Banking, Honest Money and the Free Market

|Peter Boettke|

That is the title of a recent talk by Anthony Evans, which is now available on video.

laconf09, Anthony Evans: "banking, Honest Money and the Free Market" from Sean Gabb on Vimeo.

Comments

[Lee Kelly]

Many thoughts, but one I'll share:

People may own the money in their account -- it just depends on what you mean by "money." When someone deposits currency they are relinquishing ownership *in exchange* for bank IOUs; thus, the account is a record of how many bank liabilities the depositor owns. So when the depositor makes a purchase (by cheque or debit card), the medium of exchange is actually the bank IOUs, not currency. Therefore, people do own the money in their account, because the bank IOUs *are* money.

[Bill]

i wonder how many 100% reserve types actually deal only in cash, or do they prefer using the blunt object of the state rather than their own free association to influence monetary issues? if you don't like what banks do, don't deal with them.

WHAT IS A BANK?

banks use their reputation, clout etc., their 'credit,' to certify or pledge or vouch for the creditworthiness of others ("third parties"). they simply stamp our iou's with their guarantee, and our iou's become their iou's, i.e., good media (not "money," a matter of semantics) that people will accept.

that is the service they provide, they enable our promises to circulate as 'good money' by stamping their promise on it, thus making it acceptable to third parties.

if my iou's would circulate freely, i would use them, as would most of us. they don't, therefore i promise the credit agency ("bank" - big misnomer) to repay them with an interest rate commensurate with the agency's percieved risk of my promise going unfulfilled.

banks don't need reserves nor deposits, technically, they don't loan money. they create money, by stamping promises. fully ethical, moral, and good business also if managed responsibly. as long as a credit business or credit agency is solvent from a capital/legal perspective, they can issue iou's which will circulate - or not circulate - according to the judgement of the public.

the question of state involvement in the business of issuing iou's, legal tender laws, federal sponsorship/involvement in credit provision/issue/regulation is entirely a separate question from the nature of "banking."

starting from point-blank with no government involvement, anyone could issue paper promises or receipts redeemable in some quantity of money or commodity: the only question is would they circulate. no reserves, no provisioning is needed. naturally, only good secured lenders would be able to stamp such notes and circulate them at their face value, but that is a decision up to the market or public.

since, presumably, such a credit agency is only stamping the promises of creditworthy individuals, and those individuals are contractually obligated to forfeit collateral in place of payment, the credit agency will not become insolvent.

the credit agency is NOT lending money, it is creating credit (making the promises of third parties acceptable and able to circulate).

any disagreement? did i make any errors?

[Business Plan Writing]

Hi,
Thanks for the post; it has proven to be exactly what I needed. Thanks for sharing your
deep thoughts.

[Ed]

I'm looking for article from recent days on Russian Math and on Gauss and possibly Hayek. Otherwise, it's on Rockwell or Mises. Thank you