Within the Austrian School of Economics are divergent points regarding theory. It can be a good place to develop an understanding of modern economic practice. Here are two sides of a debate regarding something called "free banking", a theoretical corrective to the problems we have today. Selgin v Corrigan.
There is one point that keeps these discussions unclear. And that one point is the definition of money. Money is that medium of exchange and store of value. (Usually gold or silver or both.) Now that "store of value" sends some purists through the roof, but it just recognizes the medium of exchange usually proceeds from a well known commodity, and "store of value" does not assume "steady value."
Yet, in fact, when some 50 years ago you could buy a gallon of gas for 2 silver dimes, today we no longer have silver dimes (money), but if you were to sell two silver dimes to a gold dealer today, you'd get enough to buy a gallon of gas. So as a store of value, it actually works pretty well, but it is not guaranteed to be steady.
They keep calling warehouse receipts and bills of exchange and fiat currency money. Thus the discussions get foggy.
One other problem, is historical changes. They get into an example of a miller taking an IOU from a baker who in turn sells the IOU to a banker. Well, the baker issued the IOU to the miller. The contract is between the baker and the miller. Until about 150 years ago, the miller could not sell the IOU to the banker without the baker's approval. The baker never agreed to do business with the banker and had a very good reason to not to do so, since banks make money on fees, and experience a moral hazard of for temporary want of cash flow a baker may find his entire operations forfeit to a banker.
The moral hazard is a bank that lends 90 on paper with a face value of 100 invites its contributors, such as millers, to submit paper with a face value of 100 for the 90 the bank is lending, when in fact the paper is worth ten. We are working our way out of that precise problem, and we now on top of everything else must pay Chase's $13 billion fine for this practice. (They won't.)
Before modern banking, the miller extending credit on flour to a baker was interest-free. The banks were not necessary. When the State began to permit, then enforce, usury, all business was under threat of the bankers. We see its apotheosis today.
Selgin may too be Austrian, but he is arguing for a fix which allows for the system to limp forward. I say I am "informed" by the Austrian school, because it is relentlessly good theory. I dissent in the measure it allows usury, so I can never be a true Austrian.
In any event, there is a beauty contest among courtiers for who can hit the right combination to keep the regime going after the next crash. The stakes are high, and someone will win. But never the worker or the consumer.
Feel free to forward this by email to three of your friends.
There is one point that keeps these discussions unclear. And that one point is the definition of money. Money is that medium of exchange and store of value. (Usually gold or silver or both.) Now that "store of value" sends some purists through the roof, but it just recognizes the medium of exchange usually proceeds from a well known commodity, and "store of value" does not assume "steady value."
Yet, in fact, when some 50 years ago you could buy a gallon of gas for 2 silver dimes, today we no longer have silver dimes (money), but if you were to sell two silver dimes to a gold dealer today, you'd get enough to buy a gallon of gas. So as a store of value, it actually works pretty well, but it is not guaranteed to be steady.
They keep calling warehouse receipts and bills of exchange and fiat currency money. Thus the discussions get foggy.
One other problem, is historical changes. They get into an example of a miller taking an IOU from a baker who in turn sells the IOU to a banker. Well, the baker issued the IOU to the miller. The contract is between the baker and the miller. Until about 150 years ago, the miller could not sell the IOU to the banker without the baker's approval. The baker never agreed to do business with the banker and had a very good reason to not to do so, since banks make money on fees, and experience a moral hazard of for temporary want of cash flow a baker may find his entire operations forfeit to a banker.
The moral hazard is a bank that lends 90 on paper with a face value of 100 invites its contributors, such as millers, to submit paper with a face value of 100 for the 90 the bank is lending, when in fact the paper is worth ten. We are working our way out of that precise problem, and we now on top of everything else must pay Chase's $13 billion fine for this practice. (They won't.)
Before modern banking, the miller extending credit on flour to a baker was interest-free. The banks were not necessary. When the State began to permit, then enforce, usury, all business was under threat of the bankers. We see its apotheosis today.
Selgin may too be Austrian, but he is arguing for a fix which allows for the system to limp forward. I say I am "informed" by the Austrian school, because it is relentlessly good theory. I dissent in the measure it allows usury, so I can never be a true Austrian.
In any event, there is a beauty contest among courtiers for who can hit the right combination to keep the regime going after the next crash. The stakes are high, and someone will win. But never the worker or the consumer.
Feel free to forward this by email to three of your friends.
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