Cafe Hayek - Latest Comments in Capitalism vs. Central Banking

Re: Capitalism vs. Central Banking

Sam Grove — Mon, 09 Mar 2009 11:13:30 -0000

arnold stein

You can use Google language tools to provide an English translation.

Re: Capitalism vs. Central Banking

Martin Brock — Sun, 08 Mar 2009 09:48:35 -0000

Murali, we agree.

Re: Capitalism vs. Central Banking

Murali — Sat, 07 Mar 2009 17:46:00 -0000

Sorry martin, I meant that there are no moral rights which exist outside of common consent. There are of course no legal rights which exist outside the state

Re: Capitalism vs. Central Banking

Murali — Sat, 07 Mar 2009 17:45:59 -0000

Sorry martin, I meant that there are no moral rights which exist outside of common consent. There are of course no legal rights which exist outside the state

Re: Capitalism vs. Central Banking

Sam Grove — Sat, 07 Mar 2009 13:06:44 -0000

Milton Friedman's Second Thought's on the Costs of Paper Money.

Re: Capitalism vs. Central Banking

Oil Shock — Sat, 07 Mar 2009 07:06:59 -0000

To be fair, there is no such thing as a perfect monetary system

Agreed!

I know of no better monetary arrangement than inflation targeting

What's your basis for that assertion? Why is it that stealing purchasing power at a slow and steady rate morally right? How would you do inflation targeting? Admit for once, that monetary manipulation played a major role in the current crisis.

Should we have a metallic standard? Not unless you want to have extensive short-run volatility in real output and unemployment similar to the recessionary gap we see today.

What kind of metallic standard are you using for this assertion? Didn't Friedman want a 100% reserve paper standard? WHy should government be in the business of money at all?

After all, governments have been known to cheat on it. Even medieval kingdoms would create inflation by shaving the edges off coins to create an increase in the money supply to levy the unexpected price level tax

Sure, which is why government should stay out of the business of money. Seperation of money and state.

The best way to conduct monetary affairs that we know of is to have an instrument independent central bank to avoid the political business cycle.

You mean a group of elites who are answerable to no one.

This central bank should be a devout inflation targeter in order to avoid the time inconsistency problem which is the best way to adhere to a rules-based monetary regime for which Friedman so strongly advocated.

Refer to my first few questions in this particular comment.

Money is the corner stone on which all modern economies are built, if you could not trust the market to provide us with such an important tool, you should not be trusting market for anything else.

Re: Capitalism vs. Central Banking

Sam Grove — Sat, 07 Mar 2009 06:02:43 -0000

but if something like the Libertarian party gained the reigns of power and decided to slash federal employee (including military employee) health and pension benefits

Come on, Martin, the state will collapse before that will happen.

Re: Capitalism vs. Central Banking

Martin Brock — Sat, 07 Mar 2009 04:51:36 -0000

In theory, there are no property rights that exist outside of common consent.

A state requires some measure of consent, but I don't know how common this consent really needs to be. In the U.S., common people imagine the national nuclear arsenal as a defense against foreign invasion, but I imagine it only as instrument of persons controlling the arsenal. For the moment, these people still go through the motions of our nominally "democratic" processes, but if something like the Libertarian party gained the reigns of power and decided to slash federal employee (including military employee) health and pension benefits, including the benefits of existing pensioners, particular benefits of the Generals and other politicians, rather than slashing a state established college tuition trust that has held my money for two decades, how long would these pro forma motions last?

Re: Capitalism vs. Central Banking

Murali — Fri, 06 Mar 2009 18:56:26 -0000

There is no market capitalism without forcible propriety, and there is no forcible propriety without a state.

Agreed, with some minor correction. In theory, there are no property rights that exist outside of common consent. In practice, common consent is managed by the state. (common law is a case in point)

Absent any enforcing authority, any rights as established by consent are meaningless.

Given common consent, the actual property rights people have is (within certian boundary conditions) more are less arbitrary.

Re: Capitalism vs. Central Banking

Pingry — Fri, 06 Mar 2009 16:43:03 -0000

How should a modern nation conduct its monetary affairs?

To be fair, there is no such thing as a perfect monetary system, but at the present time I know of no better monetary arrangement than inflation targeting (perhaps price level targeting is equivalent).

Should we just have a fixed growth money rule like Friedman advocated? If velocity gets choppy, like the 1980's, then we can see a breakdown in the rule and consequent return of central bankers targeting the nominal overnight rate.

Should we have a metallic standard? Not unless you want to have extensive short-run volatility in real output and unemployment similar to the recessionary gap we see today.

A gold standard would make countercyclical monetary policy irrelevant to fighting today's financial crisis. And let's be honest about this folks, the private sector also failed, in a massive way to be exact. It turns out that those in high finance were probably high on something other than prudent risk management procedures.

Anyhow, one simple question which the gold fetish people have failed to answer is this:

If you are so distrustful of government (and we all are, including me) to keep price stability, then why would you trust the government to faithfully adhere to a gold standard for decades?

After all, governments have been known to cheat on it. Even medieval kingdoms would create inflation by shaving the edges off coins to create an increase in the money supply to levy the unexpected price level tax (there's no such thing as an inflation tax regarding a redistribution of income - macroeceonomists refer to that as the inflation fallacy).

The best way to conduct monetary affairs that we know of is to have an instrument independent central bank to avoid the political business cycle. This central bank should be a devout inflation targeter in order to avoid the time inconsistency problem which is the best way to adhere to a rules-based monetary regime for which Friedman so strongly advocated.

A positive inflation target, assuming a low rate with minimal variability, would keep expectations tethered and avoid the wealth redistribution associated with unexpected price level changes as well as the costs associated with higher expected inflation, namely: shoe leather costs, menu costs, bracket creep, money illusion, resource misallocation from certain relative price distortions, etc.

Ciao

Re: Capitalism vs. Central Banking

Martin Brock — Fri, 06 Mar 2009 16:33:03 -0000

The fact that some alleged capitalists pushed for a central bank does not mean that the definition of capitalism includes central banking.

"Alleged capitalists"? Like there's some official school of Capitalism where the real Capitalists teach the True Religion? What is the definition of "capitalism" anyway? You get to decide that?

"Capitalism" means what real capitalists do, and real capitalists have their hands out to the statesmen continuously. In fact, the statesmen are capitalists, and the capitalists are statesmen. Denying this transparently obvious fact is like denying that Stalin was a "socialist".

Nooo. The real socialists are all sugar, spice and everything nice. Stalin was only an alleged socialist.

Thus the notion that a central bank is part and parcel of laissez-faire capitalism -- in the same way that socialism is an inherent part of communism -- merely because certain capitalists pushed for it, is false.

First, I didn't write "laissez-faire capitalism". That's your addition. Second, you don't define either "socialism" or "communism" precisely enough to make any sense of "socialism is an inherent part of communism". Finally, if the U.S. in the twentieth century didn't epitomize "capitalism", then the word describes nothing but a Rothbardian fairy tale, and the U.S. had a central bank, of, by and for the capitalists, for practically the entire century.

Laissez-faire capitalism (LFC) means a system in which there is a complete separation of economics and state ...

The whole idea is ludicrous on its face. There is no market capitalism without forcible propriety, and there is no forcible propriety without a state. Capitalist economics and state are fundamentally inseparable.

-- in the same way and for the same reasons as a separation of church and state.

The two are not remotely similar, but "church/state separation" is mostly a lot of nonsense too for that matter. Church and state are separate only insofar as "church" is reduced to nonsensical hocus pocus.

Under such a system, the functions of government are limited to a police force to protect the citizens from criminals, ...

Right. And you get to tell me who the "criminals" are, and they happen to be persons violating your claims of propriety, particularly your mastery of means of production that you may exchange in markets, from which follow all sorts of economic consequences.

... a system of courts for resolving contractual and economic disputes and an armed force for national defense against foreign invaders.

So statesmen are settling economic disputes, but economy and state are separate. Now I get it.

Under LFC, neither the government nor anyone else has the power to dictate the use of a fiat money and to regulate the supply of that fiat money.

Courts dictate how economic disputes are settled, like what I owe you when you present me a promissory note for an ounce of gold issued when my vault full of platinum was worth twice its current value relative to gold, i.e. courts dictate legal tender. They tell you what "money" is. You don't tell them.

So any system that features fiat money and a central bank is most definitely NOT laissez-faire capitalism.

You can define "laissez-faire capitalism" however you like, because no one much imagines that the U.S. has a "laissez-faire capitalist" economy these days, but the word "capitalist" still commonly describes the U.S. in the twentieth century, and the U.S. economy most definitely had a central bank, with the enthusiastic support of real capitalists, as opposed to idealistic academics defining "capitalism" within their utopian ivory towers, mostly funded by the state, the whole time.

Re: Capitalism vs. Central Banking

Bret — Fri, 06 Mar 2009 15:09:28 -0000

Several commenters seem to be under the impression that the U.S. Dollar is the only currency that is allowed to be used in the United States. I think that is untrue. For example, from http://www.strike-the-root.... :

In "Rethinking Our Centralized Monetary System," law professor Lewis Soloman states, âThere is no legal prohibition to local scrip, community currencies or private exchange systems in the United States. The fact that there have been no challenges to the systems already in operation support that finding. Taxation operates under the same fundamental rules of trading with the national currency.â

The only transaction for which you must use U.S. dollars is to pay your taxes.

So you are perfectly free to use alternative methods of exchange with those you trade with. Go for it!

Re: Capitalism vs. Central Banking

vidyohs — Fri, 06 Mar 2009 15:08:12 -0000

Well what do you know, my son sent me this little cartoon from 1948.

http://www.archive.org/deta...

Capitalism Vs ISM.

Re: Capitalism vs. Central Banking

Mesa Econoguy — Fri, 06 Mar 2009 14:45:51 -0000

Stock brokers are worse (or so Iâve heard) and 1) the financial industry is probably the most heavily regulated industry in the world, and 2) there are still (supposedly) major problems.

What does that tell you?

Re: Capitalism vs. Central Banking

Crusader — Fri, 06 Mar 2009 12:43:20 -0000

LowCountryJoe - I just know from my own experience lately that mortgage brokers are a slimy lot.

Re: Capitalism vs. Central Banking

LowcountryJoe — Fri, 06 Mar 2009 11:26:41 -0000

LowcountryJoe - I have a feeling that is Mortgage brokers had to have some skin in the game, they'd not be peddling loans to just anyone.

They DID have skin in the game! And for some of those riskier loans they made, they were under pressure by legislators to make them. They weren't all that dissappointed though, those loans and the programs that they were made under had the full moral hazard backing of the GSEs. And now many of them have the backing of taxpayer bailout money to boot. So skin, no skin, little skin, thin skin, it all makes for a situation where the ugliness of it all runs skin deep.

Re: Capitalism vs. Central Banking

Crusader — Fri, 06 Mar 2009 10:46:07 -0000

Oil Shock - it will be a shock to muirduck that the health care & banking sectors are highly regulated!

Re: Capitalism vs. Central Banking

Oil Shock — Fri, 06 Mar 2009 10:36:53 -0000

Bret, competing currencies do exist. loonie, Euro, Real etc... If you do not like dollars you can move your assets to one of those other currencies.

That is like saying there is a choice of hospitals and doctors in a highly regulated health care sector, or like saying there is a choice of banks in a highly regulated banking sector.

Re: Capitalism vs. Central Banking

Crusader — Fri, 06 Mar 2009 09:16:50 -0000

LowcountryJoe - I have a feeling that is Mortgage brokers had to have some skin in the game, they'd not be peddling loans to just anyone.

Re: Capitalism vs. Central Banking

michaelsmith — Fri, 06 Mar 2009 08:54:54 -0000

Martin Brock wrote:

We've had no capitalism without central banking for a century, and capitalists like Morgan and Rockefeller essentially established the U.S. central bank, so the idea of some great epic battle between Capitalism and Central Banking seems absurd. The idea certainly persuades no one out outside of a narrow ideological clique. Outside of this clique central banking is part and parcel of "capitalism".

The fact that some alleged capitalists pushed for a central bank does not mean that the definition of capitalism includes central banking. If certain individuals calling themselves doctors began to practice witchcraft and voodoo, that would not mean that the field of medicine would suddenly be defined to include voodoo and witchcraft -- it would simply mean that some doctors have begun practicing something other than medicine.

Thus the notion that a central bank is part and parcel of laissez-faire capitalism -- in the same way that socialism is an inherent part of communism -- merely because certain capitalists pushed for it, is false.

Laissez-faire capitalism (LFC) means a system in which there is a complete separation of economics and state -- in the same way and for the same reasons as a separation of church and state. Under such a system, the functions of government are limited to a police force to protect the citizens from criminals, a system of courts for resolving contractual and economic disputes and an armed force for national defense against foreign invaders.

Under LFC, neither the government nor anyone else has the power to dictate the use of a fiat money and to regulate the supply of that fiat money. So any system that features fiat money and a central bank is most definitely NOT laissez-faire capitalism.

Re: Capitalism vs. Central Banking

Mcwop — Fri, 06 Mar 2009 07:49:05 -0000

Bret, competing currencies do exist. loonie, Euro, Real etc... If you do not like dollars you can move your assets to one of those other currencies.

With that said, it should not be illegal to have currency competition within our borders.

Re: Capitalism vs. Central Banking

RickC — Fri, 06 Mar 2009 07:43:33 -0000

Sam and others,

A little off topic but interesting. Anyone been following the growing state sovereignty movement?

http://www.tenthamendmentce...

Re: Capitalism vs. Central Banking

Bret — Fri, 06 Mar 2009 07:09:47 -0000

I'm very curious as to Don Boudreaux's preferred monetary structure. Completely private with multiple competing currencies? Government issued currency based on some arbitrary commodity (eg., gold, corn, pop tarts, etc.)?

Our current central bank has its problems, for sure, but most alternatives are not perfect either.

Re: Capitalism vs. Central Banking

Methinks — Fri, 06 Mar 2009 06:16:37 -0000

So glad to see Don's letter published.

There is a belief in the religion of socialism that government, like God, is benevolent even though the people running government are exactly the same human beings who engage in private industry.

Those of us who have lived through socialism first hand are no longer religious.

Re: Capitalism vs. Central Banking

Oil Shock — Fri, 06 Mar 2009 06:09:43 -0000

If any of your are interested in a nice conspiracy reading, I suggest that you pick up a copy of Creature from Jekyll Island: A Second Look at the Federal Reserve. It reads like a novel and I think there is a lot of truth to what is written.