23 Jul 2018

Rothbardians vs. “Free Bankers”

Banking 33 Comments

This was a new talk I gave at Mises U this year. Among other novelties, it contains an exchange between Dr. Evil and his subordinate, #2.

33 Responses to “Rothbardians vs. “Free Bankers””

  1. Warren says:

    This again?

    Given the amount of capital and personal wealth that was backing up currency issue in Scotland it could be said that they were practicing 200%, 500% or even 1000% or more reserve banking. Just because it wasn’t 100% liquid doesn’t mean the issuance was unbacked.

    And ok sure, for a period of time banks would not redeem in gold; so what? Gold was available elsewhere. You could use your banknotes at gold sellers if you wished.

    The amount lost to depositors over the years was very small but the gains for everyone on the whole were very large. I’d say even if you could point to some boomlets and bustlets “free banking” paid off handsomely and there’s no need to argue about it.

    “Free banking” wasn’t perfect but it worked and worked well and that’s what counts.

    What would be great would be a side-by-side comparison of the history of “free banking” and it’s successes and failures with 100% reserve banking and it’s successes and failures. That would be a Hell of a book.

    • guest says:

      “And ok sure, for a period of time banks would not redeem in gold; so what? Gold was available elsewhere. You could use your banknotes at gold sellers if you wished.”

      Selling your banknote elsewhere for gold is not the same thing as having your banknote be redeemable in gold.

      When your banknote is redeemable in gold, the paper gets its value from the use-value of the physical gold being warehoused by the bank.

      When it’s not redeemable, it gets its value from the speculation of the next guy. Not that there’s anything wrong with speculation, but with speculation there is a risk that the paper does not represent the use-value of the amount of physical gold written on it.

      (Aside: The speculative valuations of the physical gold, itself, is a separate matter. I’m ignoring that issue for the moment, but feel free to press it if you think it’ll help.)

      The boom/bust cycle occurs because many people, at the same time, are attempting to economize their resources for a future demand that will not come about.

      (Aside: Consistent with Methodological Individualism, each of these “many people” must, logically, be misallocating their resources as individuals.)

      And since people economize their resources based on their own perception about their economic situation, what they believe about the resources they save in the bank and on what they will choose to spend will determine the profitability and sustainability of any projects funded by loans made by their banks.

      That’s why no amount of voluntarily saved (and uninvested) money can be inefficient..

      The uninvested savings, *itself*, reveals market-coordinating information. There is no need to lend out “idle savings”.

    • Major_Freedom says:

      Big news:


      The president can and will take control of the Fed. It may be recalled when the law was written creating the Federal Reserve the secretary of the Treasury was designated as the head of the Federal Reserve. We are going to return to that era. Like it or not the Fed is about to be politicized.

      The foreign (Rothschild) control over the USD is being dismantled before our eyes.

      • Major_Freedom says:

        History is being made Murphy!


        • Major_Freedom says:

          To put this into perspective, the cabal being dismantled and whose control over the country’s currency is being removed is the same family that controlled it when Mises wrote Theory of Money and Credit, and when Rothbard wrote his books on the history of money and banking in the United States, and when Ron Paul was participating in the 2008 election debates.

          This is mind blowingly huge.

          • Dan says:

            You think politicians controlling the Fed completely is a good thing? When did you become a greenbacker?

            • Major_Freedom says:

              Sorry, are you asking a question or making an accusation?

              Forget about me. It’s not about me. Focus on the news.

              Put it this way. IF THE CHOICE was between a criminal syndicate that literally worships Satan and wants to destroy America by nuclear war in order to assert itself as world government, or Trump’s people, to control the Fed, I’d choose the latter.

              If you feel better calling me this or that, so be it, won’t have any bearing on what I think.

              • Dan says:

                What about when a socialist is president?

              • Harold says:

                Nice to hear from you, MF.

                You put a very big IF in that statement.

                It would be helpful if you clarified whether or not you think that is the choice.

              • Major_Freedom says:

                Longer answer:

                The Rothschilds control the Papacy.

                This is where the Pope conducts his speeches:


                Shorter answer: Yes.

              • Keshav Srinivasan says:

                Major_Freedom, what is the significance of this picture and what does it do with the Rothschilds controlling the Papacy?

              • Tel says:

                This is where the Pope conducts his speeches:

                The Pope is secretly Yazidi?!?

                Hmmm, that answers some questions, and opens up some new ones. Between you and me though I think the Rothschilds got a bad deal on this guy but the saying is, “A change is as good as a holiday”.

                Since you wanted my opinion on the Fed, trump should have re-hired Yellen.

            • guest says:

              Going out on a limb, here:

              MF thinks that politicians controlling the Fed is a terrible thing, but that it’s good, in and of itself, when cronies lose government-granted privileges.

              Maybe it’s the case that MF prefers the current cronyism to what Trump wants to do, but that would be a different matter.

              • Major_Freedom says:

                That’s some limb.

      • Keshav Srinivasan says:

        Major_Freedom, all the members of the Federal Reserve Board are appointed by the President and confirmed by the Senate. What makes Trump’s picks any different from picks by any other President? What makes you think that the picks of all other Presidents are “Rothschild picks”, and what makes you thin’ that Trump’s picks aren’t Rothschild picks?

        • Major_Freedom says:

          What makes Trump’s picks any different from picks by any other President?

          The fact everyone is an individual with their own experience, knowledge, and intentions?

          What makes me think Trump’s picks won’t be Rothschild picks? How about if I told you the military under Trump is fighting a covert war against them as we speak?

          • Keshav Srinivasan says:

            “The fact everyone is an individual with their own experience, knowledge, and intentions?” OK, but what makes you think all the other Presidents’ picks are Rothschild picks?

            “How about if I told you the military under Trump is fighting a covert war against them as we speak?” What evidence do you have of that?

            • Major_Freedom says:
              • Keshav Srinivasan says:

                QAnon isn’t what I’d call a reliable source on diddly squat. In any case, do you have evidence other than QAnon, or alternatively do you have evidence of QAnon’s reliability?

                Also, is your belief in QAnon falisifiable? Is there some prediction you can make on the basis of QAnon’s info, such that if the prediction didn’t come true within a certain time interval, you would concede that this whole QAnon thing is bogus?

              • Major_Freedom says:

                There are at least 45 separate proofs of the validity of Q.


                It’s mathematically almost impossible for there to be this many “coincidences”.

                More proofs keep being added all of the time. We knew about NK months before it hit the news sources you quite tragically rely upon (not condemning, we were all asleep at one point, the MSM is controlled by the CIA via Operation Mockingbird which never ended, it just got renamed).

                People have been sent to the electric chair on lower probabilities than this, and I will ask that you consider just how high (or low) of a threshold for acceptance for other evidence -> conclusion convictions you have to test whether it is consistent with what you’re being told to believe by a clown controlled MSM machine.

                Yes, what Q says is in principle falsifiable. The project isn’t an exercise in praxeology. It’s about who did what with whom and when and why. All empirical.

                There have already been events that have transpired which confirmed the validity of Q, from a positivistic empirical perspective.

                Q has not been wrong yet.

                I encourage healthy skepticism, but just so you know, the probability of Q being legit is so astronomical, and crystalized into history that no new information could in principle refute what’s already past and settled in terms of evidence, in my view, so I thought to let you know that just in case you had any funny ideas about trying to persuade me otherwise on unreliable grounds such as what the MSM tells you.

                Those of us who have been reading Q since Oct 2017 were merely the early adopters, but this movement includes every hard working good person who does not want to see the world burn. It is worldwide.

                Did you catch Avenatti panicking on twitter asking anyone to identify a picture of a man in black with the metal thing in his hand and to report them to the police? That photo was dropped by Q moments before.

                The cabal is watching Q, and a lot of what Q drops is intended for the cabal to see.

                By the way, I have to point out that it is strange to see both “Q isn’t reliable” and an ask for evidence Q is reliable.

                If Q isn’t reliable then there wouldn’t be any evidence of reliability. If in principle there could be evidence, then at least a suspension of judgment is warranted, would you agree?

          • Harold says:

            “What evidence do you have of that?”

            Goodness, he is a Major! He is bound to have some inside track!

  2. Enrico says:

    I acknowledge that another comment on this topic could be annoying, but I think instead that it could be a simpler and quicker explanation from the “free-banking” side of the debate.

    A real saving consists in someone producing goods&services without consuming them nor consuming an equivalent amount of other goods&services. In that way, there are goods&services available for investments. Instead, a boom&bust (b&b) cycle is generated when investments are not backed by real savings.
    In a 100% reserve banking system, if John earns 100$ by selling its products and then lends that money to a bank for 5 years, there is no b&b cycle. John is not consuming, he is saving. Thus, a 5-year loan of 90$ granted to (e.g.) Jack by the bank would be fully backed by real savings.
    In a fractional reserve banking system, John can deposit 100$ in his bank account. If he’ll withdraw only 10$ in the next 5 years, then he’ll basically save 90$ for 5 years. In such example, it’s a fact that John is not consuming 90$ worth of goods&services for 5 years -> that is, 90$ worth of real savings for 5 years. Therefore, a 5-year 90$-loan to Jack would be fully backed by real savings. But what if John is the only bank depositor, and he’ll try to withdraw more than 10$ during those 5 years? Let’s suppose that the bank cannot receive any loan from other banks or investors. The bank goes bankrupt, and John has to wait 5 year before having back his money from the bank’s debtor (Jack). John is forced to not-consume those 90$ for the time being, i.e. to save them. Again, the loan granted to Jack is financed by real savings from John.

    Therefore, fractional reserve banking (in a free market system) cannot generate b&b cycles.

  3. skylien says:

    Really “good” summary of the whole debate!

  4. guest says:

    I can count on one finger the number of times I’ve made it through an entire David Gordon talk.

    It took me two sessions.

  5. Rory says:

    We can do better than this guys: we haven’t yet touched on the Trilateral Commission, Zionism, Freemasonry, or Adam Weishaupt.

  6. Enrico says:

    As said during the video: if someone lends 100$ to a bank for a fixed time period, and then the bank makes a loan of 90$, no boom&bust cycle will happen. The reason is that the 90$ loan granted by the bank is “backed” by (at least) 90$ real savings from the initial lender. But the same conclusion is true in fractional reserve banking. If someone deposits 100$ into a bank, he is saving (= not consuming) that money until the moment when he’ll withdraw it. Thus, if bank reserves are sufficient for satisfying depositors’ withdrawing, it means that bank loans are backed by real savings. If banks reserves happen to be insufficient, the bank goes bankrupt and the depositors will have to wait for getting their money back (= not consuming in the meantime); therefore, they will be “forced” to save such amount of money. In conclusion, in a free banking system, bank credit is always backed by real savings, and thus cannot generate boom&bust cycles.

    • Bob Murphy says:

      Enrico sorry for the delay in approving your comments, I was on the road the last 2 days.

      I will do a separate post because you raise an interesting point.

      • Enrico says:

        It would be great to here your point of view on this! Thanks in advance.
        Ps: if you want to remove 2 of the 3 copies, certainly I don’t mind.

        • Warren says:

          Your concern over comment expansion is laudable.

          • Enrico says:

            I fear the consequences of an artificial expansion in the quantity of comments 😉

      • Enrico says:

        To further explain my point, I would like to add another example.
        If I lend money to my bank for a fixed time period of 1 day (or 1 week, or 1 month – it’s the same), that would be OK from a rothbardian point of view, right? I may also agree to continuously and automatically renew my loan to the bank, untill the day I specifically ask to have my money back. Again, that would not be in contrast with 100% reserve banking. But, in practice, wouldn’t such scheme be equivalent to fractional reserve banking?

  7. guest says:

    At around 12:24 Bob didn’t have time to go into what he called the “freaky” bank balance sheet logic of fractional reserve lending, so I thought I’d post Joe Salerno’s treatment of it:

    [Time stamped]
    The Economics of Fractional Reserve Banking | Joseph T. Salerno

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