It gives me great pleasure to introduce to you now Murray Rothbard, and I've been doing a little soul searching and thinking as to how I can best introduce Murray to things such as this.
And I thought there were really only two ways. One is to just sort of say, here he is folks.
And the other is to give a full introduction of the sort that he deserves, which would take about a half hour.
And since he's only got a half hour to speak before lunch, I've decided to just say, here he is folks.
Thank you all very much. This is a real surprise for me. I thought that the secret was kept at tight control and grand unusual in the movement.
And I was informed I would be here coming in this morning at ungodly hour, of course, to come in on Walter's paper on fractional reserve banking.
I prepared on that. I've got some stuff on that, but anyway, the rest of them have to wing it.
The seizure of the, oh, Sam Walters' paper, first place, he mentioned about the Hotel Diplomat, the first Louis Herring Scholars' Conference, which almost ended in disaster.
And, but the activist wing of the conference wanted to seize Fort Dix.
I argue that it's not only irrelevant to the conference, but also likely to fail.
Of course, that turned out to be right.
I know it's a very good point, what we made about the banking cartel.
It's a good point, and we should think about it further.
And what's about the economics and moral arguments fitting in together?
So reconfirming each other, checking each other.
There is, of course, a problem with an anarchist or an anarcho-capitalist. How do you fit that in with government or whatever, in position of 100% reserved banking?
And the first thing to say, I think, on that is that not all law is government, as several people pointed out, and I think Randy Hogan pointed out, law comes before government.
Government, and of course government messes it up, we'll get to that in a minute.
And so what we're talking about is a legal question, not a governmental question, not a question of agency, of who should be enforcing the law.
Number two, a second aspect of that is that the libertarians of course always focus on government as the major criminal,
the major organized criminal, which it is, the major robber, the major, and sanctioned robber,
Major murderer, major kidnapper, major regulator, controller, and all that.
But also, of course, we should also remember there are private criminals once in a while.
Because New Yorkers are quite familiar with it.
And a lot of private people commit fraud and theft, etc., etc.
I think on the fractional reserve front, the point I would emphasize even more than the fact that the bank is inherently bankrupt,
Fractional Reserve Bank, which of course it is, but it's also engaging in, what I call, implicit thefts or embezzlement, and so that makes it an even stronger, I think, moral position.
Even if the Surgeon General left, the Surgeon General had a warning on like, each bank note, this is dangerous for your pocketbook.
As Walter says, it's not likely to be a bank note very much longer.
Also, the idea of a voluntary fractional reserve banking system seems very bizarre to me.
It's very much like people claim the state is really voluntary because it's conceivable that 10 people can get together and form a quote state unquote and read quote tax themselves unquote.
And this somehow repeats the idea that the state, the existing and all existing past and present states are coercive.
That's even irrelevant. Existing, past, present, and likely future fractional reserve banking is deceptive. It's fraudulent.
I would also say on that that it's not only banks that have done this. It's not only a theoretical point, but also an historical point.
First of all, the law of warehousing has always been in very bad shape, and only is corrected in recent years.
And the point is, it seems to me very clear that a warehouse owner, when he accepts something to be put, a deposit there for safety, doesn't own the damn property.
It seems to me very clear that this is a law, a bailment contract and not a sale of some sort.
And that if I put a chair on a warehouse for deposit, I have a warehouse receipt to tell me I can call and get the chair or beam the chair at any time.
I'm still the owner of the chair. This warehouse man is simply guarding it. He's the safe keeper of it.
And he gets paid for his service of guarding it. So what's happened is in some warehouses, when I deposit a chair in a warehouse, there's no problem.
There's not much temptation for embezzlement or theft because if I come back three weeks later and say I like my chair, here's the deposit.
Well, I haven't got that chair. I've got another chair. This is good.
It might be blue instead of green, but what difference does it make?
I would, of course, hit the ceiling and call it John Worms and something like that.
By the way, this is an argument that had a libertarian circle for many years.
Since an existing situation of stateism has a monopoly on protection, is it permissible?
Is it morally permissible to call a cop if you're being loved?
My answer is absolutely yes.
The problem has the fungible goods, in other words, goods which are homogeneous. You really don't care whether it's your particular bushel of wheat that you've deposited, as long as it's the same kind and grade and so on.
And so the first fraction, well not the first, but one of the first fractional reserve issuers were not banked so much as rain elevators, rain warehouses which keep kept wheat, corn and oats.
And where a grading system came in, number two spring wheat, you get your hundred bushels, you don't care if it's specific hundred bushels with your mark on it.
And so in that situation, rain elevators were tempted to start engaging in Buzzelner, what's kindly called fractional reserve banking.
Banking. In other words, to issue phony warehouse receipts, which are not represented by the bushels of wheat.
Think warehouse receipts, in other words. And then they lunged it out, speculated on the grain exchanges, and lunged them out, and received money on it.
And as a matter of fact, in Chicago in the 1860s, there were about 600 or so grain merchants, and they were using grain elevator receipts as if they were money.
They were exchanging them. They were meeting and exchanging for settlement rain accounts.
So they functioned as money in a limited sense.
But the way the weight-elevators got away with it, they kept the whole thing very secret.
They didn't tell anybody. There was no order, of course.
They didn't tell anybody how many receipts they had in comparison to how many bushels of rain they really had in their warehouse.
And finally, I think what happened was, in 1872, there was a fire in one of the warehouses.
They found out, lo and behold, that 300,000 bushels of warehouse receipts were outstanding,
with 60,000 bushels of wheat in the warehouse.
And of course, everybody hit the ceiling when this knowledge came out.
So the rain elevators were considered, and since it was a fungible item,
Legal theorists consider the depositing of wheat in grain elevators as not a bailment, but an actual sale and repurchase agreement.
So the wheat elevator person is not an embezzler, but simply, quote, a boob of wheat.
And so this is a defect in warehouse launches, which since then has fixed up.
So now it's considered that you're a thief, and not just have gone into debt.
If you don't pay up, if the wheat isn't there, you don't redeem it.
So, unfortunately, in banking it didn't work that way. Banking for purely historical reasons, even though the argument was made that this is a bailment, deposit of gold or money in a bank, the judges ruled against it, the majority of judges, it was a split decision, and from then on it got incorporated into the law that it's not a bailment, it's simply a debt. You're just an entrepreneur, you happen to go bankrupt once in a while, but it's of course not the same thing. Walter used the argument of parking lots.
You haven't heard that one yet. The traditional argument was a bridge.
You have a bridge across the river. You know each person has an... each taxpayer or whatever, a citizen has an equal access to the bridge.
It isn't guaranteed. It might be, you know, 2,000 people trying to get on the bridge and only room for 100.
And so there's nothing wrong with that. It's simply an entrepreneurial decision of the bridge owner.
However, of course, there's no claim. You're not getting your property back if you want to walk or ride on the bridge.
It's a very different situation. This is your property and you want it back and somehow it isn't there.
There seems to be a much different stature than not being able to get on the bridge.
Of course, there's also government bridges and maximum price controls of zero on driving, things like that, which cause congestion.
That's another topic.
So finally, I conclude with one gentleman raising questions.
Larry White's book on free banking in Britain.
Now, I came on with that. I used to accept the argument in the book on free banking in Scotland.
I since then looked deeper into it and came to the conclusion he was all wrong on this.
If you look at the book, he tries to prove that free banking in Scotland was significantly better, different and better than free banking in England.
His only proof of that is that there were fewer bank failures in Scotland. He doesn't say anything about less inflationary, anything of that sort.
That's the tip number one. I have nothing against bank failures. As a matter of fact, bank failures are usually pretty good.
And the fact that there were a few bank failures is a cause for suspicion rather than a congratulation.
So looking at it more closely, I found out that the banks in Scotland pyramid on top of the Bank of England, just as the English banks did.
They were not free in any sense. It would be used by any libertarian or free market person.
in Scotland, they kept almost all their reserves, such as they were in the Bank of England,
a very small proportion of reserves though, right, and the Bank of England would bail
them out if they got into trouble, they kept very little gold on hand, if you try to, not
only that, but if you try to get the gold, you wouldn't get it, in other words, it was
the custom of Scotland, you couldn't get the gold if you tried to redeem your deposit or
note in gold, so free banking in Scotland was neither free nor legitimate banking in
any sense.
I just got one quote on this, one pamphlet was written in this period in Scotland, they
Any southern fool south of the Scottish-English border who had the temerity to ask for a hundred sovereigns might, if his nerves supported him through the cross examination of the bank counter, might think himself lucky to be hunted only to the border.
I wanted to do this because in my panic of 1819, my first work, Riccardo was a correspondence between Riccardo and Condi Raguet.
He was a very bright American economist who was indeed in favor of 100% reserve banking.
Riccardo was asking him, how come in the United States you have these banks that don't pay up when they're supposed to pay up?
And in England they pay up if they, you know, or else go bankrupt.
Riccardo's, Raguet's trying to explain to Mr. Riccardo, you see Mr. Riccardo's a little different here.
Most people in town have either stockholders of a bank or depositors of the bank or they owe money to the bank.
Everybody else is written out of town on a rail.
So that's the sort of gold standard or whatever they had in the property rights they had in Scotland.
So I think the book is all wet, to put it very bluntly.
And pass on a Randy Hogan's paper.
I'm in agreement with all the papers.
I should say that right now. All the papers are read today.
The usual situation for me to be in, I'll tell you that.
So all I can do is gloss some, you know, make some extra points from here to there.
The problem again with the Buchananite view of contractarianism, one of the problems is the idea that agreement,
you start with agreement and you continue with agreement.
The problem with that is, of course, that you're assuming the justice of the zero point.
I was assuming the justice of the situation before you start the agreement.
My favorite example of this, which of course is absurd, is that as the United States, let's say we've convinced everybody in the government
that the government is immoral, et cetera, and private property rights should follow.
They're just about to dissolve.
And the New York state government turns all the private property, all the territory of New York,
New York over to the private property of the Rockefeller family, which is not too absurd a conclusion.
And then I was supposed to respect the property rights of the Rockefeller family because that was private.
That's the sort of argument.
But in other words, the question is, you're starting with the agreement.
Supposing some guy's already stolen half the property of everybody else, why should he have to agree for any kind of social arrangement?
Why shouldn't he be forced to?
RANDY AND DOCTRINE
I mean, it seems to me it follows obviously. Somehow they didn't make that step.
They're interested in logic. Somehow they never got to that next logical step.
On police protection, of course, again, Randy made an excellent argument.
One point about police protection, I've always found it very easy to argue in New York City for private police
because there ain't no government police protection here. We live in a state of anarchy in the bad sense.
Anarchy in the Bad Sense
There are police, of course, but they don't do much
They coup, which is a phrase known in New York as sleeping in Riverside in their cars in Riverside Drive
They're supposed to be on duty
They harass, of course, people who have to pay them exactions like those who want to uprate gambling parlors and things like that
And that's about it
If you're a private citizen, you're very lucky to get any police friendly in New York
in New York, and also if you get robbed, traditional thing in police, they come and they say, yes, your house has been robbed, okay.
And the next step is they fill out the insurance form. In other words, the police are essentially a very expensive form of insurance agents.
They say, okay, you have insurance, yeah, okay, we'll fill out the form so you can collect the insurance.
If you don't have insurance, they say you should have had it. That's it. There's none of this TV stuff of a fingerprinting and the rest of the nonsense.
That's it. That's the police protection we get for an enormous amount of money, of course, coughed up to these bozos.
And with roads, again, I just want to say about... make the point again that not only are government roads less efficient,
they also supply you with traffic congestion at bus hours in midtown New York and that sort of stuff,
because, of course, their price is effectively zero for important service.
They claim it's not zero because you pay for the roads and your gasoline tax.
But of course there's no fine-tuning of this thing.
You pay the same gasoline tax for riding up there on whatever the route is in Westchester where there are no cars.
It's a magnificent road, by the way. I recommend it to everybody.
An eight-lane highway and no cars.
I forget the number of it. Anyway, it's the Pound Ridge area.
Courts, again, I'll run a reinforced Randy's point.
not only was the common law originally private, all the good parts of the law, merchant law, merchant was developed by merchant courts because the kings didn't care about trade, admiralty law, the whole law of the sea was developed by private merchants, shippers and so forth, it was only they cared about the admiralty law, and all the rest of it, it's just really, and then of course the government nationalized it later, nationalized legal function, but all these courts originally privately worked out, after all the merchants were the only ones who knew anything about merchant law, what does the king know about it? So at any rate, and also nationally,
The National Defense, I just want to reinforce, the only way Britain could have conquered India, a much larger country, of course, with many more people, is just to conquer the Maharaja. They couldn't go and conquer every individual Indian. It would have been absolutely impossible.
And also, Randy also said that by making theoretical arguments about anarchy versus minarchy or whatever, I think, just look at it this way, I like the way I like to put it, supposing we all drop down from Mars or something, we suddenly find ourselves in a society, you know, a couple of thousand people or whatever, and we're trying to figure out what form of government we should have, and somebody says, look, here's what we do, let's give all of our guns to the Jones family over there, because they're big and tough and so forth, Jones brothers, all our guns, we'll turn over all our guns to them, we turn over all the decision-making power to the Jones brothers,
and they can make all the decisions of who owns what and who's the rest against who and that's it.
And that's the, of course, the minicast solution.
We have a monopoly of violence in the hands of one institution, one group.
It seems to me that nobody could get away with that.
Even the Jones brothers could hardly have the gall to put forth this concept.
It's only because we're stuck in archi, and we're stuck in many centuries of archi,
that anybody can get away with this.
We're habituated to the idea of government police and government decision making and all the rest of it.
and the rest of it. I mean, nobody get away starting from the zero point. Nobody get away with this nonsense argument.
And by the way, just one other point on that. One of my favorite things about, he said about, it would work if people realized it could work and we try it.
In the thirties, they used to talk about the Soviet Union as a great social experiment. They talk in terms of scientific experiment, a laboratory.
Well, so my answer is about trying anarchism. Give us a state. Give us New Jersey, for example.
Try having totally free New Jersey and see what happens.
Of course, the enterprise zone concept was a little bit like that.
Of course, they only applied, they never got applied in very limited and crab fashion.
You couldn't even recognize it. But basically, that's it.
You want to try a free zone and see what happens.
On Roger Garrison's paper, I just want to say that the mention of the typical textbook argument
in a book argument, in micro-text, showing that prices of factors of production are determined by marginal productivity of the factors.
They start with wage rates, and so wage rate have a marginal productivity curve, wage rates are equal to it.
And then they leap from that on a fantastic cosmic leap, which is never recognized by any of these people, to interest rates.
They do it the same way. Interest rate is on the y-axis, and quantity on the x-axis.
And that way, interest rate is determined by marginal productivity capital.
And it seems to me if they're being logical, they would put, not interest, but the prices of capital goods, prices of machines, prices of factories, and so on and so on.
They don't do that. Somehow interest gets shoved in and nobody seems to question this. What an odd position.
Also, I'd also like to point out that only time preference can explain interest on consumer loans.
There's no productivity here. Somebody wants to borrow something so he can splurge right now and, you know, buying a TV set or something.
or whatever, going on a trip to Europe, obviously there's no quote productivity involved in this
and the pure time preference explanation is the only one that integrates, provides the same explanation
for interest on producers' goods, interest in production as interest in consumer loans.
Von Bawerk, of course, made that point and then kind of withdrew on it and fuzzed it up afterward.
I'm delighted to hear about Mr. Sperry on neurophysiology from Emmy Grenander's paper.
I never heard of him. I think this is great.
I just want to point out there that the idea of the mind determines itself as a standard Thomist position.
So that's without knowing biology, St. Thomas or either that, or whatever, inductive, deductive, whatever insight you want to make.
The, again, I have very little to say on David's paper, David Gordon's paper. I think it's great. And the, I would say a little, I would say sort of, when he said at the end, that's Rollins' biographical point, if he can't see that slavery is evil, I would use a California, since David comes from California, Rollins comes from California, use the standard California jargon, which is, that's his problem, not mine. I tossed that out as an unimportant point.
The Hans Hoppe's paper, I think, is absolutely magnificent. I urge you all to read it when it comes out, because I think it's a real breakthrough, using essentially a Thomistic kind of, or Aristotelian kind of self-contradiction argument, and was showing that anybody else who disagrees with us is caught in the self-contradiction, even though it's not a natural rights argument. It's a fantastic argument. It should appeal to modern philosophy,
Hans-Werner Hans-Werner Hans-Werner Hans-Werner
And Jim Sadassi's argument about property values fits in beautifully with Hans' argument about you can't protect property values,
any kind of rational libertarian framework or any framework for that matter.
And also David Gordon mentioned about animal rights in his comments and answering a question.
and, well, I share Emmy Grenander's view that animals should not be tortured unnecessarily or whatever.
I still affirm that there are no animal rights. I think my standard quip on that, which I think is really true,
is animals get their rights when they petition for them. And until they petition for them, they don't deserve it.
I also want to point out that there are some extremists on the rights front that also include vegetable rights.
And if they're really serious about this, they kill themselves off very rapidly.
The whole Hans's argument about you have to be alive to be participating in an argument for ethics would work very well.
If you couldn't eat animals or eat vegetables, you'd be soon dead and sort of take care of these rights extremists.
I don't, yeah, I guess that sums up my general reaction. I think this is a marvelous gathering, as I said, and nothing about it, and I think it's super, and not much I can say except thank you all. It's great.
In most gatherings of this sort, where there is one person who has contributed so significantly, the great man speaks and his followers just sort of bow down and never question, but we run things a little differently here as you well know
Is it not at all possible for you to imagine, in a non-governmental setting, the evolution of fractional reserve banking on a strictly voluntary basis?
If you want to give your money to a bank that makes it clear to you that they're lending out 80% of it and that for that reason they don't have to charge you for parking your money there, they might be able to pay you something.
Wouldn't you have a right to do so?
Yeah, I think what would happen is, I mean, it seems to me the public would try to make it clear.
In other words, I think one of the best, healthiest developments in banking in the last 20 years or so is the CD, you know, the certificate of deposit.
When you buy a CD, you know that it's not there for six months or a year or something.
You know that the bank is going to take it and lend it out and pay it back.
It seems to me, to be clear about the whole thing, it would be much better to have a CD arrangement.
You know that the money is not there. There's no confusion.
You think the money is there and they think it's not there or whatever.
And it seems to me CDs would develop as the standard kind of, quote, savings, unquote, in bank deposits.
And I just don't think of what happens.
I think as Walter mentioned, there are laws against calling banks to the question.
I think the first law was passed in 1932.
In 1932, in the middle of the magnificently healthy bank collapses, bank runs of the Great Depression,
which, by the way, we almost had a chance to establish 100% reserve banking right now,
because the whole fractional reserve banking system was going down the tubes.
It was magnificent. Depositors were finally rising up.
The Republican Party felt it was all a Bolshevik plot, as they called it in those days.
And the communists were spreading rumors that the banks were unsound, so they passed a law saying, making it illegal to pass the spread rumor, to spread untrue rumors that the bank was unsound.
Of course, what do you mean by untrue? It's up to the government to decide whether it's untrue or not.
Now, you can make statements like I do that all banks are unsound. They don't mind that so much. It's specific statements they don't like.
For example, the sort of society I would like to see is one where you can take out full-page ads.
I remember Leland Yeager was quite charmed with this, and I wrote about this in his book that he edited years ago.
You have anti-bank vigilante leagues, and the anti-bank vigilante would take out ads saying,
Look, Chase Bank is bankrupt. Get your money out now. That's illegal now.
In a world where that would be legal, we probably wouldn't need the specific enforcement of 100% banking.
The market, in that sense, would take care of it.
I've got a question in the same vein.
Murray, do you see any significant difference between fractional banking notes
that we're talking about here and commodity futures contracts?
It seems to me that both represent nonexistent wealth,
both represent an entitlement to ownership, not just usage,
and both also represent future debt to the holder.
My guess is that it's not the same thing at all because one is a future,
Futures contracts are future contracts for the future, which are not relevant in the present, although there is a wing of the movement, by the way, which I don't understand about futures contracts in any detail.
And as a wing of the movement, there's a gentleman here in New York who was organizing the American Board of Trade and a commodity forward exchange, who claims that futures agreements are evil and fractional reserve banking, and he substitutes forward agreements.
agreements. I don't understand the difference between futures and forwards. I'm sort of out of that argument. But my offhand view is it would not be the same at all because it's precisely because it's a futures contract, not at any time of the, you know, any demand at any moment contract.
Thanks, Murray, for indulging our questions and thanks for your talk.