Bryan Caplan Smacks Rothbard

[Cognitive Dissident]

"money". That's a good one. Fiat money is still real money. It has an exchange value. Instead of being based on physical commodities, it's based on trust in the competence of your banker.

Money such as bitcoin, which is not subject to legal tender laws, banking restrictions, etc., but simply relies on the market for its value is perfectly reasonable.  FRNs are not.

How do FRNs not rely on the market for value (outside of the current, government enforced system) ? If a bank is known to have a poor track record, its notes will be less valuable.

L E G A L . T E N D E R . L A W S

[freeAgent]

I'd point out the bitcoin is also generated out of thin air.  It will be interesting to see what happens if/when that system collapses.

[Cognitive Dissident]

I'd point out the bitcoin is also generated out of thin air.  It will be interesting to see what happens if/when that system collapses.

Government hyperinflation will kill the dollar, and won't kill the bitcoin.

[freeAgent]

George Selgin just posted a nice little piece on the crazy anti-fractional reserve banking crowd as well:

They oppose it for a variety of reasons, one of which is their belief that, in a truly free-market setting, fractional reserve banking wouldn’t survive.  Instead, they insist, 100-percent reserve banks would prevail.  That they haven't is due, in their opinion, to a banking industry playing field slanted in favor of favor fractional-reserve banks, especially by either implicit or implicit deposit guarantees financed through forced levies upon all banks, and sometimes by taxation or inflation.  In short, fractional-reserve banking has been nurtured by government subsidies.

Free bankers have tried responding to this argument by noting how fractional reserve banking has prevailed under every sort of bank regulatory regime, from the earliest beginnings of banking, not excepting regimes that involved very little regulation, like those of Scotland, Canada, and Sweden, and that lacked even a trace of government guarantees or other sorts of artificial support.  But since some 100-percenters seem unmoved by this approach, I here take a different tack, which consists of pointing out that every significant 100-percent bank known to history was a government-sponsored enterprise, which depended for its existence on some combination of direct government subsidies, compulsory patronage, or laws suppressing rival (fractional reserve) institutions. Yet despite the special support they enjoyed, and their solemn commitments to refrain from lending coin deposited with them, they all eventually came a cropper. What’s more, it was these government-sponsored full-reserve banks, rather than their private-market fractional reserve counterparts, that were the progenitors of later central banks, starting with the Bank of England.

Read the whole thing:  http://www.freebanking.org/2011/05/31/the-state-and-100-percent-reserve-banking/