Sent: Wednesday, September 28, 2016 6:53 PM
Subject: fractional reserve banking, and working for a commercial bank
Dr. Block: I’m a daily reader of LRC, and enjoy many of your articles. I have a degree in finance, obtained in 2006, and have worked in banking more or less since that time. Well in late 2008 a friend recommended I read some of Ron Paul’s writings. This, of course, changed my thinking on a great many issues. I like to consider myself an “aspiring anarcho-capitalist.” I have worked for a mid-size commercial bank since 2013 as both a banker (doing loans, opening accounts, etc) and a financial adviser (mutual funds, annuities, etc). On the investing side, I try to follow, as best as I can within the constraints of my employer, the investment ideas of people like Peter Schiff, Marc Faber, and Jim Rogers. Recently I have been intrigued with the late Harry Browne’s permanent portfolio strategy, although I don’t recommend anyone buy long term gov’t bonds at this juncture. My real moral dilemma, which keeps me up at night (literally), is how do I in good conscience work in an industry that I know is based on fraud? I have read Rothbard’s writings on fractional banking. Ignorance is bliss. Sometimes I wish I didn’t know now what I didn’t know ten years ago. Am I immoral for working in banking? Is it akin to Nazi’s who did unspeakable things not because they necessarily agreed with them but because they felt they had to put food on the table for their families? Akin to soldiers in today’s military killing folks half a world away who are know plausible threat to the U.S.?
I often rationalize myself because I doubt most other financial advisers are going to tell clients that they need tangible assets (land, gold, etc) that aren’t paper. Most advisers are going to simply recommend a portfolio of stocks/bonds allocated based on modern portfolio theory. I do sell fixed annuities, which are essentially bonds with a put option. But I also recommend, for people who want to be in the market, a large allocation of foreign mutual funds, since I believe the U.S. market is grossly overvalued and it is probable that the dollar will continue to decline against other currencies (the Euro and the Yen maybe not since EU and Japanese policies are awful as well).
But as far as the banking part of it – I know that most of the dollars we lend out are new credit. Am I justified if I don’t push FDIC insurance as a selling point? If I explain the risks of deposit banking (that we don’t keep their money on hand and if they want cash over a few thousand dollars it may take several days to get it)? Any thoughts are appreciated. AB
Dear AB: Only a libertarian would be worried about this sort of thing, and, that you are, does you great credit.
Murray Rothbard would have said that if you work, today, in an industry that would not exist in the free society, that is per se a violator of rights (the Fed, the Drug Enforcement Agency, the FDA), you are acting incompatibly with libertarian theory, and you should either not take such a job in the first place, or, you should quit once you saw, appreciated, the light of libertarianism. To me, matters are much more complicated. I have even gone so far as to entertain the notion of a libertarian concentration camp guard: Block, Walter E. 2009. “Libertarian punishment theory: working for, and donating to, the state” Libertarian Papers, Vol. 1; http://libertarianpapers.org/articles/2009/lp-1-17.pdf; http://libertarianpapers.org/2009/17-libertarian-punishment-theory-working-for-and-donating-to-the-state/#comments
Your question, problem, falls into the category of libertarians who ask, should I accept a job at a public university, should I attend a public school as a student, should I accept welfare from the state, should I accept social security or unemployment insurance payments; should Ron Paul accept matching grants from the government. I answer yes to all of these questions:
Block, 1972, 2002, 2004, 2006, 2007, 2008, 2009A, 2009B, 2010, 2011A, 2011B, 2011C, 2011D, Block and Arakaky, 2008, Block and Barnett, 2008, D’Amico and Block, 2007
Block, Walter E. 1972. “The Polish Ham Question.” The Libertarian Forum. June-July, Vol. 4, No. 6-7, p. 5; http://www.mises.org/journals/lf/1972/1972_06-07.pdf; http://mises.org/daily/4054; https://archive.lewrockwell.com/block/block143.html
Block, Walter E. 2002. “Accepting Government Subsidies,” Fraser Forum, February, p. 27; http://oldfraser.lexi.net/publications/forum/2002/02/section_13.html
Block, Walter E. 2004. “Radical Libertarianism: Applying Libertarian Principles to Dealing with the Unjust Government, Part I” Reason Papers, Vol. 27, Fall, pp. 117-133;
Block, Walter E. 2006. “Radical Libertarianism: Applying Libertarian Principles to Dealing with the Unjust Government, Part II” Reason Papers, Vol. 28, Spring, pp. 85-109; http://www.walterblock.com/publications/block_radical-libertarianism-rp.pdf; http://www.walterblock.com/wp-content/uploads/publications/block_radical-libertarianism-rp.pdf; http://www.reasonpapers.com/pdf/28/rp_28_7.pdf; (death penalty justified, net taxpayer, ruling class analysis p. 87)
Block, Walter E. 2007. “Ron Paul and Matching Funds,” October 1;
Block, Walter E. 2008. “Replies to readers” September 23;
https://archive.lewrockwell.com/block/block108.html (libertarians hypocrites for using public school?)
Block, Walter E. 2009A. “Libertarian punishment theory: working for, and donating to, the state” Libertarian Papers, Vol. 1; http://libertarianpapers.org/2009/17-libertarian-punishment-theory-working-for-and-donating-to-the-state/
Block, Walter E. 2009B. “Toward a Libertarian Theory of Guilt and Punishment for the Crime of Statism” in Hulsmann, Jorg Guido and Stephan Kinsella, eds., Property, Freedom and Society: Essays in Honor of Hans-Hermann Hoppe, Auburn, AL: Ludwig von Mises Institute, pp. 137-148; http://mises.org/books/hulsmann-kinsella_property-freedom-society-2009.pdf
Block, Walter E. 2010. “You are a rotten kid (rent control and libertarianism),” February 27;
Block, Walter E. 2011A. “It’s Ayn Rand Bashing Time, Once Again.” February 18; https://archive.lewrockwell.com/block/block172.html
Block, Walter E. 2011B. “May a Libertarian Take Money From the Government?” March 11; https://archive.lewrockwell.com/block/block175.html; https://www.lewrockwell.com/2011/03/walter-e-block/may-a-libertarian-take-money-from-the-government/
Block, Walter E. 2011C. “Toward a Libertarian Theory of Guilt and Punishment for the Crime of Statism,” Journal of Libertarian Studies, Vol. 22; pp. 665-675; http://mises.org/journals/jls/22_1/22_1_33.pdf
Block, Walter E. 2011D. “Hoppe, Kinsella and Rothbard II on Immigration: A Critique.” Journal of Libertarian Studies; Vol. 22, pp. 593–623; http://mises.org/journals/jls/22_1/22_1_29.pdf
Block, Walter E. and Chris Arakaky. 2008. “Taking Government Money for Grad School?” May 23; https://archive.lewrockwell.com/block/block100.html
Block, Walter E. and William Barnett II. 2008. “Continuums” Journal Etica e Politica / Ethics & Politics, Vol. 1, pp. 151-166 June; http://www2.units.it/~etica/; http://www2.units.it/~etica/2008_1/BLOCKBARNETT.pdf
D’Amico, Dan and Walter E. Block. 2007. “A Legal and Economic Analysis of Graffiti” Humanomics Vol. 23, No. 1, pp. 29-38; http://www.mises.org/journals/scholar/damico.pdf; http://www.emeraldinsight.com/Insight/viewContainer.do?containerType=Issue&containerId=24713; http://ssrn.com/abstract=1008525
If I had to summarize these publications it would be that libertarianism is not a suicide pact. If you don’t use government roads, currency, post offices, eat food (the government is deeply into this industry) you will surely die, and libertarianism, properly understood, makes no such requirement.
On the other hand, Murray Rothbard (my touchstone, my litmus test, for all matters libertarian, and much much else) once defended his choice to live in a rent controlled apartment (can someone please give me the cite, url, on this.) I would defend someone working for the Fed, even though it is a per se evil institution, if and only if he served as a spy, a fifth columnist, and tried to undermine its legitimacy from within. It would greatly help with keeping his libertarian credentials if he also donated a portion of his salary to an institution also active in showing the ethical and economic flaws in this institution. I don’t have to give much of a hint as to which organization I have in mind in this regard. Its initials are MI.
But, is banking, per se, an industry that necessarily violates rights, like the Fed or the FDA or the DEA? I think not. Banking is an honorable profession. It is like a tailor, only with money, instead of threads and clothes. It is an intermediary between borrowers and lenders, a middleman, as it were. Nothing per se wrong here. Of course this industry is heavily regulated; but so are most, in this epoch. So, go in good conscience, say I, and be the best banker you can be. Should you advice your clients about FDIC and other such options? If you didn’t, you wouldn’t be doing your job. Lookit, if it is justified to use the post office, government fiat currency, roads highways and streets, museums, symphony halls, it is certainly justified, for the good guys that is, to take advantage of the FDIC. In giving your clients information about this source of funds, you are only “using” them second hand. If they may do so, and, in my view they may, then you may appraise them of it too.3:29 pm on September 29, 2016 Email Walter E. Block