In a recent missive of Dr. North’s, he states the following:
“De Soto begins with a summary of the Austrian theory of the monetary system. He begins with Rothbard’s position: 100% reserve banking. This means that banks may not legally issue warehouse receipts to gold or silver that they do not have in storage. They may not legally issue checks for more money than they have as deposits.
“This restriction is opposed in theory to the rule proposed by Ludwig von Mises. Mises believed in free banking. He did not believe that the government should establish any reserve requirement for the commercial banks, because he did not trust the government to make a judicial ruling that would apply to all banks. He did not trust politicians’ ability to make a judgment regarding the correct percentage. He believed that the banking system, through competition, and through the enforcement of contracts, would establish the proper reserve ratio.
“Rothbard promoted 100% reserve banking. But there is something that is never mentioned by the Rothbardians in relation to banking: Rothbard was an anarchist. He did not believe that the state should even exist. Therefore, in his ideal banking system, it is impossible for the state to impose a 100% reserve requirement, because there is no state. There is no agency with the legal right to send an agent with a badge and a gun to tell a banker how much gold or silver he should have in reserve for accounts.
“This means that, in practice, Mises’s system of free banking is the operational standard for those people who are followers of Rothbard on the issue of banking and civil government. If there is no state to impose 100% reserve banking, then the system must operate in terms of a market-enforced banking system. While the two systems are opposed in theory, they would be the same in practice.”
But this is an error. As it happens, in a previous blog, I pointed out this very mistake of his:
2. Anarchism:
According to Gary: “[Mises’s] disciple Murray Rothbard promoted 100% reserve banking. But, because he [Rothbard] opposed the existence of the state, his call for 100% reserves was not a call for legislation requiring 100% reserves.”
Murray Rothbard of course opposed the state. But, according to Gary, Murray would therefore have to oppose all legislation or laws. Yet, clearly, Murray (as a libertarian, not an Austrian), favored laws against murder, rape, etc. In his view, they would be implemented not by the government, but by private defense agencies. It is a misconstrual of free market anarchism to say that advocates of this philosophy oppose all laws. Au contraire: We are supporters of proper law, i.e., laws upholding individual rights and private property. Indeed, our criticism of the government is that it violates such proper law.
3. Free banking:
States Gary: “As far as I can see, operationally speaking, his [Rothbard’s] position was the same as Mises’s position: free banking.”
No, Murray opposed (again, as a libertarian, not Austrian) the free banking (of Selgin and White). For example, see this article of his: Rothbard, Murray N. 1988. “The Myth of Free Banking in Scotland.” The Review of Austrian Economics, Vol. 2, pp. 229–245. Reprinted in The Logic of Action Two: Applications and Criticism from the Austrian School. Glos, UK: Edward Elgar Publishing Ltd., 1997, pp. 311–330.
However, Dr. North either did not read this, or ignored it if he did, and is still repeating his misinterpretation of Rothbardian anarchism. Certainly, he offers no reasons to reject my understanding of this issue. So I shall take this opportunity to again correct him.
If Dr. North were correct, it not only follows that in the Rothbardian system there would be “no agency with the legal right to send an agent with a badge and a gun to tell a banker how much gold or silver he should have in reserve for accounts. ” Another logical implication is that there would be “no agency with the legal right to send an agent with a badge and a gun to tell a” rapist to stop his depredations, e.g., to forcibly stop the rapist. There would be “no agency with the legal right to send an agent with a badge and a gun to tell a” murderer to cease and desist, e.g., to forcibly stop the murderer.
Now this is just plain silly. Did Dr. North not ever hear of private defense agencies that Murray Rothbard wrote about again and again? Of course these private police would stop murderers and rapists and thieves and their ilk, and of course private courts would punish them, according to libertarian theory, à la Rothbard. And the same goes for criminals who engage in fraud, whether by writing bad checks, trying to counterfeit credit cards, or by engaging in fractional reserve banking! So Professor Jesus Huerta de Soto is entirely correct on this particular dispute between them, and Dr. North is in error.
2:47 pm on June 27, 2012
