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The Other Bagehot

by George Selgin February 9th, 2012 2:46 pm

Free bankers like to claim Walter Bagehot, the British essayist and former (and most famous) editor-in-chief of The Economist, as one of their own. And they well ought to, for there can be no disputing the fact that Lombard Street, Bagehot's celebrated "description of the [London] money market," treats the concentration of cash reserves in the Bank of England as the Achilles heel of the British financial system, while in turn regarding that concentration as the unintended and "unnatural" consequence of the Old Lady's accumulation of monopoly privileges:

I shall have failed in my purpose if I have not proved that the system of entrusting all our reserves to a single board, like that of the Bank directors, is very anomolous; that it is very dangerous; that its bad consequences though much felt, have not been fully seen; that they have been obscured by traditional arguments and hidden in the dust of ancient controversies.

But it will be said--What would be better? What other system could there be? We are so accustomed to a system of banking, dependent for its cardinal function on a single bank, that we can hardly conceive of any other. But the natural system--that which would have sprung up if Government had let banking alone--is that of many banks of equal or not altogether unequal size. In all other trades competition brings traders to a rough approximate equality... There is no tendency to a monarchy in the cotton world; nor, where banking has been left free, is there any tendency to a monarchy in banking either...no single bank permanently obtains an unquestioned predominance. None of them gets so much before the others that the others voluntarily place their reserves in its keeping (pp. 66-7, my emphasis).

To be sure, Bagehot did not suggest doing away with the Bank of England, or depriving it of its special privileges, for the state of public opinion was such, he believed, that doing so would only invite "useless ridicule." Instead, he offered his now-celebrated plea for last-resort lending: instead of merely looking after its bottom line, he argued, the Bank of England had to face up to its special obligation to safeguard the British financial system during periods of financial distress. It could best do this by lending freely, at high rates, on good securities. Bagehot's famous argument for last resort lending, it cannot be said often enough, was a second-best way to deal with the problem of financial crises. The first-best way was free banking. That apologists for central banking are often ignorant of this aspect of Bagehot's thought--that so many regard Bagehot's prescription for last-resort lending as an argument, and perhaps the strongest argument, for having central banks--only makes it all the more desirable to be able to insist that Bagehot was, in fact, on our side of the free-vs.-central banking debate.

But tempting as it is to claim that Bagehot was a free banker, the truth is more complicated than that. For although in 1873 Bagehot regarded the opinion that "banking is a trade, and only a trade" to be a "sound economical doctrine" which the British government forgot "when by privileges and monopolies, it made a single bank predominant over all others, and established the one-reserve system," some years before he'd championed the very opposite view. The occasion for this was Bagehot's 1848 review of three works--James Wilson's Capital, Currency, and Banking, Robert Torrens' Principles and Practical Operation of Sir R. Peel's Bill, and Thomas Tooke's History of Prices--responding to the passage of the Bank Charter Act of 1844, better known today Peel's Act. That Act had drawn a curtain across the stage upon which British monetary policy debates had played out over the course of the previous quarter century, by endorsing the views of the British Currency School, which favored a rule-bound currency monopoly, as against those of both the Banking and the Free Banking schools, with their distinct arguments to the effect that paper currency could best be left to regulate itself. Tooke and John Fullarton were the leading figures of the Banking School, while Torrens and Wilson (the founding editor of The Economist) tended to favor Free Banking.

As his review makes abundantly clear, Bagehot's sympathies at this time lay entirely with the Currency School and Peel's Act--a measure that was, according to him, "clearly an approach to the principle of a Government monopoly of paper money"--and against the view that "banking is a trade, and only a trade," best regulated by competition. "A sentiment of dislike to the interference of Government," he wrote, though "useful and healthy when confined to its legitimate function," is also "very susceptible to hurtful exaggeration." Those opposed to government regulation of currency were, in Bagehot's opinion, guilty of just such hurtful exaggeration: they failed to appreciate the necessity of "confining to Government both the coining of the precious metals, and, as far as possible, the utterance of money destitute of intrinsic value" instead of leaving them subject to "the disturbing agency of individual selfishness."

I pass over quickly Bagehot's arguments favoring a government monopoly of coining, for they are all-too-typical of the simple-minded balderdash that takes the place of sound argument when reason becomes the slave of preconceived opinion. A specimen will suffice: allowing that "the chief utility of competition is its quality of reducing the cost of production to the minimum which Nature admits of," thereby "supplying human wants at the least possible sacrifice of labour and capital," Bagehot goes on to observe that "improvements in the process of coining brought about by the competition of individual coiners would have a different and less beneficial effect. What is wanted in money is fixity of value." Bagehot imagines, in other words, that with respect to coins "cheaper" could only mean "lighter" (or more debased)--as if a private mint-master might out-compete rivals merely by seeing to it that his are the most substandard coins of all! In light of such reasoning we need not hesitate to concur with Bagehot's opinion "that all the grounds for entrusting the Government with a monopoly of coining money hold with increased force for giving them a monopoly of the issue of paper money." That they could not possibly hold with reduced force settles the matter.

Concerning paper money Bagehot is at least right in rejecting the Banking School's fallacious "Law of Reflux," according to which banks are prevented from over-issuing currency so long as they stick to making (short-term) loans, because then unwanted notes will be speedily returned to banks as loan repayments--as if banks' were "constrained" by such repayments rather than encouraged by them to lend some more. (The Free Banking School argument, in contrast, was that under competition a bank's excessive issues would be returned to it, not by borrowers repaying their loans, but by rival banks seeking settlement in gold, which does constrain lending.) But he spouts more nonsense in suggesting that the occasional failure of English "country" banks "reduces to a nullity the legal obligation to give coin in exchange for notes," which obligation is admitted by proponents of free trade in banking to be essential for the safe and beneficial employment of banknotes. Surely the fact that issuing banks occasionally failed was proof, not of the "nullity" of the legal obligation in question, but of its reality: it is, on the contrary, precisely when a suspending bank is suffered to remain a going concern, instead of being wound-up, that its erstwhile obligation to secure the convertibility of its notes is rendered nugatory. In the history of English banking only one bank ever enjoyed such immunity from failure, and that bank was the Bank of England.

What, then, was the actual, eventual consequence of granting to that bank a monopoly of England's paper currency? Was it to render the convertibility of that currency more secure than it would have been had the privilege continued to be shared among numerous banks, each of which was capable of failing? On the contrary: it was to altogether do away with even the limited degree of security that that currency once offered.

So far we have a nice distinction between the early Bagehot, champion of currency monopoly and of the "one-reserve" system that goes hand-in-hand with such monopoly, and the later Bagehot, champion of free banking and a "natural" multiple-reserve system. But the distinction isn't quite so clear-cut as all that, for toward the end of his review Bagehot recognizes the "unnatural" character of the English banking system, with its "excessive preponderance of the Bank of England over the other establishments," comparing it unfavorably to the Scottish system. But Bagehot's criticism of the English system falls well short of any implied endorsement of "free trade in banking." Instead, he merely complains that, in concentrating so much power in the hands of a single firm, legislation had rendered England's economy excessively vulnerable to poor decisions by that firm's directors. That misguided legislation went well beyond that--that it set the stage for crises that even the wisest Bank directors were powerless to prevent--was a conclusion he would come to only after an interval of many years.

What caused Bagehot's thinking to change? The unworkability of Peel's Act in practice--the Act's provisions had to be set-aside on three occasions before 1873--undoubtedly had something to do with it. But there is another, intriguing possibility. Bagehot became personally acquainted with James Wilson, whose pro-free banking views he'd once taken to task, in 1857. The two men then became quite close: so close, in fact, that Wilson gave Bagehot his daughter's hand in 1858, and made him the director of The Economist upon departing for India in the autumn of 1859. (Bagehot became editor-in-chief upon Wilson's death in India the following July.) It's tempting to assume that Wilson accomplished in person what he'd not done in print, by bringing his son-in-law and successor into the free-banking fold. The hypothesis is, I think, worthy of a fuller inquiry.*

*That Wilson did discuss the currency question with Bagehot isn't in doubt. In his Memoir of the Right Honourable James Wilson Bagehot observed that "to those who knew Mr. Wilson well, no subject is more connected with his memory: he was so fond of expounding it, that its very technicalities are, in the minds of some, associated with his voice and image." (Added February 10, 2012.)

16 Responses to “The Other Bagehot”

  1. avatar Lars Christensen says:

    George, welcome back in the world of blogging...you have been missed;-)

  2. avatar Joe Esty says:

    I'm all for free banking. Of course, free-banking is meaningless without a commodity standard. No on would accept fiat free-bank currency. I'm sure a standard would form in currency and coin, such has with Visa and Mastercard and Windows that everyone gravitates toward. Order would reign.

    Unlike Rothbard, I don't think fractional-reserve banking is a fraud, as long as everyone knows the ability to fully convert is compromised. I would be interested to see which system would win (maybe coexist?) in a free market with no government backstop and no limited ownership liability: a free-bank fractional-reserve system or a free-bank full-reserve system.

    • avatar George Selgin says:

      Joe, you draw a false dichotomy of commodity-money based free banking and "fiat" free bank currency. This ignores the possibility of banks issuing their own notes that, though not fiat money themselves, are redeemable claims to some established fiat base money.

      You also pretend that we haven't yet had a fair market contest between fractional reserves and 100-percent reserves. With all due respect, that claim is itself part of the Rothbardian mythology, and one that I have addressed elsewhere in this forum. The history of banking is one long record of people's preference for fractional reserves over 100-percent reserve banking. The contrary, Rothbardian suggestion that FR banking has only ever existed thanks to either fraud or artificial government support is utterly false.

      Limited liability should, in any event, have made people less rather than more willing to deal with FR banks, ceteris paribus. Not that it really matters: the Scottish system had both unlimited and limited liability banks. Canada had double liability during its free-banking heyday. Etc., etc.: the Rothbardian view holds up for These and other relevant facts have now been rehearsed many times by the free bankers, on popular forums as well as in professional journals.

  3. avatar Joe Esty says:

    What's the fiat base money? Whatever it is, it has to widely recognized as money. Hard commodities like gold and silver have been the universally accepted form. You printing Selgins and me printing Estys is unlikely to work. There is no false dichotomy.

    Also, rather haughty of you to inject the condescending "You also pretend." I don't pretend anything. Give me an example where there has been zero government interference in fractional-reserve banking. There was interference and intervention in Scotland, which you and White tend to lean on. Corporatism is a hallmark of banking.

    As for limited liability, less of it is better. Less limited liability (e.i., more liability on the owners) would make banks safer. I agree with you and that's what I meant.

    George, I've read enough of you're stuff, and I agree with most of it. But where we disagree, and perhaps we disagree on money and banking, I'd appreciate not be treated in a Jonathan Chait or Paul Krugman manner.

    • avatar George Selgin says:

      Joe, commercial banks today could conceivably issue their own notes redeemable in Federal reserve notes. Then the redeemable private notes wouldn't be fiat money. But there still wouldn't be a gold standard. You seem to not appreciate how a redeemable banknote is not fiat money even if the redemption medium is itself not a commodity money.

      Your insistence of "zero' government interference is of course one that would rule out any use of history. To reject past experiences as shedding no light on the fractional v. 100-percent reserve banking question because some government intervention took place is like saying, "well, it would be nice to have a chance to see whether free trade really works, but as of yet we have no clue because there has never been such a thing as zero interference with trade." The question of course is, whether we can find instances were the interference of government was sufficiently minor to allow us to draw inferences. I believe it was so in the Scottish and Canadian and many other cases. I speak of the question here, "Will FRB out-compete 100%-reserves in the absence of significant government propping up of the former." That's a question that I think the history, however imperfect, answers clearly enough.

      And I apologize if I sounded like Paul Krugman.

      • avatar Joe Esty says:

        George, I want nothing more than a free market in banking, including issuance of notes. Federal Reserve notes are nothing without government muscle; hence fiat currency. I do understand how a redeemable note is not fiat money, in that fiat money derives its value from government. I used the term incorrectly above.

        A banking system will not work where banks simply issue their own notes. People will not trust such a system. There has to be a commodity, a convertibility that keeps the banks honest that people believe in. I open a bank and issue Estys, who would accept them unless there is liquid commodity or omething backing them? I sure won't.

        History hasn't answered whether FRB beats 100% reserve banking. FRB has been the norm but that doesn't mean it's the most efficient. That falls into Stigler's theory of something being efficient just because it is long lived. FRB has always had government backing and support.

        • avatar George Selgin says:

          I'm sorry, Joe, but your last assertion is simply untrue, in so far as it is meant to suggest that governments have tended to favor FRB over 100% reserves throughout history. My first post on this forum provides some contrary evidence; but the broader fact is simply this: when you examine the record, you find a history replete with laws imposing minimum reserve ratios on banks, and none imposing maximum ratios; and while in the modern era you find government-imposed insurance schemes for FRB, you will not find any such for most of the history of banking. I could go on and on listing facts such as these, all of which testify to the public's voluntary preference for FRB over 100% reserves. But to do so would merely be to repeat what has been shown in numerous works by myself, Larry, and others to which I have already referred. For their part, on the other hand, the 100-percenters have, so far as I'm aware, never indicated a single law prohibiting their preferred system, and have made only the most desultory attempts to suggest that in every instance where FRB prospered (that is, in all the history of banking since the Renaissance) it survived only thanks to some sort of implicit or explicit subsidies. (The one instance of such evidence that is usually invoked consists of Rothbard's attack on the Scottish system, which attack larry has long since thoroughly demolished.)

          You referred to Galileo earlier in suggesting that, just because the weight of authority is opposed to your suggestion that 100% reserves never had a fair trial, it doesn't follow that the suggestion is false. But Galileo could invite his critics to look through his telescope and see the evidence contradicting received opinion for themselves. Far from resembling Galileo, the 100%-crowd resembles his inquisitors, in turning a blind eye toward the facts. They are the flat-earthers of modern monetary economics.

          • avatar Joe Esty says:

            George please, Galileo, flat-earthers? The 100%-reserve crowd is the powerless minority. The FRB crowd overwhelmingly dominates; an FRB bank has a huge advantage over a 100%-reserved bank both politically and economically. Credit expansion is a very lucrative business.

            That said, White didn't demolish Rothbard's Scottish argument, he countered it. S.G. Checkland wrote of Scottish Banks being bailed out by the Bank of England. Here's where I'll give White his due: Rothbard, Fetter, Sechrest, and Checkland write of moral suasion and tradition as if they were law on specie convertibility. That's misleading.

            Yes, I list toward 100% reserves, but I'm no flat-earther. Neither am I tone-deaf to FRB and free banking, if Larry White's definition "the unrestricted competitive issue of specie-convertible money by unprivileged private banks" holds. Moral hazard must be attenuated: no government deposit insurance, no central bank, no limited liability for owners (it's no coincidence that the Wall Street investment banks existed for a 100 years as partnerships, but then blew up after taking a limited-liability c-corp structure), and transparency (e.g., option clauses for convertibility, if any, must be known).

            I still believe that a 100%-reserve banking system is less prone to promote business cyclicality, but if a free, unprivileged market would support a free unprivileged FRB banking system, then I couldn't argue.

          • avatar George Selgin says:

            Joe, the point is precisely that, throughout most of the history of banking since the late middle ages, plural rather than monopolized note issue has been the norm; banks have been obliged to redeem their notes in specie; extended (if not unlimited) liability has been typical; and there has been neither deposit insurance nor anything resembling the implicit guarantees such as prop-up many larger financial firms today. True, banks have everywhere and always been subjected to special regulations; but almost all of these regulations--reserve ratios, capital requirements, usury laws, restrictions on note issue and branching--have served to artificially limit rather than to encourage the spread of fractional-reserve banking, except to the extent that they have been aimed at favoring one bank against the rest by handicapping the latter. Those claiming otherwise have been invited by me again and again to point to any specific regulations that can, during this long stretch of experience, be said to have tended to "unlevel" the playing field in favor of FRB, and at the expense of 100% reserve banking. And that challenge remains unanswered. Pointing to deposit insurance won't do, because as a nationwide arrangement it dates only to 1934, and then only for the U.S. (no other country having adopted it until the late 1960s). What's more, insurance is not properly regarded as a subsidy to FRB: it is a subsidy to certain fractional reserve banks, collected at other fractional-reserve banks' expense.

            Nor will pointing to limited liability do, because unlimited liability banks were themselves exceptional until the 20th century (most Scottish free banks were unlimited liability firms, for example), and also because if it had any bearing on consumers' decisions as between 100% and fractional reserve banks, limited liability should have made them not more but less willing to patronize the latter, by increasing their risk exposure.

            An abundance of historical evidence suggests that 100% reserve banks simply have never been able to survive the market test, because they have been dominated by FRB on the one hand, and by consumers' option of simply holding and using specie on the other. Insisting that the question can never be settled except by having a pristine-pure "natural experiment" to refer to, when there isn't a cat in hell's chance of such an experiment ever occurring, is just a way of trying to justify a refusal to avoid weighing the evidence that is already available, and which, if weighed at all scrupulously, tips the scale decisively against the 100-percent view.

  4. avatar Bill Stepp says:

    Joe,

    Your term "fiat free-bank currency" rests on a misunderstanding of fiat currency and currency issued by free banks. Fiat currencies, such as the U.S. dollar and the British pound, are government monopolies and are therefore necessarily based on government diktats, as Rothbard used to sing. Notes and coins issued by free banks are issued in response to the public's demand for hand-to-hand currency. This market is competitive, and not based on a government monopoly or diktat.
    The fact that there might have been some government intervention in markets for the services provided by free banks doesn't mean that free banking could not function absent that intervention, or that free banking is not the best solution for organizing money, banking, and "monetary policy."

    Here is the scope of monetary policy in a free society: [ ].
    You'll recognize this from elementary school math as the empty set.

    I don't think he's treating you like Chait/Mouch or Krugman/Toohey.

  5. avatar Paul Marks says:

    It is not just Walter Bagehot's works on economics that are confused. For example, his "classic work" "The English Constitution" (classic - apart from to people who have actually read it) is a bit of a mess. He misdescribes the role of the monarch at the time, and does other weird things - such as (without any irony) saying that a partiular form of electoral reform should be argued for at every opporunity(he goes on and on about how "we" should support it) and then say he has no space to describe the proposed reform. And Bagehot also says that "we" should "concede every demand that it is saft to concede" (he is assuming that the people who got the vote under the Act of 1867 will make various statist damands) - this position was far from "safe", in reality it (of course) leads to a defeatist attitude (that statism is on the rise because the new voters will demand it) and was basically the death warrent for Classical Liberalism in Britain.

    Still you wanted econmonics - well Bagehot takes the Economist publication away from its free market roots (if only he had not married the daughter of the founder of the Economist - then he might not have become editor), but it was not nearly as bad under him as it is now.

    For example, Walter Bagehot is famous for a being a defender of bank bailouts (against the then Governor of the Bank of England who was against them).

    However, when one looks at the details of his work - Bagehot is very moderate on this (at least by today's standards).

    The sort of antics that the Federal Reserve, Bank of England, European Central Bank (and on and on) engage in now (with the Economist publication cheering them on), would have utterly disgusted Bagehot.

  6. avatar Joe Esty says:

    I was too conciliatory on this argument. After a little research, I found that Howden and Bagus have had a stimulating exchange with George on 100% reserve banking and FRFB. This quote from Howden' and Bagus' "Unanswered Quibbles with Fractional Reserve Free Banking" suggests the argument is far from settled:

    Suffice it to say that all FRFB systems have collapsed without the
    eventual introduction of a central bank. Historical case studies illustrating
    the instability and systematic failure of fractional reserve banks include Bogaert’s
    (1968) work on banking in ancient Greece, Bogaert’s (1968) and Mueller’s(1997)
    studies on banks in Venice, Cipolla’s (1982) analysis of Florentine banks in the
    fourteenth century, Usher’s (1943) work on banking in Catalonia, and Huerta de Soto’s
    (2009, ch. 2.4) report on banking in 16th century Sevilla.

    Howden and Bagus solidly argue against FR banking -- free or otherwise -- in their paper.

    • avatar George Selgin says:

      The problem with Howden and Bagus' quote is the problem with a great deal of what they write: it either isn't true, or it is true only because it is misleading. As Kurt Schuler has shown in his essay "The Experience of Free banking" (in Dowd's 1992 collection), in only a few cases did central banking arise in response to crises in previous central-bank-less (but generally not entirely free) fractional reserve systems. H&B's references to ancient Greece etc. are almost laughably inept: most authorities do not believe that Greece had fractional reserve banks, or banks in any modern sense of the term; on Venice see my post "The State and 100 Percent Reserves"; Cipolla's work isn't at all germane, as it concerns private mercantile banks, and so on.

      If those fellows have impressed you, Joe, it can only mean that the "little research" you did wasn't
      nearly enough. Consider looking somewhere besides the pages of Mises.com and sources associated with the Mises Institute (the only ones where these fellows are able to publish, in English at any rate). As I have pointed out in responding to there work before, there is absolutely nothing "solid" about Howden and Bagus's work. They pretend to be scholars, but they write with as little regard for truth as the merest hack lawyers do in composing their pleas.

  7. avatar Paul Marks says:

    I did write a long comment on the harsh language (the terms of abuse that George's uses "lack regard for truth", "pretend to be scholars", "hack" and on and on) and also on the basic philosophical error of his "argument from authority" ("most authorities", "universties", "scholarly journals" - as if the reader is not supposed to know that the establishment left has been in charge of most universties and journals for many decades) the "argument from authority" being one of the basic philosphical errors.

    However, we all use harsh language from time to time (I certainly do) and if George could not sound off on his own site the world would be a boring place.

    Also (and more importantly) just because George presents no arguments or evidence in his reply to Joe does not mean that George is wrong about the history.

    GEORGE COULD BE RIGHT.

    Both about Ancient Greece and about the Republic of Venice. One would have to go to the primary sources and really do some hard work - and I do not even have the languages (by the way do not automatically trust those that do - a knowledge of Ancient Greek has never prevented someone distorting the history of Greek civilization, ditto a knowledge of the local type of Italian, and of Latin, is no automatic proof of worth in talking about the history of the Republic of Venice).

    And there is some measure of agreement about some aspects of the history - for example there is agreement that the Bank of Venice lent out more money than it actually had (of course a "private" Central Bank is not fundementally better than an openly government one).

    The key matter is not really a dispute about history - it is a dispute about economics.

    When someone says "fractional reserve banking" it is natural to assume that what is meant is that the money lenders (the banks) lend out a "fraction" of real savings and keep the rest as a reserve.

    However, this is NOT what is really meant.

    In reality the money lenders (the banks) lend out far more than was ever really saved - not a "fraction" as this term would normally be used (yes I know that, for example, "one hundred tenths" is a fraction).

    Should loans be from real savings or should loans (by various complex means) be based on credit expansion (not just real savings).

    This is the matter of real dispute between the two sides of the debate.

    Of course this is a moral and legal debate (opponents of credit expansin of "credit bubble finance" to use a loaded term)regard it is both vile in moral terms, and as fraud - although fraud that has been "legalized" by government courts and legislation.

    But it is also an ECONOMIC debate.

    Does credit expansion (money lenders, banks, loaning out more than was ever really saved) cause a "boom-bust" or not?

    Some economists argue that it does, other economists argue that it does not.

    Geoge would (and has) point out that the great majority of the university, journal and other "mainstream" economists are on his side.

    The people on the other side of the debate do not dispute the truth of this claim - but deny that it is a valid argument.

    I am leaving aside various things (such as "over investment" versus "malinvestment" and so on) as if one does not accept that loans should be from real savings (as opposed to from credit expansion) it is pointless to go on to discuss other matters.

    • avatar George Selgin says:

      Paul, were I a member of the scholarly "establishment," my suggestion that the failure of Bagus and Howden and most other Mises Institute writers to publish in non-Institute journals might reasonably be treated as mere argument from authority. But my work is hardly the sort to qualify as pandering to the mainstream. In fact I have to fight hard for every article I publish to get into print, and that's so for many other--the vast majority actually--of good economists I know. The general public has no idea that these MI fellows don't have their work subjected to the same tough review process. The "refereeing" at MI journals is a joke. For example, in the last last three years alone those journals have published four papers, two of them by Bagus and Howden, devoted to criticizing my stuff. An editor at most any legitimate journal would have sent the papers in question to me, among other referees, to get my thoughts, especially concerning whether my views were accurately stated. The editor would of course be free to publish, or publish after revisions, despite my input, but the courtesy is a common one. By the same token, author X criticizing author Y would normally send a draft to Y for comments before submitting to a journal--common courtesy again. Yet on every one of the occasions I refer to, and even despite my having lodged a complaint with the offending publication the first time, my first glimpse of the works in question came when they appeared in print. And this, mind you, was the treatment given to a person long associated with MI, whose views are largely sympathetic to those of the Austrian school!

      This isn't the way scholarly work is done. It's the way hatchet jobs are done. There's no real "discipline" involved, scholarly or otherwise; yet Joe and others are to be excused for not realizing it, and for thinking instead that in reading what comes out of the Mises Institute they are actually reading relying material that contributes to their "research."

      Finally, to return to the issue, imagine that I wrote saying that free trade, drug legalization, and peace obviously have failed, the proof being that protectionism, the war on drugs, and foreign military intervention having prevailed instead. What kind of an argument would that be? Yet H&B note that central banking is now widespread, and conclude that freedom in banking therefore failed. What crap--and what proof of the lengths the pro-100-percent crowd will go to to attack free banking, even if it means suggesting that central banking has improved upon it! This is shameful stuff, really.

      Anyway, I appreciate your thoughtful intervention on my behalf, while confessing that on this topic my patience has indeed run very short.

  8. avatar Paul Marks says:

    You make some good points here George - at least I think you do.

    However, the central economic point, that loans should be from real savings not credit expansion, remains.

    Sadly I am in no fit state to deal with the central economic debate at the moment.

    No sleep since I got back from Israel and a tough week in Israel before that.

    My no longer young brain (which is poor enough at the best of times) feels like a lump of useless scrap iron at the moment.

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