Start a Rothbardian Bankrun

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When I was an undergraduate at Boston College in the 1970s,
one of the weekly underground newspapers that catered to the 250,000
college students in the Boston metropolitan area featured a page-length
ad by the graduate economic students of the Boston chapter of URPE
(Union of Radical Political Economists). The ad appealed to the college
students of Boston to withdraw all the cash from their checking and
saving accounts the following Friday as a protest against the Vietnam
War. Being an economics major and neophyte Austrian, I realized that
such an action would cause severe difficulties for the banks, because
they only held (at the time) about 13 cents of every dollar of demand
deposits and 3 cents of every dollar of saving deposits in the form
of cash. The rest of the deposits were lent out for longer or shorter
periods of time despite the fact that the banks had contractually
obligated themselves to redeem the entire amount on demand. There
was much discussion of such an action on the BC and other Boston campuses
during the week leading up to the mass action. Of course, when Friday
rolled around the event fizzled, because students were too busy partying
(Thursday being the unofficial start of the weekend). But the idea
was a sound one.

Murray Rothbard never tired of pointing out that in a free society
plain citizens could bring inflationary fractional reserve banks to
heel through a deliberate and concerted campaign to get people to
withdraw their deposits in cash. “Antibank Leagues,” as
he called them, would be formed by those “who know the truth
about the real insolvency of the banking system” to “urge
bank runs.” The bank runs or their very threat would “be
able to stop and reverse monetary expansion.”

Now we have
the first stirrings of the formation of such a league in the Move
Your Money campaign
. This modest but growing movement is urging
people to move their money from big banks to small community banks
and credit unions. Establishment media such as Time, Newsweek,
The Nation, Salon and CBS News have already taken
note of the campaign. The organizers are urging people to lobby
their friends, organizations, and municipal governments to move
their money and to use online social networks to propagate the idea.

The organizers
of the Move Your Money campaign of course are superficially focused
on the fact that big banks and financial institutions were at the
eye of the recent financial storm. They do not understand that it
is the entire system of fractional reserve banking, which has been
cartelized, regulated and bailed out by the Federal Reserve System
for nearly a century, that is mainly at fault for the financial
meltdown. Still, the idea underlying Move Your Money is a sound
one that needs to be expanded to include mass deposit withdrawal
from all banks.

Depositors
have more power over banks than customers have over normal businesses
in a market economy. The reason is that banks are permitted by law
today to hold only about ten percent of demand deposits and zero
percent of so-called “saving” deposits in ready cash reserve,
even though they are contractually obligated to redeem these deposits
in cash whenever the depositor requests. Thus the banking system
would not be able to withstand a concerted campaign to withdraw
cash and the Fed would have to shut down the banking system (including
ATMs) to sort things out. It would take months, if not a year, before
the Fed could print up and deliver sufficient quantities of cash
to the banks to meet all of their depositors’ demands in full.
In the meantime cash withdrawals might be limited to small quantities
biweekly or monthly as occurred in Argentina during the last meltdown
of the peso in 2000–2001.

So the weapon
to thwart inflation and deficit spending and by extension socialized
health care and imperialist wars is finally now in the grasp of
American citizens and partialy unsheathed. Let us wish the Move
Your Money campaign success and nudge its economic knowledge and
political ideology in the right direction.

This is
reprinted from Mises.org.

March
3, 2010

Joseph
Salerno [send him mail]
is academic vice president of the Mises
Institute
, professor of economics at Pace University, and editor
of the Quarterly
Journal of Austrian Economics
.

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