sense. I don't only want to discuss the theory of free banking. I want to realize the theory. If Facebook could start a free bank, why not Freebanking.org?

    Since Favorati doesn't use dollars or gold as a monetary base, you consider the model unlikely. I'm not so sure, but a free bank is not limited to a single standard of value. Favorati could offer users a choice of standards, particularly since the "bank" holds no capital itself. When posting an offer of trust (credit), a user could specify a standard other than common labor, like U.S. dollars or gold or silver, but the whole point of Favorati is that people don't need a legal tender at all to create money and extend credit. Money does not come from the ground, and it does not come from a state. It emerges spontaneously from a social network.

    Offering to return dollars or another legal tender as a default also invites more legal scrutiny, and the whole point of "money" (seems to me) is that the offer is non-specific. A standard of value is not really what I offer in return for credit extended. It's only what I offer if nothing else is more agreeable ultimately. 99% of the time, I return something else, just as I rarely demand gold for my banknotes under a gold standard.

    A "bank" holding no capital seems to avoid most liability issues. Favorati doesn't actually extend credit itself, so it's not a conventional "bank" at all, but free banks are not conventional banks fundamentally. Favorati only joins individuals offering credit directly to one another. It's more like eBay. Ebay doesn't sell anything itself. It only connects buyers and sellers, and most importantly, it provides buyers a means of evaluating sellers.

    The most obvious side-business for a free bank is something like deposit insurance. Favorati has no "deposits" per se, but something like a credit default swap or mortgage insurance is possible. Friends can easily form insurance pools on the web. If you can't return a favor for some reason, I agree to return it for you, or a free association of other people agrees to return it. We all enhance our creditworthiness this way.

    I'd like to read a lot more here about new (even radical) free banking models in the information age, not what money and banking have been and are now but what they will be in the future and how the change will occur. Thanks for getting the ball rolling.

    Coins? What's a coin?

  2. avatar Martin says:

    Kurt, speaking of modern free banking, what is your opinion on enterprises such as Bitcoin?

    • avatar Eitan says:

      I was going to ask the same thing. Seems like Bitcoin should be right up free bankers' alley.

      • avatar Martin Brock says:

        I'm very skeptical of Bitcoin as money or a monetary base, but time will tell. Bitcoins have value only as currency (from my subjective perspective). They're literally nothing but random bit sequences. The random bit sequences that get to be called "Bitcoins" are scarce, but if people don't use them as currency, they're still just random bit sequences.

        I'm now hearing a lot about "investing" in Bitcoins, because their scarcity is programmed into the scheme. If the value of Bitcoins rises, relative to a competing currency, people will hold Bitcoins and use the other currency, but if Bitcoins are valuable because they're useful as a currency, holding them destroys their value. As investments, they're ultimately worth less than tulip bulbs.

        On the other hand, if you want to use Bitcoins as a standard of value when extending credit, that's fine with me.

      • avatar RickDiMare says:

        Good point, Eitan.

        Bitcoin should be exactly the kind of never-been-tried-before currency that Hayek's free banking advocates should embrace unequivocally. Why not?

        Now, if the U.S. Treasury Department was offering a similar service and there was real U.S. coin involved, that could be physically retrieved at any time at a fairly convenient location, that would be a different story. Also, I think one would have to be exceptionally naive to believe that Bitcoin's transactions are really two-party "peer to peer" transactions.

        • avatar Martin Brock says:

          Subjectively, without Googling for a Bitcoin/dollar exchange rate or a Bitcoin price of milk somewhere, how many Bitcoins is a gallon of milk worth to you?

          Subjectively, how many hours of lawn mowing is a gallon of milk worth to you?

          I have no idea how to answer the first question.

  3. avatar peter says:

    How about a free banking system with bitcoins as the monetary base?

  4. avatar Paul Marks says:

    No the matter of whether banks would be considered "too big to fail" (or whatever) can not be "left to another time".

    For example it was the de fact subsidy of banking (by such things as deposit "insurance") that led to the collapse of the Thrifts (the Savings and Loans enterprises) - where Thrifts went into high risk activities in order to compete with banks who (armed by various forms of de facto government subsidy) were pushing into the traditional home loan market of the Thrifts.

    Such things as Senator Gramm's getting rid of the restrictions on retail banks also getting involved in investment banking make sense - IF the government is not going to stand behind mega banks (via such things as the Federal Reserve system).

    But, of course, the government does stand behind the mega banks (by such things as the Federal Reserve system and its endless sweetheart, low interest, loans and other such).

    Proper "deregulation" of banking (i.e. putting banks under the normal laws of contract - not endless special statutes and regulations) is the right thing to do, but only in a free market context, i.e. a context where people are clearly given to understand that the government does NOT stand behind banking and that if the bank gets into trouble it will be allowed to go bankrupt EVEN IF THIS MEANS THAT DEPOSITORS LOSE THEIR SAVINGS.

    Only then will people who hand over their money to banks to lend out (it is really a mistake to call such people "depositors" as the money is not mainly "deposited" it is lent out - but everyone does call them this, so....) exercise proper care and attention in regard to the banks they do business with.

    "Buyer beware" only works if buyers have not been told (indeed told for many decades) that they do not need to beware - because government is going to look after them. Such an environment produces a world of little children who look upon economic benefits as "rights", not a world of adult customers who are careful to keep themselves informed. Of course if people are reduced to little children (supposedly incapable of looking after themselves in relation to their money) how can these same "little children" be entrusted with the election of the all powerful government?

    The question the collectivists never really deal with - how can people be incapable of self government in the literal sense (i.e. government of themselves - using their own reason) and yet be capable of self government in the political sense - electing a government? Such people as Ben Franklin and John Adams understood that political self government is not possible in a place where the people have lost the practice of indiviudal self government (of looking after their own business affairs - without Big Brother holding their hand), even if modern "Progressives" do not understand this.

    A moral and responsible people are needed for freedom - and only freedom can produce a moral and responsbile people. It works both ways - and the development of character (or responsbility) is vital for long term economic success, as well as moral progress.

    As Gladstone put it - of one thing I am certain, that the moral improvement of people can not come from the state. It can indeed only come from freedom - but freedom with full responsiblity.

    I am very concerned about deregulation being discredited by phony (false) "deregulation".

    Such as the deregualtion of the thrifts - that left them free to invest in what they wanted, but still facing (de facto) subsidized competition from the banks (so they were pushed into investing in crazy things - in a desperate effort to compete with the banks)

    On the Californian electricity "deregulation" which left such things as PRICE CONTROLS still in place - thus meaning that honest companies could not really operate, and only crooks (such as Enron) thought they could make money (by gameing the system). It became impossible to make money by generating electricity and selling it (indeed there were even rules trying to divide the generation of electricity from the sale of electricity to domestic customers - unless the company was government owned as the LA company was).

    Price controls and "green" mandates (again the LA government owned company, with all its coal fired stations was somehow not under the same regs as other people) - all in the name of "deregulation" (with an artificially complicated market created by such things as trying to split electricity generation from the sale of electricty - a complex system that might have been designed for crooks like Enron).

    "But we want proper deregulation for banking...."

    Yes - but it will only be proper (real) deregulation, if the government back ups (the de facto subsidies) are removed.

    And removed UP FRONT.

    Trying to get rid of the regulations (whilst not getting the government support out) will just discredit the whole idea of deregulation.

    First one needs to be honest with people - you are going to have to stand on your own feet now, with the only help you are going to get comming from other ordinary mortals (not the superhumans and angels that control government in the delusions of acadamia and so on).

    If this is not done FIRST (not as some after thought - to be done at some later time), then "deregulation" will not be real and will fail.

  5. avatar Paul Marks says:

    On the matter of the "monetary base".

    The word "base" concerns me (as does the word "standard" in relation to gold or silver or whatever).

    People may choose anything they wish as money (I do not deny that) - as long as buyers and sellers voluntarily agree.

    Business undertakings are not just a means to an end (as J.S. Mill seems to imply), freedom is not something in relation to "civil liberties" and another thing (a means to an end thing) in relation to business.

    Economic life is part of life - and a restriction on economic activities that do not violate the nonaggression principle is just as much a violation of freedom as a restriction of "civil liberties" that do not violate the nonaggression principle.

    There must be no legal difference between a non violating act of trade and any other non violating act. Freedom is freedom.

    However......

    None of the above repeals economic law (which can no more be repealed, by the whims of human beings, than the laws of the physical universe can be repealed).

    And one example of economic law is that investment must be from real savings - i.e. from earning that people have chosen not to consume.

    One can not "have one's cake and eat it to".

    That is why things like calling money a "base" or a "standard" concern me.

    For they imply that the money is going to be used as a base for an inverted pyramid of debt - a complex effort to get round the economic law (very different from a criminal statute) that investment must be from real savings. That (somehow) putting money in a bank means that more money can be lent out than was ever put in (i.e. that "broad money" can be bigger than the "monetary base").

    "Punishment" for violating this economic law is not decided by a court - but it is very real.

    It is a boom/bust.

    • avatar Martin Brock says:

      Money is not a standard of value. Money is a promise to deliver goods with a value comparable (in terms of subjective market exchange rates) to some standard of value.

      I give you X. You give me money. The money promises a specific quantity of some commodity Y (or it is some commodity Y), because comparing the value of everything to a common standard simplifies accounting. Without a standard of value, X has no single price. It has a price relative to Y and another price relative to milk and another price relative to corn meal and another price relative to flour. Without a standard of value, my store must tag every item with a thousand different prices.

      Money promises Y, but you rarely if ever exchange the money for Y. Y is not what you want when you accept the money. It's only the standard of value.

      When I arrive on a frontier as a young pioneer with nothing but my father's ax, what do I save before I start investing?

      I'm not the saver in this scenario. My parents are the savers. I invest only the ax and my labor, both of which are my parents' savings. Maybe my parents earned money while working to feed, clothe, house and educate me on their homestead. Maybe they didn't. Either way, they didn't save their money. They spent it on my food, clothing, shelter and education. They saved me.

  6. avatar Paul Marks says:

    Money is what buyers and sellers agree it is.

    Normally it is not a "promise" of anything - it is payment.

    What buyers and sellers choose to accept as payment is up to them - as long as it does not violate the nonaggression principle.

    Of course, norally, a seller will accept money in the expectation that other people will accept it in return for goods and services that he or she wants.

    So, actually, I think we are basically in agreement - our differences being more a matter of terminology than reality.

    • avatar Martin Brock says:

      Money is the promise of something else. What buyers and sellers exchange is up to them, but if buyers and sellers exchange something else, they're bartering. Exchanging something else for money is the antithesis of bartering definitively.

      A seller accepts money expecting other people to exchange something else for the money. That's just what I mean by "money promises something else".

      Yes, we're in basic agreement.

  7. avatar Paul Marks says:

    One of the differences (historically - not so much now) was that English (Common) Law and French law started (in commercial matters) from the "act of trade", whereas German law (in commercial matters) started from the concept of "the merchant".

    In short one view of law dealt with trading as something anyone could do (in the cause of their normal life) whereas the other view of law implied (although it did not formally state) that there was a special caste of people who did a special thing (that buying and selling was not just a normal part of life that anyone might do).

    Special laws for special sorts of people are, generally, to be avoided.

    And this (of course) in my view (indeed in the view of us all here) includes bankers.

    Law in this area should not start from the concept of "the banker" (or "the bank") it should start from the act of lending money (regardless of who does it).

    • avatar Martin Brock says:

      I agree, but I go one step further. Extending credit is not the act of lending money. Extending credit is the act of creating money. Each and every, individual creditor may create money, along with a willing borrower, so the monetary authority is as decentralized as possible. Money emerges from the bottom up, not from the top down, and services like deposit insurance also emerge from the bottom up.

      Such as system does not begin with the most scarce, durable, divisible commodity as a legal tender. It begins with the most trustworthy people.

  8. avatar Paul Marks says:

    Here we disagree Martin.

    Once a money lender goes from lending money (his own - or money entrusted to him by "depositors") to "creating credit" (via book keeping tricks) he may not be a technical criminal (that depends on the nature of the criminal law where he lives and works), but he (or she) is certainly not a good thing.

    "Trustworthy"?

    Someone who lends out more money than they actually have (via cooking the books) is untrustworthy - by definition.

    Of course the SCALE matters - if someone just cheats at the margin (plays the credit bubble game on a small scale) they will do vastly less damage than someone who plays the credit bubble game on a grand scale.

    • avatar Martin Brock says:

      Extending credit is not a bookkeeping trick. I have something that you value, say a side of beef. I give it to you, and you agree to give me something of comparable value later.

      You don't specify what you'll give me in return. You only agree that it'll be agreeable to me and also as valuable, according to the market, as X, where X might be a gram of gold or some other standard of value. If we can agree on nothing else, you agree to return X itself.

      We make a note of this agreement. Is that a problem?

      No one lends out more of anything than he actually has in this scenario. I have a side of beef, and I lend out a side of beef. You don't have the side of beef or the gold. If you did, we wouldn't be making this arrangement.

      I could lend you gold, whereupon you'd buy use the gold to buy the beef from me, but then you still don't have the gold.

      If I worry that you might not be able to obtain the gold, I might specify some other standard of value, like an day of labor that I expect you can perform. I might be more certain that you'll have this labor when I want something in return.

      There is no credit bubble in this scenario unless I continually hand out beef, at ever higher prices, to people who ever return anything of comparable value. I won't do that. Trust me.

    • avatar Floccina says:

      But money could be viewed as preferred stock of the issuer. Preferred stock that pays no interest but is valued as a median of exchange because it is a claim on assets that comes before the common share holders with sufficient margin to make it very unlikely to loose value. The only addition thing you need is something so that it can sell on par with currency from other issuers, gold traditionally served this purpose.

      • avatar Martin Brock says:

        Agreed again. Banknotes extending credit for the purchase of a house are essentially shares of the house. The initial holder of these shares is the (nominally "former") homeowner, but he need not continue to hold the shares. He may bargain with them. Anyone holding a share may collect a dividend, a portion of rent on a portion of the house not owned by its occupant, by depositing the share in the banking system and collecting "interest on the money".

    • avatar Martin says:

      A different martin, but a martin nonetheless.

      The bank doesn't lend out your money, when you deposit money at the bank it is no longer your money, you however have a claim against the bank. And the bank has to offer you money - not your money mind you, just money - when you come into the bank and demand to redeem your claim against the bank.

      Try to see a deposit contract not only as a vehicle through which you can invest your cash balances, but also with a form of liquidity insurance. You'll notice that as your deposit becomes less liquid your return increases. Why? The price of liquidity insurance drops. You basically pay the bank money to be able to terminate your investment at will.

      Now case law will tell you that what you have is in fact not an investment, because you cannot instruct your bank how to invest, but let's just disregard that for the moment as that's not why you're against FRB.

  9. avatar Floccina says:

    I would think that had banks been allowed to evolve that they would have moved away from gold to money backed only by bank assets. Perhaps one bank's currency would have provided the par for some historical reason. I heard that bank used to have about 30% capital. With 30% capital a backing with some commodity seems IMO not to be needed.

    • avatar Martin Brock says:

      Agreed.

      A "free bank" could even evolve to a point at which it holds no capital at all. It only accounts for capital held by others and possibly offers a credit insurance service.

      Capital held by many individuals employing the free bank's services backs the free bank's money. It's not really the free bank's money. It's all of the individuals' money.

      Such an accounting/insurance service is not a "bank" at all in the conventional sense, but we're discussing what free banks could be, not what banks now are.

  10. avatar Floccina says:

    One other thing with %50 of Americans now owning stocks perhaps some derivative of the stock market could provide the par rather than gold.

    • avatar Martin Brock says:

      Practically everyone owns valuable labor, and for the great majority of people, it's the most valuable asset they own by far. So why not some sort of labor standard?

  11. avatar Ryguysanchez says:

    Interesting read, would love to hear more about limited liability and free banking. Would the combination of the two create any moral hazard or overly speculative banking?

  12. avatar Paul Marks says:

    Pretending you have got money you have not got IS a book keeping trick Martin.

    Money lending should be about just that - lending money (lending real savings), not building fairy castles in the air and pretending people can live in them forever.

    You can not have investment without real savings - without people choosing NOT to consume some of their income. And although we say "malinvesment" not "overinvestment" it also true that total borrowing can not be (without creating a boom/bust) greater than real savings.

    I would have thought that someone as supportive of the importance of labor as yourself would understand all of the above.

    Talking of labor.....

    Martin - if you wish to exchange your labor for goods and services, that is fine by me. As long as the exchange is voluntary it is none of my business.

    And if you want to produce "labor tickets" (or othersuch) promising your labor at some future time in return for goods and services - and you can find people who will VOLUNTARILY accept them, well that is also none of my business.

    But there is no call to use the word "standard".

    That word (in monetary policy matters) has a bad history. Indicating (for example) promises of gold when there was not gold (not enough to cover all the promises) and promises of silver when there was not silver (not enough to cover all the promises).

    A monetary system can indeed be based upon deception - but it always turns out badly.

    Ponzi schemes (and so on) are like this.

    Labor ticket?

    Fine - you promise to mow my lawn tomorrow and will give you some apples today (a real offer - I actually have apples and a lawn that needs mowing).

    However, if you have promised to mow someone else's lawn at exactly the same time you have promised to mow mine........

    • avatar RickDiMare says:

      Paul, I agree that Martin's concept is impractical, but his theory also appears to be similar to what I'm trying to do with current U.S. coin (even, for example, if the coin were made of common steel).

      Granted, the value of the labor used to produce the coin I pay someone for mowing my lawn is not equal to the labor used to mow the lawn, but isn't my metallic coinage maintaining a relationship with goods and services that fiat paper money or fiduciary media does not? In other words, isn't a meaningful and stabilizing relationship to the marketplace maintained by the simple fact that the more lawn mowings I want, the more labor represented in the coin I must pay?

      And how about the fact that the U.S. coin I pay for the lawn mowing is publicly owned money, not owned by any central bank or private party?

      (I'll be away for most of the day, so assuming you reply, I won't be able to respond for awhile.)

      • avatar Martin Brock says:

        Suppose we replace "hour of common labor" with "dollar in U.S. coin". Is the concept still impractical?

        You do me a favor worth two dollars in U.S. coin. I accept this price. I promise to return any favor acceptable to you or to return two dollars in U.S. coin. The promise is negotiable, i.e. if I do someone else a two dollar favor, he owes me the same consideration that I owe you, so I may ask him to do you a two dollar favor (or give you two dollars) and thus satisfy his obligation to me and my obligation to you simultaneously. You accept this arrangement.

        What is impractical precisely? You just think that no one will want to do it?

        We already bargain this way every day. That's my point.

        We don't need U.S. dollars (coin or otherwise) to bargain this way. We could use could ounces of gold instead for example. That's the point of free banking.

        We don't need ounces of gold to bargain this way. We could use hours of common labor as a standard, as long as we can agree on what constitutes "common labor". Common law can establish this standard. That's my point.

        I don't understand how circulating U.S. coins are supposed to represent my labor. I can exchange my labor for coins at some rate today. Is that all you mean?

        I don't particularly want U.S. coins or any other U.S. currency. I use this currency because I must collect it to pay taxes and other rents imposed upon me, because I cannot use other currency for this purpose.

        What's a "dollar" anyway? I hardly know what anything is worth in dollars. I'm paid a certain amount of dollars, and I have only these dollars to spend, after paying the rents. I divide up my limited stock of dollars to purchase what I want.

        In other words, I'm only dividing up the value of my labor and exchanging it for other valuable goods anyway. I'm always doing that. I won't start doing it when we rename our money "labor tickets". I'm already doing it. Occasionally, I sell something other than my labor for dollars, but that's a tiny fraction of my income, so an hour of my labor is the most natural standard of value for me.

        If you think that we need the U.S. government to supply our money, you fundamentally misunderstand money in my way of thinking.

        I don't understand "publicly owned money".

        • avatar RickDiMare says:

          Martin, the problems you're experiencing with your "mutualist" views, in my opinion, are why societies long ago invented money (dollars, yen, marks, etc... a kind of man-made psycho-political medium to deal with the problems inherent in bartering), so yes, a "dollar in [current] U.S. coin" is much more practical than your labor tickets, not to mention that the entire legal system recognizes coined dollars in courts, and all federal, state and local governmental entities must accept coined dollars in payment of taxes.

          U.S. coins represent your labor because the labor Congress indirectly employs to mine a metal, and directly employs to mint the coins as "dollars," parallels real-market labor, even though the labor used to create the coin's metal content may not equal the real-market labor being used to create the goods and services we (subjectively) negotiate for, and this cannot be said for fiat paper or electronic money.

          What I think you're really upset about is how the value of your personal labor is being totally abused by the current system, and I fully agree that it is, and this is all because the medium that could maintain a parallel relationship with our labor (current U.S. coin) is itself extremely impractical to use (and maybe this is intended by central bankers ... a kind of underhanded way to completely dominate the system, but still be within the law, because after all, they can say, Constitutional coin IS available if we object to their central bank monetary abuse ... but central bankers really know that our "freedom to choose" the actual hand-to-hand use of coin (which would prevent the dishonesty and double-payment that concerns you) is a false choice.

          I think what we really need is an air tight, U.S. Treasury controlled, Bitcoin-like electronic system, or the electronic equivalent to what used to be called Treasury "coin notes" after the Civil War, a monetary system that deals in real metallic coin at all times, and is redeemable for actual coin at all times (even though few will probably redeem), and one that totally prevents the "double-payment" that Bitcoin tries to prevent.

          Finally, by "publicly owned money," I mean money that issues directly from the "people-owned" Constitutional Congress, not from private hands, central bankers, monarchies, dictators, religious fanatics, Bitcoin-like private technocrats, monopolists, big corporations like Wal-Mart, GE, Microsoft, etc.

          • avatar Martin Brock says:

            You're hung up on a word. I'm discussing the same money that you use every day only without the statesmen threatening to shoot you if you don't pay taxes and other rents in some medium they dictate. If you accept the necessity of state money, you've given up on free banking. That's your choice, of course.

            The Congress employing people to make coins has nothing to do with my labor unless the Congress employs me to make coins. I don't want to work for the Congress.

            I'm not upset.

            If you want to "change the system" by persuading the state's monetary authority to do things differently, you don't understand free banking. Free banking will never be a state policy or a reform of the state's monetary system. It will be an entrepreneurial venture like eBay or Amazon.com. It will be many entrepreneurial ventures. Ultimately, fewer free banks will supply most money, but many free banks necessarily precedes this stage.
            t
            Free banking can't possibly happen any other way. Any "free banking" reform of the state's monetary authority is inevitably Orwellian.

            I'm here because I want free banking. I have no interest in any monetary system controlled by the U.S. Treasury.

            The Congress is not people owned, has never been people owned and can never be people owned. The Congress is a group of armed men enforcing a protection racket, selected in biannual plebiscites based upon but their proficiency at peddling platitudes. It has never been anything else and can never be anything else. For better or worse, that's all it is and all it will ever be.

            I don't want money owned by any state, and I don't want money owned by WalMart, GE or Microsoft either. I want to own my money, and I want you to own your money. Insofar as Walmart is a free association, I want Walmart to own its money.

            Free banking alternatives are coming. I hope you find one that meets your needs.

          • avatar RickDiMare says:

            Martin, if I did not believe that the U.S. Constitution created a unique, historically unprecedented form of "state money," one that is fully owned by the public (i.e., owned by NOBODY in particular), I would agree with your version of free banking.

            I would also agree with your hopes for free banking if I believed a natural person could create and own his/her own money.

            But, based on my experience, I can't agree with either position.

            The only version of free banking for which I can envision success is one where the free banks use current U.S. coin as base money and the owners/officers are not granted limited liability for their fractional reserve gambles.

          • avatar Martin Brock says:

            The United States and its Federal Constitution are nothing special. We had a good, relatively free run for a while, in spite of the ever-expanding power of our most central authority, because the central authority was relatively weak in the beginning. That run is over.

            The U.S. is now the world's largest, most powerful, imperial state, and our economy is declining while others advance. When we start growing again, we grow more slowly than others, despite the fact that we still have greater resources per capita than others. As long as we expect the central authority to solve this problem, the problem will persist.

            You're entitled to your preference, of course, but if the state decrees the standard of value, particularly if it creates the standard of value by fiat but also if it controls a scarce standard by collecting it through taxation and hoarding it (at Ft. Knox for example), then the monetary system is not free. What you want is the antithesis of free banking.

            You can have it your way (and likely will as the U.S. economy declines), but you can't have free banking your way. The "free banking" you advocate is Orwellian newspeak.

            A natural person can create his or her own money, and if no state forbids me, I can prove it. Much of the proof already exists at eBay and similar ventures where individual buyers and sellers police each other using computers and communications technology. I only propose that individual creditors police each other similarly.

            The time for free banking seems ripe, but political change is not the reason. Political change can never be the reason. Technological change empowering individuals is the reason. The net is the reason. We'll have freer banking only when less central authority (genuine people power) becomes so powerful that more central authorities can't impede it.

            Of course, if established organizations already possess an effective monopoly on this technology, through patents and the like enforced by the state, then the time is not ripe. It is behind us again. I refuse to believe that.

          • avatar Martin Brock says:

            Rick,

            You're interested primarily in some kind of U.S. coin standard and unlimited liability for someone sharing risk with you. This emphasis confuses me, as an advocate of free banking, but I recognize your preference, so I intend to change my approach.

            I'll enable Favorati members easily to specify a standard other than common labor. When a member creates an offer, he'll select a standard from a drop-down list. The list initially will include common labor, silver, gold and U.S. dollars, and I'll eventually enable members themselves to define other standards somehow. "U.S. Dollars in Treasury Direct Coin" seems likely to confuse people, but if you want to explain this standard, you can eventually create this option yourself.

            I'll remove the discussion of common labor from the introductory page and instead link this discussion while listing a few optional standards. The separate page discussing common labor as a standard will feature the "Mutualism" symbols that now appear on the introductory page. The introductory page will be less ideological.

            As for liability, you must understand that Favorati holds no capital. When you extend credit, you bear the risk of default exclusively. No one shares the risk with you, and no one shares any reward with you either. The value of any credit you extend is entirely yours.

            The web site receives no percentage of anything. There's a flat fee to join. The fee is two dohns on the terms described, but few members ever do any common labor for me, because most are too far away. I either accept other favors from them or ask them to do charitable work wherever they are. I'll interest churches and charitable organizations in the site this way, and I'll encourage commercial organizations to offer goods on the site as a charitable marketing strategy.

            Risk sharing through a credit insurance scheme is possible, but I haven't implemented one, because this sort of insurance is highly questionable and because members need to understand what they're insuring themselves against first. At this point, the vast majority of people just don't understand free banking principles, because they've been indoctrinated with state banking principles since birth.

            Frankly, you seem indoctrinated with state banking principles yourself. Apparently, you want a nominally "private" system in which a few incredibly rich people bear risks that you wish not to bear. These incredibly rich people play the risk-socializing role that states now play. This "private" system doesn't fundamentally change anything, because the state is always a few incredibly rich people.

          • avatar RickDiMare says:

            Martin, that sounds more practical if I can transact with member only in current U.S. coined dollars, but first, I'm not advocating "unlimited liability for someone sharing risk with" me, just with fractional reserve bankers who create the money that I must use.

            Second, I don't want to use or owe people the "dohns" you require to join your network, nor am I comfortable with what you and your members' definition of "common labor" might be.

            Finally, there's nothing wrong with rich people, so long as they don't adversely affect (or pollute) the money supply I must use, don't unfairly use gov't-granted privileges to pollute the money supply, bear the appropriate private risk of transactions that may affect the money supply, etc.

          • avatar Martin Brock says:

            You haven't suggested unlimited liability for everyone sharing risk with you, but a shareholder in a bank holding your gold deposit is someone sharing risk with you, and you seem to want his liability to be unlimited.

            What you owe to people extending credit to you is entirely up to you and them, but the standard of value is not what you owe. If you owe me two dohns and don't want to mow my law for two hours, you may pay someone else to mow my lawn for two hours, and you may pay him in dollars or gold or legal services or anything else he will accept.

            Your concern about what members could call "common labor" is legitimate, and I've considered it myself, but I don't think it's the problem you believe it to be. A jury can order you to pay more than you deem fair in any dispute.

            They aren't my members. I keep records for them. I am their employee.

            Maybe a rich person need not be one of a few statesmen, but a few statesmen are always rich people. U.S. Congressmen are the wealthiest people on Earth. That they're subject to elections and hold their offices for only two years between elections doesn't change this fact. Being one of the wealthiest people on Earth for two years is nothing to sneeze at.

          • avatar Martin Brock says:

            To clarify, when you owe me "two dohns", you owe me two hours of common labor if that's what I require; however, you don't owe me two hours of your labor. You owe me two hours of anyone's labor as long as the labor meets the "common labor" standard, and "common labor" by definition is something that practically all Favorati members can do.

            More to the point, I'll rarely want common labor from you. From you, I'll want something else with the same price, like ten minutes of your legal services.

            If the standard of value is gold, the logic is the same.

          • avatar RickDiMare says:

            Martin, again, I think you're essentially trying to create a new monetary system (with "dohns" as a new standard of measurement) because of the difficulties your experiencing with trying to make your labor-based bartering system work.

            But, also again, I think you're finding this mental exercise necessary because (1) your labor in the current U.S. system is under siege and is constantly being devalued, and (2) you don't believe or understand that there are 2 kinds of "dollars" in circulation (just like there are 2 kinds of "ounces," fluid ounces and ounces by weight).

            Admittedly, both kinds of "dollars" are state-issued money, but the paper/electonic dollar comes into being through coercion, whereas the other ("dollars in current U.S. coin") comes into being because people like you and I, who are bothered by how the current system disrespects our labor, make a demand to object to central bank money and claim our right to Article 1, Section 8, Treasury-Direct, Constitutionally coined money.

          • avatar Martin Brock says:

            "Barter" is practically the antithesis of "money". Yes, I am trying to create a new system of exchange that is not bartering; however, I am not not trying to do anything, or encourage anyone else to do anything, over which the state claims a monopoly. That's why you won't find the word "money" at my web site outside of the forum. Since states monopolize money, money is a dead letter. Money is a failure. Money will eventually pass away. As libertarians, we must face this fact and reinvent.

            George tells me that economists use "money" differently, and I'm happy to discuss money differently with economists, but you're not an economist. You're a lawyer.

            I don't have any sort of labor-based bartering system. I haven't yet tried to make Favorati work. I have only created a prototype, and Favorati is not a labor-based bartering system anyway. It's a free bank holding no capital. The system operates similarly with gold or silver or any other standard of value.

            Common labor is the standard that I prefer for many reasons, but Favorati is not bartering with any standard. Bartering with a standard is what Paul seems to advocate. Bartering with a standard is not what I advocate.

            Of course, a bank holding no capital is a contradiction in terms in the conventional sense of "banking". I'm aware of this fact. I'm discussing something unconventional here, something that was hardly possible before the net.

            I will never claim any patent rights to anything at Favorati, but I am creating prior art here. I know I'm doing it. If you want to create a similar system at your web site with "Treasury-Direct Coin" as the standard, you may do that. You'll never owe me anything for doing it, and I hope the state will never impose upon you an obligation to anyone else for doing it.

            I appreciate your civility and have profited from our discussion. I owe you a favor. I offer to return the favor as follows. First, I'll modify my web site as discussed above, so you may eventually realize a free banking system with "Treasury-Direct Coin" as the standard there if you wish. Second, you may join Favorati and owe me nothing.

            Of course, if you realize your free banking system anywhere, you invite the attention of the Treasury. Your business with the Treasury is entirely your concern. I want nothing to do with it. I don't endorse your legal distinction between "Treasury-Direct Coin" and other U.S. dollars. I'm not a lawyer and don't want to be a lawyer. I want to avoid lawyers. No offense.

            If the state ever claims that I owe the state (or one of its protectorates) something only because I have "dohns in the bank", I'll say, "I did a friend a favor. That's all. I haven't even received a favor in return yet. How can you say that I owe you something as a consequence?" Since the state (or its protectorate) will sue me for more than ten dollars, a jury presumably will decide, after listening to many state agents telling them what to think. I suppose I trust your Constitutional state to this extent. I'm not sure though.

            Yes, my labor is under seige, but it's not beseiged by inflation. It's beseiged by rent seeking. I deal with inflation by continually competing for pay raises, but I must compete this way regardless of inflation. Hyperinflation could harm me in countless ways, but a little inflation doesn't harm the real value of my labor any more than it harms the real value of any other real property. Inflation only harms the value of the state's money. I don't hold the state's money, so I don't care. In fact, a little inflation of the state's money is probably a good thing. Rothbardians hate me for saying that, but I believe it, so I must say it.

    • avatar Martin Brock says:

      I never say anything about pretending that you have money that you don't have. I never say anything about fairy castles either.

      Saving money is not investment for all of the reasons you note here. I can save money backed by nothing. I can also lend to finance consumption. Lending to finance consumption is not investment (in the sense of organizing productive means to increase their productivity).

      If you want to produce "deposit receipts" for gold lent and redeposited repeatedly, that is none of my business either.

      Voluntary exchange is the only exchange I have mind. I'm not discussing a legal tender here. "Labor tickets" have never been a legal tender as far as I know, but gold and notes promising gold have often been a legal tender.

      I have never suggested any monetary scheme based upon deception. I have never suggested any Ponzi scheme, and I object to these schemes as much as you.

      Yes, if I promise to mow two lawns simultaneously, I've over-promised, but I never suggested such a thing, and I don't suggest labor tickets promising lawn mowing services either. If you accept a promise of lawn mowing tomorrow for an apple today, we're still bartering in my way of thinking.

      I'm trying to explain a standard of value, but the idea is not sinking it.

  13. avatar Paul Marks says:

    Rick.

    If you make a coins from steel (and do not claim they are made from something else - or can be turned in for something else, like the copper coins the Congress issued from the 1790s which they insisted they would honor in gold and silver coin if people asked for them) and can find people who will VOLUNTARILY accept them. Then I have no issue with you.

    So there is nothing for you to respond to. I fully accept your libertarian right to mint steel coins and look for people who will voluntarily accept them as payment.

    There is no force or fraud involved in this.

  14. avatar Paul Marks says:

    With reference to "backed" - oh for Pete's sake will people please stop using concepts like "backed" and "standard".

    The money is the money - period. If people want to use gold as money, fine, if they voluntarily choose to use bits of colored paper as money, also fine.

    But keep away from deceptions - which is what "backed" and "standard" really are (in the context of monetary policy).

    As for who the money belongs to.....

    Legal opinions differ.

    Historically (not currently) in Roman law money "deposited" belonged to the depositor. But in both English and Scots (in spite of the Roman law influence in Scotland) law the money belonged to the bank - not to the depositors (the depositors had a claim on the bank as creditors - but that is not quite the same thing).

    From an economic point of view it does not matter - as long as the money actually exists, as long as real savings are being lent out.

    If only real savings are being lent out there will be no boom/bust, if there is a massive "credit money" expansion (a shell game based on book keeping manipulations) going on there will be a boom/bust.

    One can not have investment without sacrifice - to have something (say a new steel mill) some people (most likely a lot of people) are going to have to give something up (for example their trip to the mountains in the summer).

    The complex efforts to get something for nothing always blow back - no matter how ultra clever the people who invent them are.

    Period.

    • avatar Martin Brock says:

      Promissory notes are not simply bits of colored paper, and they're rarely any sort of payer these days. They're bits in a computer. If you want to deal exclusively in gold bullion, that's fine with me, but you won't find many people to deal with. I don't have any gold on me at the moment.

      "Standard" and "deception" are not synonyms.

  15. avatar MichaelM says:

    "Until the mid 1800s, limited liability was a privilege granted only to select companies, often in return for bribes or other favors."

    I just want to clear up the legal side of this: The reason this is true (at least in the Anglosphere) is because limited liability partnerships simply didn't exist in this period. In order to get limited liability you needed to incorporate and, in both the US and the UK, incorporation was the exclusive privilege of the legislature (a result of the 1720 Bubble Act). This changed because, starting in the early 19th century, legislatures started passing general incorporation laws which allowed prospective companies to incorporate by simply registering with the statutorily correct administrative office after meeting some basic minimum requirements. Originally innovated in New England, IIRC, in the 1810's and 1820's, this practice is widespread today and, thus, so is limited liability.

    It's also worth pointing out that a FORM of limited liability did exist prior to this, but it was more or less extra-legal: A partner ('stockholder') in an unincorporated joint stock company (a form of business association invented after the Bubble Act to ape the corporate form for businessmen not lucky enough to secure an incorporating charter from Parliament) could simply leave themselves undeclared to the courts as a partner. This way, when creditors started going around looking to collect from the shareholders of a firm with unlimited liability, they wouldn't know you were a partner and so couldn't come to you looking to seize your assets. The downside here was that you couldn't bring suit against the company as a shareholder without declaring yourself in court and giving up your limited liability. This represented a trade-off that, IMO, is far superior to the modern form of corporate limited liability, which is only indirectly paid for in the form of corporate income taxes.

    • avatar RickDiMare says:

      Michael, this is an important topic. Banks would not have anywhere near the power over the money supply they have today without the corporate privilege and legal "personhood."

      One of the most important and misunderstood cases in post Civil War legal history (that causes us to blindly accept corporate entities as having Constitutional rights similar to natural persons) is Santa Clara County v. Southern Pacific Railroad (1886): http://en.wikipedia.org/wiki/Santa_Clara_County_v._Southern_Pacific

      It is still difficult to imagine how a few powerful railroad men influenced the entire U.S. legal system to accept the idea that the (very) limited tax rights granted to the railroad company in this case meant that the Equal Protection Clause of the 14th Amendment granted rights to corporations that were on par with those intended for former slaves and women.

  16. avatar Paul Marks says:

    It does not matter whether money lenders are incorporated or not - what matters is whether they lend out more money they actually have (more than their own savings and the savings that are entrusted to them).

    This is not even really a "factional reserve banking" issue - as what is it about is NOT lending out most (a high fraction) of real savings, but lending out MORE than real savings.

    9 tenths is a fraction, I guess 1000 tenths is a "fraction" also - but it is a weird one. And, yes, you can only get there by book keeping tricks (legal ones, I hasten to add).

    By the way Martin - stop talking about "promises", promises of what SPECIFICALLY (and no vague stuff about "labor" or "value"). Show me the stuff (IN THE VAULT) that you are promising me - or stop talking.

    Turning to Rick....

    The whole incorporation thing is (at best) a side show, but.....

    You want to reduce the importance of corporations in the economy?

    O.K. first get rid of high income tax rates (35% is high) and the death tax (which hits family owned business in the United States) - then owner manager enterprises will become more important.

    As for (yet more) hitting of corporations......

    American companies are already some of the most highly taxed in the world (and NO most companes are not like Obama supporing G.E. - they actually have to PAY these taxes).

    American companies are also some of the most regulated in the world - with what (in other countries) would be seen as clerical errors or even just normal practice, being held (in the United States) to be "crimes" that warrent fines and imprisonment.

    Neither of these things used to be true (American companies did not use to be taxed and regulated to bits), but they are true now.

    Things are getting worse all the time - for example with Dodd/Frank.

    "Libertarians" should be about reducing (or getting rid of) taxes and rolling back regulations.

    Not helping the left with yet more attacks upon companies.

    As for the basic idea of limited liabilty....

    Yet again...

    This is ancient - it was developed (for example) by Church law in the Middle Ages.

    There is nothing unlibertarian about limited liability IF people know they are dealing with limited liability enterprise in advance.

    By the way.....

    The corrupt people in big corporations (like Jamie Diamond over at J.P. Morgan Chase) could (with ease) get rid of all their shares and still be in control.

    Then (when you came to them with liabilities) they could say "who me? I am just an EMPLOYEE - go and hunt down all those old widows and so on".

    For that is the basic fact - most shares are held by pension funds (and so on).

    Demand "unlimited libility" and you do not touch a hair on the heads of people like Jamie Diamond - you really hit all the old people (and so on) who own the shares.

    Not only do they lose their investment (fair enough - they have to lose their investment if the company goes bankrupt) - but, with "unlimited liability", they would also lose their homes (and so on) as well. Like "Lloyds Names" (Lloyds insurance syndicates that did not practice limited liability).

    Meanwhile Jamie Diamond (and so on) would still drive off in his big car to his big house.

    In short "ending limited liability" would NOT hit the top managers - they would simply play the "I am just an employee" card.

    "Persons in law".

    Churches, clubs, societies and (YES) trading companies have always been "persons in law".

    Otherwise their would be no way of sueing them - one would have to go after every individual member (most of whom have nothing to do with how the thing is run).

    You sue the common trading pot - the assets of the corporate body (whatever it may be) not each indidviual person.

    If you do not like interacting with a corporate body then do not shop at Walmart (go to the local Mom and Pop store - they still exist) and do not go to church either (because churches are corporate bodies - just as much as Walmart is).

    This JACOBIN idea that there should be just "atomised individuals" and the state, is nothing to do with libertarianism.

    But, I repeat, there are ways to reduce the importance of corporations in the economy - I have already stated two of them (get rid of the graduated "Progressive" income tax and get rid of the DEATH TAX then family owned buiness enterprises will gain more relative importance).

    A third way would be to get rid of the Federal Reserve system (indeed all Central Banks).

    For YES they do have an inbuilt bias towards corporations.

    Should anyone doubt this......

    Go to the Fed and ask them "I would like some money - on the same sweetheart terms you grant money to J.P. Morgan Chase, Bank of America, Goldman Sachs......"

    They will not give you the money (on the same terms they give it to these organizations) - they will just call security.

    Get rid of central banking.

    If someone wants a loan he (or she) should convince savers (either directly or via the people the savings trust with their money) to loan it to them.

    On interest rates to be agreed between borrowers and lenders (lenders being savers - or people the savers have entrusted with their money).

    End.

    • avatar Martin Brock says:

      By the way Martin - stop talking about "promises", promises of what SPECIFICALLY (and no vague stuff about "labor" or "value"). Show me the stuff (IN THE VAULT) that you are promising me - or stop talking.

      If you want to live without credit, that's up to you, but I won't stop talking. You may stop talking to me, of course.

      If you lend me something, what you lend me obviously is not in a bank vault, and I typically do not return what you lend. I typically exchange what you lend for something else, like a house, and later return something else to you. If you lend gold and require gold in return, I don't return the same gold you lent. I return other gold. Before I return it, you have only a promise of gold from me, and I don't have the promised gold.

      That's the nature of credit fundamentally. If you don't want to extend credit, no one should force you, but I don't understand your interest in free banking.

  17. avatar Paul Marks says:

    At a time when American companies (and, therefore, the prospects for investment and jobs) are under terrible attack (for example by the regulations that the EPA and the NLRB are pump out - in DIRECT VIOLATION of the decared will of Congress) it is unfortuntate (to say the least) that some people are not trying to defend these companies - but are launching attacks on the very concept of their existance.

    If you wish to do so - then only deal with owner managed enterprises. But you will pay higher prices and have a reduced choice of goods and services.

    But that is your choice - if you wish to pay high prices and have a reduced choice of goods and services, that is fine.

    But do not aid the left in their jihad against American (indeed all) business enterprises.

    And NO, it is not really about "corporations".

    Because many of the regulations also apply to owner manager enterprises.

    Even if every company (every corporation) was utterly destroyed - the regime would still go after all the owner manager enterprises.

    For such de facto "crimes" as having employees.

    And it would not matter if they were nothing to do with money lending (banking).

  18. avatar RickDiMare says:

    "You want to reduce the importance of corporations in the economy?"

    Yes, Paul, I do. Under the Civil War Amendments (and I include the 16th Amd. in that definition), and generally under the entire Constitution, corporations are second-class "persons," not a class of persons that should be allowed to obscure and dominate a "natural person's" property right in his/her labor (which, because of our legal system being created under slavery, lies at the heart of what the U.S. should stand for).

    I'm amazed that so many libertarians think that corporations should pay little or no tax (and believe me, some are getting very good at avoiding taxes anyway). Where does that leave the full brunt of taxation to fall?

    While I agree that we can't go overboard with an anti-corporation viewpoint (i.e., there needs to be corporate "personhood" for the corp. to sue and be sued in the ordinary course of its business), I think it's also true that the benefits corps. receive from gov't tend to be grossly underestimated. A big one is limited liability, but an even bigger one is perpetual life, which allows the corp. to continually accumulate knowledge and expertise (i.e., hone the fine print in its contracts), whereas natural persons must always start from scratch, i.e., the ability of a natural person to accumulate knowledge and expertise is always limited by his/her natural life span.

    • avatar RickDiMare says:

      Addendum:

      Paul this is why I'm constantly mentioning the importance of Justice Marshall's reasoning in McCulloch v. Maryland (1819), which is as much a part of the Constitution as any clause or amendment, and which stands firmly for the idea that corporations, especially banking corporations, have no right to block or obscure the Constitutional intent represented by clauses other than those that authorize their charters and implied powers.

      It cannot be otherwise. Think about, otherwise the Federal Reserve, for example, could claim it has successfully usurped Congress' monetary powers and/or has successfully nullified the Direct Tax Clauses and various other Constitutional clauses that support a property right in a natural person's human labor.

      Without McCulloch, for example, a teenager (the Fed) could ask a parent (Congress) for the car keys to use the car, but when the parent asks for the keys back, the teenager simply says "no."

    • avatar MichaelM says:

      Corporations are not 'persons' but, instead, legal personalities. They're a substitute personality for the legal personalities of all the shareholders. You can do away with corporate person-hood (that is, considering them like natural persons) just as long as you retain this separate legal personality for the corporation itself. Indeed, getting rid of the legal personality separate from the shareholders would lead to the entity in question ceasing to be a corporation, since said separate legal personality is the defining essence of a corporation. It's what makes a corporation different from an unincorporated joint stock company.

      Your instinct to be against corporate banking is a decent one, to be sure, but you'll find very little traction here, I think. Being against private benefit corporations is an even more radical position than free banking, for many of the same reasons free banking used to be even more radical: Most people don't understand the subject. Most people don't understand that the existence of corporations are a government intervention into the economy, just like the existence of a central bank. However, just like anti-banking monopoly movements of the past, there is a historical root for anti-corporate business. The Barnburner-Hunker agitation in antebellum New York State is the most famous public political debate on the subject.

      The ideal end of a free banking movement should be a revival of free 'private banking' as existed prior to the rise of corporate banking in the 19th century. However, anything so radical requires baby steps so, while it's worthwhile to keep in mind the end goal, it's important to stay allied with the free corporate banking school that guys like Selgin represent.

      • avatar RickDiMare says:

        Michael, I must agree with you that a cautious, balanced approach to change is necessary here, but given the extraordinary change contemplated, and given the enormous gap in knowledge between lawyers privy to the inner workings of government-supported corporate banking vs. the legal knowledge of the average working natural person, would you have an opinion as to whether the Superior Knowledge Doctrine applies: http://en.wikipedia.org/wiki/Superior_knowledge_doctrine

        In other words, do you think government has any affirmative responsibility to assist natural persons who want to disengage from the effects of overwhelming private corporate dominance of the monetary system?

  19. avatar RickDiMare says:

    "It does not matter whether money lenders are incorporated or not - what matters is whether they lend out more money they actually have (more than their own savings and the savings that are entrusted to them)."

    Paul, I don't see how you can say this. I'm thinking of two poker players sitting at a table.

    The betting capacity of one player is limited by the money s/he brought to the table, and the betting capacity of the other is unlimited, with all his/her personal assets at stake, including assets s/he may inherit after the game is over.

    Assuming both players are fairly conscious, are you saying that their betting strategies will be the same?

  20. avatar Paul Marks says:

    Whether I am an economist or not (and if we are talking about jobs, I am neither an economist or a lawyer - I am a long time security guard and, now, gate man). However, I do know the simple stuff.

    For example that you can not (without bad consequences) lend out more than there is in real savings - either your own savings or savings that other people have entrusted to you.

    If you are going to inherited money - you can lend that out to, AFTER you have inherited it. If you are going to inherit from your rich uncle you can not lend out the money if he still has it (and is using to fund his lifestyle - or whatever). The Devil may be able to be in different places at the same time, but money can not play that trick - unless book keeping tricks are being used (and there are consequences for playing those games).

    Nothing to do with a poker game - or game theory in general. By the way the so called "Prisoner's Dilemma" is a lot of nonsense, if you have done something wrong you should tell the truth, confess (and take the proportionate punishment, not try and get a reduced punishment). If what you have done is not wrong, but just violates some statist regualtion, then you should never inform on someone else - even if they lock you in the hole till you die. I also oppose plea bargaining, on principle, as it puts pressure on innocent people to confess to things they did not do. Nor is it the case that a legal system "must" have plea bargaining - for example German law did not have it till quite recently

    Trying to lend out more money than there actually is real savings is the old "something for nothing" game that always leads to a boom/bust. And during the (inevitable) bust - the leftists will crawl out of their swamps (Harvard, Yale, Princeton.....) and say the bust discredits "capitalism" and that "the people" should..........

    Nor do I support any competition of "standards" of money, I hate the very sound of the word "standard" in the context of monetary policy. Either the gold is the money or it is not - it is not the "standard" for the money, ditto silver or whatever has evolved (as a result of human choices) as money. Basic "Principles of Polticial Economy" Carl Menger stuff - long before we get to Ludwig Von Mises "Theory of Money and Credit" (1912).

    By the way if people want to use either steel coins or labor tickets - that is up to them (I will not be hitting anyone over the head with a club over it).

    But no nonsense.

    No pretending you can lend out more money than you actually have - without bad consequenes comming from such a shellgame/Ponzi scheme.

    And certainly no pretending that a cheque is "money" (never heard of a "bouncing cheque"?) or that a debit card "creates money". A cheque (or a debit care or.....) TRANSFERS money from one person or organization or another. It does NOT "create money" - unless book keeping tricks are involved (in order to create an inverted pyramid of debt paper "money" that is "based on" the monetary base, till this "broad money" credit bubble inevitablly goes wrong).

    By the way it would make no difference if the Federal Reserve was government owned (as the Bank of Canada is) or did not exist at all - not if the same things were done by Congress as are presently done by the Federal Reserve.

    You can not have real prosperity without effort (their are no shortcuts - not for a whole country over time). Monetary games are just that - games, you can not build lasting prosperity on money manipulations (wither the Fed does it - or Congress does it).

    One might as well claim that the debasement of the coinage in the late Roman Empire produced lasting posperity - it is just WRONG (FALSE).

    You do not create more real wealth by minting more coins (whether iron ones - or anything else). And nor do labor tickets represent any "short cut".

    Thrift, hard work, self denial - no other way. Do not like that? Well if you do not like it you can lump it (as we say on this cold, wet and dark island). Reality is not optional.

    Corporations.

    I oppose the existance of the Federal Reserve and of all Central Banks - private or government owned.

    But I do not oppose them because they are corportions - but because of what they do. It would be no better if Congress played these "lets expand the money supply" games.

    As for corporations generally.....

    American companies are under terrible attack - with both insane taxes and endless regulations.

    People should be trying to DEFEND American companies, not attack the very concept of their existance (the common trading pot - the corporate idenity in law).

    For self described libertarians to actually join in the far left attack on corporations is very upsetting (to say the least).

    I make no apology for repeating myself.

    Libertarianism is not Jacobinism - it is not about reducing society to "atomized individuals" and the state.

    This spirit, of unlimited money created by the state (supposedly represnting "promises" of work and future wealth - as well as lands stolen from the victims of the Revolution) and attacks on all corporate bodies that stood (as a defence) between the individual and the state (from trading compaines to the Church) is the spirit of the FRENCH Revolution (of 1789).

    It is not the spirit of the American Consitution of about the same time (1787 for the pedants), just as the Bill of Rights (of 1791) is not really the same as the "Rights of Man" (although the "Rights of Man" looks of a similar spirit till one examines it closely - and is, perhaps, the least objectiable document the French Revolution ever produced).

    Behind Robspierre (and co) with their belief in a collective people (setting prices by fiat - and destroying any independent corporate bodies) is the spirit of Rousseau. And behind the spirit of Rousseau is the anti private property collectivist doctrine of the Abbe de Mably and so on.

    Nothing could be further from the spirit of John Adams and so on.

    Or Washington or Madison - or the other people who sat and drafted the real Constitution of the United States.

    The real one - not a fictional (Jacobin) one that is against private "employers" and big estates.

    Bottom line?

    Libertarian Left - drop the word (the mask) "libertarian" and stand openly as what you are.

    The enemies (not the friends) of the tradition that produced such things as the British and then American Bill of Rights.

    • avatar RickDiMare says:

      With a strictly-enforced and monitored unlimited-liability banking corporation, bank owners are essentially putting their personal assets up as collateral when they lend out more "than there is in real savings," so the savings are really there (maybe not the depositors' savings, but the bank owners' savings are), and therefore that form of lending is still a legitimate form of fractional reserve banking in my mind.

      "By the way it would make no difference if the Federal Reserve was government owned (as the Bank of Canada is) or did not exist at all - not if the same things were done by Congress as are presently done by the Federal Reserve."
      I believe it would make a difference. After the Civil War was over, there was great pressure to get off the Treasury-Direct fiat currency, and I believe it's because Congress is much more affected by the public than are private banking corporations like the Federal Reserve, Inc. ... But after WWII, until recently, there has been no effective public movement to get off the fiat currency, I think mainly because of Fed "independence," unaccountability and secrecy.

      Finally, I'm not against all corporations, but where private corporations and financial institutions adversely affect the money supply to the extent that our Lockean-based property right in labor is totally obscured, then I have a problem with corporate privileges being extended by gov't, particularly the unnatural privileges of limited liability and perpetual life, privileges that really allow illicit monetary powers to entrench themselves.

  21. avatar Paul Marks says:

    By the way it is no accident that Edmund Burke's "Reflections..." (which people who have not read it think is all about defending the Queen of France) is, more pages than any other topic, an attack upon fiat (government whim - fiat, arbitrary order) money.

  22. avatar MichaelM says:

    Paul, the corporate form is not the only form of association recognized in the common law. Getting rid of corporations does not mean getting rid of partnerships and other associations. Getting rid of corporations would be as simple as converting the existing companies into private partnerships (similar to the old form of unincorporated joint stock companies) and repealing existing general incorporation laws.

    You seem to be either creating a strawman or drawing a false dilemma.

  23. avatar Paul Marks says:

    At a time when American companies (and, thus, the economy) are desperatly in need of defence against endless taxes and regulations, we have people here talking of "getting rid of corporations".

    If it was not so tragic the "libertarian" left would actually be amusing.

  24. avatar MichaelM says:

    You seem to be using the same kind of argument that is used to defend rights-violating security measures by people who say, "In a time when terrorists are attacking our own airliners, we desperately need to defend the home territory, not talking about cutting back on security measures!"

    It's a 'shut up and cooperate' measure, not a valid argument against the position.

    I'm by no means a leftist.

  25. avatar Paul Marks says:

    I have no idea whether you are a leftist or not MichealM - but you are certainly wrong.

    I am not asking you to "shut up and cooperate" - actually the aggressor is YOU. It is you who has implied you want to "get rid of corporations" (if it was just a matter of you personally not doing business with companies - then I would not care).

    If you do not want to do business with a limited liability entity (a church, a club, the Ford Motor company.....) then DO NOT DO BUSINESS WITH THEM.

    Do not demand that they be banned (why should your hatred of companies mean that I am not allowed to buy products from them?). Talk of "getting rid of corporations" is so weird it is hard to know where to start.

    First would people still be able to buy goods and services produced by companies in other countries? If so are you have managed to is increase imports.

    "But there could still be partnerships and ....".

    And there can be partnerships and other such RIGHT NOW - if you think they can compete against Honda and BMW then go ahead, set one up.

    Also how do pensions work in this anti corporate world?

    Real pensions (as opposed to government Ponzi schemes) operate on the basis of a pension fund having shares in a large number of leading companies. Of course shares can go down as well as up (and dividends do not always get paid). But at least people have a chance.

    If you ban companies you also ban shares.

    So everyone is forced to rely (for their pension) on the government Ponzi scheme (which would become a monopoly).

    This does not sound very libertarian to me.

    Seriously there is a problem here - and a very bad one.

    As I have said American companines (not political pets like General Electric - but the average company) are under terrible attack from endless taxes and regulations. What do free enterprise people do to help?

    "Lets get rid of corporations" is the reply I am getting from you MichealM.

    It may be a NON leftist reply (if you say so), but it is also a reply which is false. Destroying companies is not helping them.

    I repeat, if you do not like companies then do not do business with them (become a self sufficient mountain man - or whatever). But it is not helpful to people who would actually like to save what is left of this civilization.

    I repeat, there is nothing unlibertarian about a limited liability enterprise if people know (in advance) that this is what they are dealing with.

    However, I do believe that both the Death Tax and Capital Gains Tax should be abolished (and the top rate of income tax radically reduced) so that owner manager enterprises are not a tax disadvantage compared to corporations.

    There at least we can agree.

  26. avatar MichaelM says:

    "actually the aggressor is YOU."

    It is STATE actions that inserted the corporate form into the economy. Without general incorporation laws, companies cannot form without a charter from a sovereign legislature. Every form of common law association can exist separate from the law -- I can form a partnership without reference to the state, I can even put together an unincorporated joint stock company without reference to a legislature, but in order to incorporate I need a state which can sit there and insert a new legal personality into the system for me.

    By 'getting rid of corporations' I don't mean taking any property from anyone. I don't intend to deprive anybody of a single share. I intend to merely remove legal privileges that are unjustly granted on a widespread but still inequitable basis. They can keep their limited liability -- as long as that limited liability operates in a common law framework. They can have their joint stock form of association -- as long as that joint stock form of association operates in a common law framework. They can have EVERY SINGLE THING about modern corporations they like, except the separate legal identity that is really the defining mark that separates a corporation from similar forms of association, such as un-incorporated joint stock companies.

    I'm interested in recovering and preserving a purer form of the common law than exists today when the corporate economy is many times larger than the private economy. If that makes me a leftist, then fine, I'm a leftist. I don't really care about labels in the long run. But if you want to be so caught up in them, I'm sorry, but I'm actually the one being a liberal here. I'm the one standing up for individual liberty as you, the conservative, stridently defend the prevailing order because you're afraid of upsetting the status quo.

  27. avatar MichaelM says:

    And I should say that, by 'inserted the corporate form into the economy', I mean states have FORCED everybody to recognize, at law, these artificial beings which are, for some reason, accorded the rights and privileges that our ancestors fought for centuries to guarantee to natural human beings. If you would so casually throw away the fruits of that struggle, you are allowing to be re-birthed into the world a legal mechanism almost exactly like that which eventually led to the creation of titles of nobility. Is the risk that such a dangerous power will remain as relatively open as it is today worth taking?

    People can become bankers, can cooperate with others to engage in the business of banking, and can do anything else related to banking with or without a state there to guarantee their actions (they certainly have done so in the past -- why do you think gold was so valuable for so long? Where do you think financial instruments like Bills of Exchange come from?). However, the one thing private individuals cannot do amongst themselves without any legislative fiat is create a bank. You can built a building and call it a bank, but it is really just a structure within which the business of banking is conducted. A bank, a real bank, is a corporate organization which no one ought to be forced to recognize.

  28. avatar MichaelM says:

    I can only conclude you really don't know much about the law or history surrounding corporations. Why do shares disappear with corporations? After all, un-incorporated joint stock companies are the firms which CREATED the industrial revolution in the UK. The Bubble Act of 1720 banned any corporation forming without a charter from Parliament (more or less a formality -- common law juries had already refused to recognize corporations not formed under the authority of the Sovereign in the 17th century). And Parliament used its exclusive power of incorporation VERY jealously. The vast majority of early industrial firms were PARTNERSHIPS, arranged in a joint-stock format to explicitly emulate the joint-stock operation of corporations. There were important differences (such as them all being unlimited liability), but they were capable of innovating around these difficulties. The courts refused to recognize limited liability contracts, but creditors could hardly go after shareholders they didn't know about -- companies simply refused to list shareholders who wished to retain a kind of de facto limited liability. Limited partners, as they would be at law, became 'anonymous' partners.

    I've actually already SAID all of this, all in my very first post in this particular thread. If you hadn't come in here with your blood already up frothing at the mouth about Jacobinism you would have noticed that. If you can't actually address the arguments I've put forward, and can only take an instinctive, reactionary, conservative position on the issue, I'm done.

  29. avatar Paul Marks says:

    Well first I must apologize if my fever (which I am now told is chicken pox - although "quite a serious condition for a man of your age" OUCH) has made me bad tempered.

    However, the problem with shares in a unlimited liability enterprise is that the person who owns some shares is responsible for all losses the company may make (even he or she had no part in making the judgements that led to those losses).

    That is not suitable for a mass market in pensions - although it may well be suitable for a partnership enterprise (i.e. for an enterprise with only a few shareowners - and these involved intimately in magagment judgements). So what you say (that there were lots of partnerships) is true - but tottally beside the point.

    Also you have not replied to my question.

    Would Americans (or British people) be allowed to buy goods and services from overseas companies?

    If not - this is aggression.

    If they are - then you have only managed to destroy local companies (and benefit those overseas).

    By the way a special "Act of Parliament" way of incorporation is a very BAD idea.

    It is a bad idea because it gives people a false sense of security in dealing with the company concerned.

    As fo the law and history......

    Actually the relevant law is much older than you think.

    It was actually developed by Church law in the Middle Ages. Certainly this went out of fashion in Britain - but cases like the collapse of Sir Walter Scott's publisher (in which he had shares - but no real say in the management) led to fashion turning again.

    As for not "addressing your arguments"....

    I have read your post several times - and I can find no relevant arguments.

    Nothing about how banning corporations would make the economy stronger (all you have written is about British and American legal history - not about how to improve the economy and get people back to work).

    If you have arguments I would be happy to read them.

    However, I repeat, you have yet to present any.

  30. avatar Paul Marks says:

    By the way your claim that people are "FORCED" to do business with corporations is simply not true. They may have to pay much high prices (for example for buying insurance from unlimited liability Lloyds "Names") and have reduced choice - but if you do not want to do business with corporations you do not have to.

    As for the bit about "how our forefathers faught for centuries to limit these things only to natural persons".

    And you attack me for calling you a "Jacobin".

    This is exactly the Jacobin position. Atomized individuals and the state (a very powerful state - because all corporate institutions are done away with).

    For if only "natural persons" are included you lose a lot more than the Ford Motor Company.

    You loose (for example) churches also, and Oxford and Cambridge colleges, and ...... even trusts and foundations are under threat if we really want to restrict these things to "natural persons".

    If you are NOT a Jacobin why are you going on about "natural persons"? To do so (if you are NOT) just makes no sense.

    And, of course, Honda and BMW (and so on) are not "natural persons" either. So I ask yet again - are you going to de facto forbid people doing business with them?

    Finally you have not replied to my idea of getting rid of Capital Gains Tax and the Death Tax (and any rate of individual income tax higher than the corporate income tax).

    Such action would get rid of the tax advantage that corporations have over partnerships and individually owned enterprises.

    I really thought you would SUPPORT me on this.

    But you are silent - and I do not understand why.

    Are you in favour of getting rid of the Capital Gains Tax and the Death Tax (and any rate of income tax higher than the corporations tax)?

    Or not?

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