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from LibertyBlitzkrieg There are several things one would want to accomplish ahead of the formation of a totalitarian state. One of these is to fill the minds of the citizenry with mindless propaganda and make them terrified to death of an outside enemy. Check. Another is to disarm the population. Working on it. Yet another [...]
Listen to the MP3 here (streaming or download) or via the YouTube below. Fran and John in the studio, and Adam Kokesh on the phone. Adam Kokesh Interview Adam Kokesh is an American libertarian anti-war activist, podcaster, military veteran, He has hosted a talk radio show, and a brief television stint on RT. Kokesh served [...]
Note: In Wyoming, you can legally make a firearm for personal use or in-state transfer without an FFL and it is illegal for the BATFE to attempt to arrest you for it. The law is very specific, so look it up, but you can legally print a gun here if you follow the rules. from [...]
SkyderALERT is a global movement fighting to end the world’s most dangerous environmental program ever – GeoEngineering and SRM: Using airplanes to spray the sky with toxic metals and particles, intending to block the sun and force climate change while creating unknown consequences. http://www.skyderalert.com/
by Mike Adams We are republishing two important stories here (with links to original sources) that you need to read. The first is a report from a man who survived the war in Bosnia. Although the source of this cannot be confirmed, the advice is extremely valuable regardless. The second story, appended to the bottom [...]
The number of names on a US database used to track suspected terrorists has skyrocketed to 875,000 in five years, a US official told media. One of the alleged Boston Marathon bombers, Tamerlan Tsarnaev, was added to the list in 2011.
The Terrorist Identities Datamart Environment (TIDE) database has reached 875,000 names from 540,000 just five years ago, an anonymous official told Reuters. The increase in names is due in part to security agencies using the system more in the wake of the failed 2009 attack on a plane by “underpants bomber” Umar Farouk Abdulmutallab in Detroit.
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Adam Kokesh, who was arrested during a peaceful protest against federal drug policies in Philadelphia, has been formally charged with felony assault on a federal officer (18 USC 11). According to freeadam.net, which has also posted copies of the complaint against Kokesh, the hearing today did not set bail and Kokesh was not released, but will have another hearing Thursday which could result in either bail being set or a release pending court proceedings.
UPDATE: I was on the FUDC.org podcast today talking about this as it broke. You can listen to that here.
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It has been a long time since I had picked up a copy of the “Report From Iron Mountain“.
But something about this recent bombing event in Boston reminded me of the incredible accuracy of this report in its articulate foreshadowing of many of the decade’s recent political and media “events” and their consequences as a plan of action for a system of peace by deception and control induced by perpetual fear and terror.
If you have not read this document, I strongly urge you to do so as soon as you are able. Here is the link to a pdf:
LINK– http://projectcamelot.org/Report_from_Iron_Mountain.pdf
And for those who have an aversion to reading, this video presentation was made long ago on vhs tape (warning: severe but tolerable biblical overtones):
The report’s subtitle is, “On The Possibility And Desirability Of Peace“, though the personal perspective of the report’s author(s) is more one of psychopathic control by force-induced Orwellian quasi-peace through the threat of violence. It is a carefully thought out plan created in the 1950?s, think tanks, laying out the most perfectly devious ideals on social control through government induced terrorism imaginable. So plausibly insane are these historically accurate suggestions that until you realize they describe exactly what is happening all around us today, you can hardly believe they’ve all but come to fruition.
There was one aspect of the Report From Iron Mountain that particularly stuck with me over the past decade or so from when I first read it. This was the concept of purposefully created and implemented spectacles of public executions by government and its think-tanks and secretive military apparatus.
The report continuously focuses on the state of peace in the population, kept specifically by creating the continuous fear of and simulation of terror attacks and war. In this current stage, the public promotion and media publicizing of these “events” like that of the recent Boston Marathon bombing, the steady string of school shootings, the hanging of Saddam Husein, US Soldiers getting their heads chopped off in supposedly an Arab country, 9/11, Waco, or any other violence and graphic scenes is implemented and delivered into the minds of the population through media. And ultimately, this is considered necessary to maintain the peace by keeping the constant fear of war and terrorism in the forefront of the peaceful people.
Of course, this process must also be blamed by government on some outside or foreign enemy; the false ideology of unknown terrorism and terrorists all around us that can strike at any time. Even the environment and the weather are the weapons of future control in Report From Iron Mountain.
The report concludes that only in the past has war been the only reliable means to achieve peace at home, theorizing that only during times of war – or the threat of war – are the people compliant enough to tolerate the whims and tyrannies of government without complaint or outright revolt. The perpetual fear of invasion and a random unpredictable attack by an unseen enemy instills a sense of duty to obey and accept nationalist efforts to secure the borders defensively by striking offensively, no matter how morally, ethically, or constitutionally wrong those efforts or how many millions are killed. Random violence creates a tool to promote nationalistic feelings of patriotism where no amount of vile human rights violations and retaliatory sacrifice for the act of self-induced terror will be rejected by the public at large. To rally against and protest this national fervor to kill for revenge to maintain the peace is made to seem like treason by the masses of the population.
And for that nationalistic herd mentality to be accepted and continued even during times of peace, this presentation of “false flag” terrorism and violence must be kept fresh and exiting as a public spectacle often enough to keep instilled in the people that the homeland must be defended without question at all times. For in times of peace and prosperity, without the constant flashes of TV monitors and graphic print media propaganda, the people will inevitably begin to ask why such organized homeland security and the violation of their natural and political rights is either necessary or warranted. They will eventually resent higher taxes and the bureaucracy of government’s legal organized efforts to extort as much money as possible from the public without some threat from an outside enemy. They will even except the unreasonable paradigm that food, water, and natural resource shortages are a result of this illusion of terror. In peacetime, respect is lost for public leaders, which leads to social breakdown of the continuity and control of government. But with violence comes a false sense of respect out of perceived necessity, just as any person would temporarily respect a robber who required their wallet at gunpoint. Indeed no past government or civilization has overcome the deterioration and self-awareness of the masses that comes with the establishment of peace. Thus, to “stabilize society”, the Report From Iron Mountain concludes that the perpetual threat of perceived war, attack, and violence at home is paramount.
Here is what the report notes on (page 39):
The war system not only has been essential to the existence of nations as independent political entities, but has been equally indispensable to their stable political structure. Without it, no government has ever been able to obtain acquiescence in its “legitimacy”, or right to rule its society. The possibility of war provides the sense of external necessity without which no government can long remain in power. The historical record reveals one instance after another where the failure of a regime to maintain the credibility of a war threat led to its dissolution, by the forces of private interest, or reactions to social injustice, or of other disintegrative elements. The organization of society for the possibility of war is its principal political stabilizer. It has enabled societies to maintain necessary class distinctions, and it has insured the subordination of the citizens to the state by virtue of the residual war powers inherent in the concept of nationhood.
It is extremely difficult for so much of the population to even ponder the possibility that these attacks, bombings, and public killings blasted all over the media could actually be perpetrated by their own government. And yet, what possible group or person would hope to gain anything by bombing a bunch of runners in a marathon in Boston – except the group that wishes to pass ever more controlling regulations over all people; calling it “Homeland Security”? Who else but government can doctor the evidence? And who else but government can force the media to push the theory that Arab terrorists from some nation-less militant cell of “terrorists” were the responsible party with no proof whatsoever but that which government creates?
The report explains on (page 39) just how peace and control can be maintained through continuous planned and publicized public executions of innocents by perceived terrorists for “social organization”:
In general, the war system provides the basic motivation for primary social organization. In so doing, it reflects on the societal level the incentives of individual human behavior. The most important of these, for social purposes, is the individual psychological rationale for allegiance to a society and its values. Allegiance requires a cause; a cause requires an enemy. This much is obvious; the critical point is that the enemy that defines the cause must seem genuinely formidable. Roughly speaking, the presumed power of the “enemy” sufficient to warrant an individual sense of allegiance to a society must be proportionate to the size and complexity of the society. Today, of course, that power must be one of unprecedented magnitude and frightfulness.
It follows, from the patterns of human behavior, that the credibility of a social “enemy” demands similarly a readiness of response in proportion to its menace. In a broad social context, “an eye for an eye” still characterizes the only acceptable attitude toward a presumed threat of aggression, despite contrary religious and moral precepts governing personal conduct. The remoteness of personal decision from social consequence in a modern society makes it easy for its members to maintain this attitude without being aware of it. A recent example is the war in Vietnam; a less recent one was the bombing of Hiroshima and Nagasaki. In each case, the extent and gratuitousness of the slaughter were abstracted into political formulae by most Americans, once the proposition that the victims were “enemies” was established. The war system makes such an abstracted response possible in nonmilitary contexts as well. A conventional example of this mechanism is the inability of most people to connect, let us say, the starvation of millions in India with their own past conscious political decision-making. Yet the sequential logic linking a decision to restrict grain production in America with an eventual famine in Asia is obvious, unambiguous, and unconcealed.
What gives the war system its preeminent role in social organization, as elsewhere, is its unmatched authority over life and death. It must be emphasized again that the war system is not a mere social extension of the presumed need for individual human violence, but itself in turn serves to rationalize most nonmilitary killing. It also provides the precedent for the collective willingness of members of a society to pay a blood price for institutions far less central to social organization than war. To take a handy example…”rather than accept speed limits of twenty miles an hour we prefer to let automobiles kill forty thousand people a year.” A Rand analyst puts it in more general terms and less rhetorically: “I am sure that there is, in effect, a desirable level of automobile accidents—desirable, that is, from a broad point of view; in the sense that it is a necessary concomitant of things of greater value to society.” The point may seem too obvious for iteration, but it is essential to an understanding of the important motivational function of war as a model for collective sacrifice. A brief look at some defunct premodern societies is instructive. One of the most noteworthy features common to the larger, more complex, and more successful of ancient civilizations was their widespread use of the blood sacrifice. If one were to limit consideration to those cultures whose regional hegemony was so complete that the prospect of “war” had become virtually inconceivable —as was the case with several of the great pre-Columbian societies of the Western Hemisphere—it would be found that some form of ritual killing occupied a position of paramount social importance in each. Invariably, the ritual was invested with mythic or religious significance; as will all religious and totemic practice, however, the ritual masked a broader and more important social
function.
In these societies, the blood sacrifice served the purpose of maintaining a vestigial “earnest” of the society’s capability and willingness to make war– i.e., kill and be killed—in the event that some mystical–i.e., unforeseen — circumstance were to give rise to the possibility. That the “earnest” was not an adequate substitute for genuine military organization when the unthinkable enemy, such as the Spanish conquistadors, actually appeared on the scene in no way negates the function of the ritual. It was primarily, if not exclusively, a symbolic reminder that war had once been the central organizing force of the society, and that this condition might recur.
It does not follow that a transition to total peace in modern societies would require the use of this model, even in less “barbaric” guise. But the historical analogy serves as a reminder that a viable substitute for war as a social system cannot be a mere symbolic charade. It must involve risk of real personal destruction, and on a scale consistent with the size and complexity of modern social systems. Credibility is the key. Whether the substitute is ritual in nature or functionally substantive, unless it provides a believable life- and-death threat it will not serve the socially organizing function of war.
The existence of an accepted external menace, then, is essential to social cohesiveness as well as to the acceptance of political authority. The menace must be believable, it must be of a magnitude consistent with the complexity of the society threatened, and it must appear, at least, to affect the entire society.
Part of this difficulty to truly grasp that government is the true terrorist is the refusal to believe that at the end of the day, government is nothing but a corporation – an enterprise operation that treats people no differently than cattle in its consideration of the governed. The report refers to several think tanks and authors who make this distinction quite clear; that people are nothing but profit and loss commodities for governments disposal. Here, at the end of the Iron Mountain report, we read this:
1. A primer-level example of the obvious and long overdue need for such translation is furnished by Kahn (in Thinking About the Unthinkable, p.102). Under the heading “Some Awkward Choices” he compares four hypothetical policies: a certain loss of $3,000; a .1 chance of loss of $300,000; a.01 chance of loss of $30,000,000; and a .001 chance of loss of $3,000,000,000. A government decision-maker would “very likely” choose in that order. But what if “lives are at stake rather than dollars?” Kahn suggests that the order of choice would be reversed, although current experience does not support this opinion. Rational war research can and must make it possible to express, without ambiguity, lives in terms of dollars and vice versa; the choices need not be, and cannot be, “awkward.“
2. Again, an overdue extension of an obvious application of techniques up to now limited such circumscribed purposes as improving kill-ammunition ratios determining local choice between precision and saturation bombing, and other minor tactical, and occasionally strategic, ends. The slowness of Rand, I.D.A., and other responsible analytic organizations to extend cost-effectiveness and related concepts beyond early-phase applications has already been widely remarked on and criticized elsewhere.
(Page 53) expounds upon the importance of this Orwellian necessity of war in peace with regards to the thinking people who un-patriotically oppose this “war system”:
Another possible surrogate for the control of potential enemies of society is the reintroduction, in some form consistent with modern technology and political processes, of slavery. Up to now, this has been suggested only in fiction, notably in the works of Wells, Huxley, Orwell, and others engaged in the imaginative anticipation of the sociology of the future. But the fantasies projected in Brave New World and 1984 have seemed less and less implausible over the years since their publication. The traditional association of slavery with ancient pre-industrial cultures should not blind us to its adaptability to advanced forms of social organization, nor should its equally traditional incompatibility with Western moral and economic values. It is entirely possible that the development of a sophisticated form of slavery may be an absolute prerequisite for social control in a world at peace. As a practical matter, conversion of the code of military discipline to a euphemized form of enslavement would entail surprisingly little revision; the logical first step would be the adoption of some form of “universal” military service.
When it comes to postulating a credible substitute for war capable of directing human behavior patterns in behalf of social organization, few options suggest themselves. Like its political function, the motivational function of war requires the existence of a genuinely menacing social enemy. The principal difference is that for purposes of motivating basic allegiance, as distinct from accepting political authority, the “alternate enemy” must imply a more immediate, tangible, and directly felt threat of destruction. It must justify the need for taking and paying a “blood price” in wide areas of human concern. In this respect, the possible enemies noted earlier would be insufficient. One exception might be the environmental-pollution model, if the danger to society it posed was genuinely imminent. The fictive models would have to carry the weight of extraordinary conviction, underscored with a not inconsiderable actual sacrifice of life; the construction of an up-to-date mythological or religious structure for this purpose would present difficulties in our era, but must certainly be considered.
(Page 54) continues:
Games theorists have suggested, in other contexts, the development of “blood games” for the effective control of individual aggressive impulses. It is an ironic commentary on the current state of war and peace studies that it was left not to scientists but to the makers of a commercial film to develop a model for this notion, on the implausible level of popular melodrama, as a ritualized manhunt. More realistically, such a ritual might be socialized, in the manner of the Spanish Inquisition and the less formal witch trials of other periods, for purposes of “social purification,” “state security,” or other rationale both acceptable and credible to postwar societies. The feasibility of such an updated version of still another ancient institution, though doubtful, is considerably less fanciful than the wishful notion of many peace planners that a lasting condition of peace can be brought about without the most painstaking examination of every possible surrogate for the essential functions of war. What is involved here, in a sense, is the quest for William James’ “moral equivalent of war.”
It is also possible that the two functions considered under this heading may be jointly served, in the sense of establishing the antisocial, for whom a control institution is needed, as the “alternate enemy” needed to hold society together. The relentless and irreversible advance of unemployability at all levels of society, and the similar extension of generalized alienation from accepted values may make some such program necessary even as an adjunct to the war system. As before, we will not speculate on the specific forms this kind of program might take, except to note that there is again ample precedent, in the treatment meted out to disfavored, allegedly menacing, ethnic groups in certain societies during certain historical periods.
It might surprise the average reader to see such verbiage used as causally as it is here. The fact that there are actually “peace planners” controlling peacetime activities is like a cow realizing for the first time in its life that the farmer has indeed planned out its own life and society, and for that matter its slaughter.
Continued…
The existence of an accepted external menace, then, is essential to social cohesiveness as well as to the acceptance of political authority. The menace must be believable, it must be of a magnitude consistent with the complexity of the society threatened, and it must appear, at least, to affect the entire society.
The report also gives alternative possibilities to control the people, like the purposeful control of reproduction (population control) through both popular, legally binding, and covert means:
ECOLOGICAL
Considering the shortcomings of war as a mechanism of selective population control, it might appear that devising substitutes for this function should be comparatively simple. Schematically this is so, but the problem of timing the transition to a new ecological balancing device makes the feasibility of substitution less certain. It must be remembered that the limitation of war in this function is entirely eugenic. War has not been genetically progressive. But as a system of gross population control to preserve the species it cannot fairly be faulted. And, as has been pointed out, the nature of war is itself in transition. Current trends in warfare–the increased strategic bombing of civilians and the greater military importance now attached to the destruction of sources of supply (as opposed to purely “military” bases and personnel)—strongly suggest that a truly qualitative improvement is in the making.
There is no question but that a universal requirement that procreation be limited to the products of artificial insemination would provide a fully adequate substitute control for population levels. Such a reproductive system would, of course, have the added advantage of being susceptible of direct eugenic management. Its predictable further development—conception and embryonic growth taking place wholly under laboratory conditions–would extend these controls to their logical conclusion. The ecological function of war under these circumstances would not only be superseded but surpassed in effectiveness. The indicated intermediate step–total control of conception with a variant of the ubiquitous “pill,” via water supplies or certain essential foodstuffs, offset by a controlled “antidote”—is already under development. There would appear to be no foreseeable need to revert to any of the outmoded practices referred to in the previous section (infanticide, etc.) as there might have been if the possibility of transition to peace had arisen two generations ago. The real question here, therefore, does not concern the viability of this war substitute, but the political problems involved in bringing it about. It cannot be established while the war system is still in effect. The reason for this is simple: excess population is tar material. As long as any society must contemplate even a remote possibility of war, it must maintain a maximum supportable population, even when so doing critically aggravates an economic liability. This is paradoxical, in view of war’s role in reducing excess population, but it is readily understood. War controls the general population level, but the ecological interest of any single society lies in maintaining its hegemony vis-a-vis other societies. The obvious analogy can be seen in any free-enterprise economy. Practices damaging to the society as a whole–both competitive and monopolistic–are abetted by the conflicting economic motives of individual capital interests. The obvious precedent can be found in the seemingly irrational political difficulties which have blacked universal adoption of simple birth control methods. Nations desperately in need of increasing unfavorable production-consumption ratios are nevertheless unwilling to gamble their possible military requirements of twenty years hence for this purpose. Unilateral population control, as practiced in ancient Japan and in other isolated societies, is out of the question in today’s world.
Since the eugenic solution cannot be achieved until the transition to the peace system takes place, why not wait? One must qualify the inclination to agree. As we noted earlier, a real possibility of an unprecedented global crisis of insufficiency exists today, which the war system may not be able to forestall. If this should come to pass before an agreed-upon transition to peace were completed, the result might be irrevocably disastrous. There is clearly no solution to this dilemma; it is a risk which must be taken. But it tends to support the view that if a decision is made to eliminate the war system, it were better done sooner than later.
Earlier in the report (page 42), it also states:
Another secondary ecological trend bearing on projected population growth is the regressive effect of certain medical advances. Pestilence, for example, is no longer an important factor in population control. The problem of increased life expectancy has been aggravated. These advances also pose a potentially more sinister problem, in that undesirable genetic traits that were formerly self-liquidating are now medically maintained. Many diseases that were once fatal at pre-procreational ages are now cured; the effect of this development is to perpetuate undesirable susceptibilities and mutations. It seems clear that a new quasi-eugenic function of war is now in process of formation that will have to be taken into account in any transition plan. For the time being, the Department of Defense appears to have recognized such factors, as has been demonstrated by the planning under way by the Rand Corporation to cope with the breakdown in the ecological balance anticipated after a thermonuclear war. The Department has also begun to stockpile birds, for example, against the expected proliferation of radiation-resistant insects, etc.
And what of the subversive element of self-thinkers like myself, who rail against this eugenic control structure and war paradigm while trying to inform others of their unwitting fall into a projected peace based upon the lie of an imminent threat of terror attack and war?
Why government creates a service-oriented, non-violent military structure of course, as seen on (page 52):
SOCIOLOGICAL
Of the many functions of war we have found convenient to group together in this classification, two are critical. In a world of peace, the continuing stability of society will require: 1) an effective substitute for military institutions that can neutralize destabilizing social elements and 2) a credible motivational surrogate for war that can insure social cohesiveness. The first is an essential element of social control; the second is the basic mechanism for adapting individual human drives to the needs of society.
Most proposals that address themselves, explicitly or otherwise, to the postwar problem of controlling the socially alienated turn to some variant of the Peace Corps or the so-called Job Corps for a solution. The socially disaffected, the economically unprepared, the psychologically unconformable, the hard-core “delinquents,” the incorrigible “subversives,” and the rest of the unemployable are seen as somehow transformed by the disciplines of a service modeled on military precedent into more or less dedicated social service workers. This presumption also informs the otherwise hardheaded ratiocination of the “Unarmed Forces” plan…
Another possible surrogate for the control of potential enemies of society is the reintroduction, in some form consistent with modern technology and political processes, of slavery… (listed above)
–=–
Perhaps most difficult to comprehend for myself is the fact that this report actually lends credence to the dystopian ideas of Orwellian doublespeak. The Report From Iron Mountain clearly has the conclusion that war is peace, or at least that the illusion of war is necessary to maintain peace and government. Murder is life. Depopulation is duty. Procreation is death. Government is necessary…?
This paradoxical thought process, if one stops to ponder, is the very foundation of our current and growing sub-economy. From unmanned drones, NSA surveillance, cameras at every intersection, computer cyber-security, credit fraud protection, satellite monitoring, Homeland Security, transportation security, biometric identification, identification theft prevention, private contracting for military, security guards of all types, firewalls, anti-virus software, and every other form of terror-prevention programs, the country is literally being transferred from a war system to a peace system preventing an external threat that doesn’t really exist but internally. And the entire economy is being set up to prevent perceived but staged terror attacks by the very government control system that supplies and promotes violent attacks so as to promote a totally defensive peace.
Peace through terror is the New World Order.
Are we to live in a world where peace can only be kept through government-planned and executed terror attacks?
According to the Report From Iron Mountain, the answer is yes. And this means that random yet purposeful bombings like the one that hit the Boston Marathon on Monday are surely to continue perpetually into our foreseeable future.
That is, unless the “socially disaffected, the economically unprepared, the psychologically unconformable, the hard-core “delinquents,” the incorrigible “subversives,” and the rest of the unemployable” people out there rise up, organize, and put an end to this madness on behalf of all those who cannot see that government is the true enemy of the people.
Until then, I will continue to use my keyboard as my weapon against this “peace system” that is being foisted upon us, and I hope that you will take the time to read the Report From Iron Mountain before we, the “unconformable subversives” – the “potential enemies of society” become the new peace system slave foreshadowed in this report.
See you on the other side, my fellow degenerates….
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Fractional-Reserve Banking: Not Fraud, Not Folly
by Wendy McElroy
The practice of fractional-reserve banking has been variously defined. A standard and neutral definition is: the practice by which a bank maintains readily available reserves that represent only a portion of its customers’ deposits while lending out or investing the rest. At the same time, the bank stands by its obligation to redeem demand deposits upon request. Fractional-reserve is often viewed as an aspect of centralized banking or government regulation but it is an entirely separable practice that has functioned within free banking systems. Indeed, fractional-reserve was standard in the 18th century Scottish free banking system which economist Lawrence H. White described in his classic work Free Banking in Britain – Theory, Experience and Debate 1800-1845.
The iconic Austrian economist Murray Rothbard offered a different definition. In an article published by The Freeman (September and October 1995), he described his view of how fractional reserve operated even in the absence of a central bank. Rothbard explained, “I set up a Rothbard Bank, and invest $1,000 of cash (whether gold or government paper does not matter here). Then I ‘lend out’ $10,000 to someone, either for consumer spending or to invest in his business. How can I ‘lend out’ far more than I have? Ahh, that’s the magic of the ‘fraction’ in the fractional reserve. I simply open up a checking account of $10,000 which I am happy to lend to Mr. Jones. Why does Jones borrow from me? Well, for one thing, I can charge a lower rate of interest.” Rothbard called this “counterfeiting” because money is created “out of thin air.”
Additionally he viewed fractional-reserve as a fraud perpetrated on the original depositors. Why? If “the American public…in unison, demanded cash. What would happen? The banks would be instantly insolvent, since they could only muster 10 percent of the cash they owe their befuddled customers.”
Rothbard’s depiction encounters some practical objections. For example, he is assuming all deposits could be demanded in unison – that is, he assumes they are demand deposits and not term ones. Moreover, the same sort of logic could be used to discredit insurance companies. If all (or a significant enough number of) insurance holders filed claims in unison, the insurance companies would go bankrupt. And, yet, I am not aware of insurance companies being similarly viewed as fraudulent.
Instead of dwelling on side issues, however, I accept the description of fractional reserve offered by Rothbard and various other Austrians. I will disagree with them on their own terms.
What Is NOT Being Debated
Both libertarian defenders and opponents of fractional-reserve reject a state monopoly of money or banking; most of them reject any state involvement at all. Instead, both sides advocate privately issued currency that enjoys no legal privileges beyond those enjoyed by individuals. They argue for banking and currency by contract, by voluntary acceptance.
The disagreement on fractional-reserve banking is twofold. Is it fraud? Is it economically prudent? Only the first question is a libertarian one.
Libertarianism can be loosely defined as the political and social philosophy based on the right of every person to the peaceful use his own body and property. Stated in a ‘negative’ manner: libertarianism opposes force and fraud; the latter is a form of theft because it is the wrongful assumption of a property title.
Thus, if fractional-reserve banking is fraud, then it falls squarely within the realm of libertarian theory, and it would be outlawed by a free-market system. But if it is not fraud and merely imprudent, then it falls outside of libertarian analysis however interesting or useful an economic issue it may be. In other words, if fractional-reserve banking is voluntary and non-fraudulent, then a libertarian society would not outlaw the practice even if it proved to be a foolish one.
Is Fractional-Reserve Banking Fraud?
Theft is the non-consensual use of another person’s property. The owner relinquishes some or all control of his property in exchange for a described value. If the value is not as described, then no legitimate exchange or contract has occurred. As economist Bryan Caplan stated, “If you offer me a Mitsubishi 5500 projector in exchange for $2000, and hand me a box of straw instead, you are using my $2000 without my consent (which was contingent, of course, on you giving me the projector).”
The issue upon which fraud hinges is “informed consent.” If depositors at a fractional-reserve bank are fully informed of the bank’s policies and practices, then fraud is not possible. With full knowledge of the terms and the risk, the depositors are entrusting their money to the bank in exchange for an interest rate. (By contrast, a 100%-reserve bank that would not have the benefit of using most of the money deposited would presumably charge a storage fee rather than offer interest. Indeed, this is what happens with the 100%-reserve storage called safe deposit boxes.) Otherwise stated, an informed depositor may make a poor choice with whom or where to entrust his money but the free market and libertarianism does not prohibit even stupid choices.
To maintain the accusation of fraud in the presence of informed consent, some Rothbardian economists expand the definition of ‘fraud’ itself. As a counter to Bryan Caplan’s arguments in defense of fractional reserve, for example, Walter Block responded, “But, lying is only sufficient for fraud, not necessary. There are other ways to commit fraud besides an outright lie. For example, it is fraudulent for a bank or anyone else to try to sell you a square circle, even if they do not lie about it. Why? Because there is no such thing as a square circle, and, in order for a contract to be a valid one, not only must both parties agree to it (neither lies to the other), but, also, the contract must be in accordance with LOGIC.”
This is a strange requirement. It means a 3rd party would be able to invalidate a contract in which there is full disclosure and with which the contracting parties are satisfied. As with insurance policies that cannot be paid out if there is a ‘run’, there are quite a few contracts that may well involve what some Austrians see as a breach of ‘logic’. For example, a man might well pay a priest to hear confession and absolve his sins, or a psychic to tell his future. As long as both parties accept the logic of the exchange, it is not the business of an atheistic 3rd party to intervene and invalidate the contract. Just as the free market and libertarianism do not outlaw stupidity, neither do they prohibit a breach of logic. And a 3rd party has no business substituting his logic for that of the contracting parties.
The 19th century individualist anarchist Benjamin Tucker wrestled with much the same issue as the “illogical” contract. Like many contemporaries, Tucker believed that charging interest or rent was “usury” – an unethical or immoral monetary practice. He thought such practices were sustained by the state and would naturally disappear in a free market. When confronted with the possibility of people choosing to pay interest in a free market, Tucker agreed that such contracts would be valid. They would be immoral, unwise, and worthy of scorn but they would be valid because they would be voluntary.
Equally, contracts that seem illogical to a 3rd party are valid nonetheless.
Is Fractional-Reserve Banking Foolish?
The work of the libertarian monetary theorists White and George Selgin long ago convinced me that fractional-reserve banking would thrive in the free market, as it has done in the past.
The free market is well able to manage the problems perceived by fractional reserve opponents. Banks would rest increasingly upon their reputations as good managers; those with impeccable records of redemption would probably offer the lowest available interest on deposits. Defaulting banks would not be bailed out except in a free-market manner – e.g. by an insurance policy or buy-out. Perhaps insurance would be an optional purchase for individual depositors as well. Moreover, a bank that diluted the value of its own notes through an ‘inflation’ of supply would be ‘corrected’ with a loss of reputation and customers.
Opponents of fractional reserve would disagree, of course. But the important point here is that the disagreement is no longer libertarian but utilitarian. The question has become “Which is the best banking system: fractional or 100% reserve?” My answer: let the free market decide. Let individuals choose for themselves.
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