STAFF NEWS & ANALYSIS
Panic! Like It’s 1837
By The Daily Bell Staff - May 10, 2017

180 years ago today, everyone panicked. On May 10, 1837, New York banks finally realized that the easy money they were lending was unsustainable, and demanded payment in “specie,” or hard money like gold and silver coin. They had previously been accepting paper currency that for every $5 was backed by only $1 in silver or gold.

Things culminated to that point after years of borrowing the paper currency to expand west, buy land, and build infrastructure. As silver came in from Mexico, banks lent out five times the amount of their deposits–fractional reserve banking.

At the same time, the value of silver was falling because its supply was increasing in America. Great Britain, which had been lending much of the money, was less interested in silver because they could pay for trade with China in opium. So even though Britain had a year earlier begun demanding payment in specie, the abundant silver in America did not hold the same weight, so to speak, it had previously.

Now, reflect on this for a second. The USA was depending on loans from a country that they had successfully revolted and seceded from fewer than 50 years earlier. Britain had also provoked The War of 1812 just 25 years earlier when they wouldn’t stop attacking American ships. But somehow it still seemed like a good idea to depend on British banks to form the foundation of American development.

So at the same time when American banks had to backstep their risky practices, Britain also just so happened to need 25% less cotton, which was the foundation of the American economy. This only exacerbated the trade deficit.

But still, despite whether or not Britain’s actions were nefarious, the whole situation would have been remarkably cushioned if fractional reserve banking had not been used. Because of this “easy money,” land was bought at enormous rates on credit, but credit that was not backed by actual value–only 1/5 of the actual value existed of what was being lent!

President Andrew Jackson was not entirely without blame either. When he deconstructed the federal bank, he deposited the money into state banks, and encouraged them to go ahead and lend, lend, lend! Of course, when the time came for the banks to return the deposits, the money was gone.

So when this massive real estate bubble burst in 1837, it caused a panic and ensuing recession that lasted until 1844.

Does any of this sound familiar to you? Perhaps especially the part about government creating incentives for home loans, which could not be paid back, culminating in the crash of 2008.

Some used President Jackson’s abandonment of the Bank of the United States as proof that a central bank was needed to stabilize the economy. Yet instead of prohibiting fractional reserve banking, the Federal Reserve exacerbated the practice. They required no hard money backing of U.S. currency, while still allowing banks to lend out much more money than they possessed. Not only do banks not have enough money to cover what they lend, but the money itself is still just paper.

In the years preceding the panic of 1837, state banks had basically done the same thing. They were printing money that held value only by fiat, and funding public works projects in order to circulate the money. The obvious problem was that the money represented nothing of value, and was thus primed for rapid devaluation, which contributed to the bubbles which burst in 1837.

Now, the stock market is higher than ever, and interest rates are basically lower than ever. Easy money! What could go wrong?

Do you think another “panic” is just around the corner?

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  • Bob34242

    good article

  • esqualido

    The author leaves out the fact that when Jackson left office, he left the U.S. completely free of debt (and grateful citizens clogged the train station to cheer him goodbye) The central bank he fought has now poisoned the entire banking system, making virtually interest-free loans to the very too-big-to-fail banks that own it (but who still get to charge their customers 25%+ rates on their credit cards), and who have worked hand-in-hand with corrupt politicians to expand the nation debt to $20 trillion+ in their effort to make unlimited funds available to the banks. 20 trillion!- and Jackson said that a single dollar was evil- and that “there are no necessary evils.” The issue of fractional reserve banking is the original sin of the goldsmiths who became the first bankers- but an entirely different matter.

    • esqualido

      This past March, on the 250th anniversary of his birth, President Trump, who claims to be an admirer of Andrew Jackson, toured The Hermitage, and, saluting, placed a wreath on his tomb, calling him “The people’s president.” Likewise, in FDR’s day,with great fanfare, speeches were made at an annual Washington dinner honoring Jackson. From the Jackson Day Dinner Address, Washington, D.C. January 8, 1936:
      “This meeting tonight, in the City of Washington, is one of many hundreds being held throughout our forty-eight States and territorial possessions and even on board ships at sea, in honor of the memory of a great General, a great President, Andrew Jackson. To all of you I extend my most sincere and heartfelt greetings. Andrew Jackson appropriately has become the symbol of certain great ideals. I like best to think of him as a man whom the average American deeply and fundamentally understood. To the masses of his countrymen, his purposes and his character were an open book. They loved him well because they understood him well—his passion for justice, his championship of the cause of the exploited and the downtrodden, his ardent: and flaming patriotism. Jackson sought social justice; Jackson fought for human rights in his many battles to protect the people against autocratic or oligarchic aggression.”
      Yes, the average American deeply and fundamentally understood Jackson’s opposition to saddling the nation with debt, and central banking (the very phrase was practically a dirty word, and rarely used in the press until Nixon threw up his hands in defeat, abandoned the gold standard in 1971 (following which the national debt began its hyperbolic upward curve), and declared “We’re all Keynesians now.” And a lot of good that has done- the national debt increased ten-fold since (ask Puerto Rico how that worked out).
      So when it comes to honoring Jackson, Roosevelt, who launched the nation on a path of massive deficit-spending, which did not cure the Depression, but lead to WWII, and Donald Trump, who never talked about reducing the debt, but calls for massive increases in military spending, honor Jackson mainly in the breech. It is up to individual Americans “throughout our forty-eight States and territorial possessions and even on board ships at sea,” to hold Trump’s feet to the fire, and their congressmen, too, if we are not to become Puerto Rico.

    • Licia

      They could not care less that we know what they have been up to.
      They can create their money out of nothing and WE CANNOT……and please, do not mention gold ’cause they can manipulate that too…it’s too late, the democracy of numbers is on their side.
      YES THEY CAN!!!!

      • Roy bean

        C’mon Licia, have a little faith. While you’re probably right in the short term, just give it time.

      • esqualido

        Fortunately, not all women are taking things lying down- see Venezuela’s inspiring Caterina Ciarcelluti. Hyperinflation in a nation rich in resources thanks to a corrupt, inept government. After the revolution, maybe a return to honest money as well. Ditto Mexico, India and plenty of others. http://www.news.com.au/lifestyle/fitness/inspiration/everyones-obsessed-with-venezuelas-wonder-woman/news-story/2adf8c4436cb0001e24206477718ef40

        • Licia

          what is happening in Venezuela is the proof of what happens when the people try to get their resources back from multinationals. P.S.: it must surely take more than showing one’s cleveage in a well studied pose to be called a revolutionary.

  • Don Duncan

    I started putting all my dollars into silver & gold in 1967. I converted back in 1977 (at a 300% profit) to start a business. But I was sick when PM rose to the peak. I thought, like all hard money people, that the dollar was done and PM would return as money. I was astounded when the dollar came back and PM went down. I started to buy gold again in 1999. All my assets are in gold to avoid currency depreciation but when will the dollar collapse completely? Maybe not in my lifetime, which is the same as never.

    Meanwhile investments must rely on dollars. When gold can be used as money again it will quickly replace the dollar. Then I can hold gold collecting interest on it and live off my savings. Until then, savings will diminish. And without savings, venture capital will not fuel new growth. The whole economy will slowly collapse, probably with small panics and partial recovery, just like we are seeing. Most people will remain in willful ignorance until it’s too late, then a final panic will break up the US Empire much like the USSR.

    No one has figured out how to predict the timeline.

    • Arrow

      Nope… can’t predict the timeline. I use this as an example: An ounce of gold in 1913 was worth a dollar and would buy a nice suit. Today an ounce of gold will get you a nice suit, but a dollar won’t buy a Snickers.

  • Henry Balfour

    Drive the Money Lenders (#dogwhistle) out of the temple.

  • real427 man

    A lot of baloney, in the meantime a lot of smart people get rich, those who hold gold with the dream it will be money again lose thousands. I have lived 45 years on compound interest & will till I die Wake up & use your brain, get real. Time is money. Real estate is still the best investment, rent it & let someone else pay for your house.

    • Roy bean

      Tenants, toilets and now (w/o DDT) bedbugs! You’d better go beyond just getting rent paid when landlording.

      • real427 man

        Don’t expect a free ride, work is necessary, but life is great when you have it.

        • Roy bean

          Anyone expecting a free ride is starting from a losers square. Keep building your empire real427 man, my only advice is to come up with a better handle.

          • real427 man

            You not so smart, given to me because I built the real 427 Cobras.

          • Roy bean

            I don’t know what those are yet. Meanwhile, contemplate something like ‘Roy bean 2’ perhaps.

          • Roy bean

            What, wait! I just googled that and am now hoping you’re kidding.

          • Roy bean

            I uhm, once owned a straight 6 Merc Capri!

          • real427 man

            I think Roy Bean died in Texas.

          • Adam Smith

            I like that, as my son is an engineer at Ford. I remember back in the 1960’s a rich guy in my small OH town had one; the fans in front of the radiator always stuck in my mind. Real estate is not for everyone, especially me. I don’t like anything I can’t sell part of with a click of the mouse! REITs and CEFs fit that bill and many pay monthly.

          • real427 man

            Reits are great, I have a few, great divid.

          • Danny B

            Carroll,, is that you? Back from the dead

          • real427 man

            He wrote the checks, I did the work.

  • Roy bean

    Thanks DB for reminding me (us) that by 1837(a mere 45 or so years after running with the 1st and 2nd central banks) we wound up in dire straights! At least, back in those days we had a bi-metallic monetary system, your point, right? As stated by ‘esqualido’, we’ve been running w/o any metal behind us since 1971 or so(a little over 45 years). Additionally, I reckon we can only hope and pray that a special circle in hell exists for Woodrow Wilson.

    • Roy bean

      Please check spelling, straights or straits?

  • Roy bean

    Another thanks DB, seems too many historians have forgotten about the impressment of American sailors in the 19th century.

  • Doc

    Were the banks back then on fractional reserves with no
    other backing? What about bills of exchange? I’m sure they had bills of exchange
    on their books as well, just as they did in the UK at the time (and many other
    places).

    When people are referring to 100% reserves, they think of
    100% reserves in gold (perhaps silver). But there have been other regulations
    in place requiring 100% reserves, for example the German banking act of 1873. According to this act, all banks, including the central bank, had to hold 33.3% in gold
    reserves and the balancing 66.6% in real bills of exchange. Here are the actual
    words:

    ”The bank is obliged to keep a reserve of at least 33 1/3
    per cent of the total amount of its outstanding notes in German currency,
    imperial treasury notes, gold bullion, or foreign coins, the pound fine
    calculated at 1,392 marks; and the balance in discounted bills, which mature in
    three months, and which are indorsed by three, and in exceptional cases by two,
    persons known to be solvent.”

    What does this tell us? Well, it tells us that in the days
    of banks competing by emitting their own money, banks were required to hold
    100% reserves of highly liquid assets. The bills of exchange were maturing into
    real assets within no more than 90 days, fluctuated with trade during the year
    and were extinguished once the bills matured.

    Anyway, fractional reserve banking would then be if you
    created money on top of the gold and bills of exchange. I believe that is when you
    run into trouble.

    That is perhaps what happened back in 1837. Not to speak of
    today’s mess.

    • Bischoff

      Doc……you are absolutely correct to bring up the role of Bills of Exchange in “Banking”. The “fractional reserve” banking mentioned in the DB article has nothing to do with “Banking”. Fractional reserve banking refers to using deposit receipts for gold or silver as currency. Many unscrupulous vaults or bullion warehouses printed and brought into circulation deposit receipts for which there was no specie on deposit knowing that the owners would not all at once come to redeem the specie.

      “Fractional reserve deposit receipt currency” is different from redeemable paper currency. “Banking” as such refers to the circulation of Bills of Exchange or “Real Bills” that have been discounted by a bank. Real Bills are not credit instruments. Real Bills are drawn by a supplier on a producer or merchant against the delivery of materials and supplies. When the producer or merchant signs the Real Bill, there is no recourse to either party. The Real Bill immediately becomes negotiable. That is where chartered banks come in.

      Against the payment of specie, they discount these 90-day maturity instruments depending on the number of days left until maturity. Since the face amount on Real Bills can range all over the place, state bank charters allow the banks to issue uniform redeemable paper notes, provided the banks keeps a specified amount of gold on hand to meet redemption.

      When going back in history of banking in North America, banking based on discounting of Real Bills and circulating commensurate value in uniform bank notes started with Pennsylvania Pound issued by The Philadelphia Bank in the 1750s. It helped create unknown prosperity in the colonies. The British put an end to that currency system in the early 1760s. This act of the British Parliament largely contributed to the American Revolution.

      To pay for the obligations incurred to fight the Revolutionary War, the Congress chartered the First Bank of the United States in 1791 for a ten year period. This bank was authorized to create currency which were Bills of Credit of the U.S. Treasury. The 1st U.S. Bank ceased existence in 1811.

      In 1816, the Congress chartered a Second Bank of the United States to pay for the obligations incurred during the War of 1812. This charter was for twenty years. Again the currency consisted of Bills of Credit of the U.S. Treasury. At the time of expiration of the charter in 1936, the president of the 2nd U.S. Bank, Nicolas Biddle, got into a big fight with the U.S. President, Andrew Jackson, over the extension of the charter. Jackson won the fight and the charter expired in 1836.

      In the case of both U.S. Banks, Congress decided on the amount of Bills of Credit to be created. The big land boom and consequent bust in 1837 had little to do with the 2nd U.S. Bank, with Biddle or Jackson. It had to do with banks violating their charter by disregarding the Real Bills Doctrine.

      Under the Real Bills Doctrine, the amount of redeemable bank notes in circulation must at all times correspond to the value of the Real Bills held by the bank. Since Real Bills mature in 90 days, they must always be replaced by discounting new ones. If the value of Real Bills in the bank vaults falls below the value of redeemable bank notes in circulation, then the Real Bills Doctrine requires that the difference in bank notes be withdrawn from circulation.

      Instead of withdrawing “idle” notes, banks used the idle bank notes to speculate in real estate. This amounted to borrowing short and lending long, a prescription for disaster. This violation of the Real Bills Doctrine has been a plaque under state charters as well, as under the original Federal Reserve nationally franchised currency system until 1933. Thereafter, the 1935 governmental central bank agency, aka FED, issued irredeemable paper notes which were really monetized congressional budget deficits. The real estate speculation continued by investing “debt” which the added to further credit expansion through purchases by Freddy Mac and Fannie Mae. TARP and the subsequent QE have nothing but continued the plaque.

      To answer the question posed in the DB article, I suggest that one has to view the matter from the way I laid it out above.

      I have had long discussions with the DB over banking based on the Real Bills Doctrine, but to this day, they seem to cling to this notion of the problems in the monetary system to be caused by “Fractional reserve deposit receipt currency”. This is a currency that doesn’t exist, or if it does, it is such an insignificant factor in the overall monetary system that it isn’t worth mentioning.

      • Doc

        Agreed. Not sure why people get stuck on the fractional reserve issue, as if they believe they know everything and don’t have to learn more.
        Thanks for the history lesson, think I’ve read about this before. Maybe something from your pen.

        • esqualido

          ” Fractional reserve banking refers to using deposit receipts for gold or silver as currency.” This is complete gibberish. Fractional reserve banking, the original sin of the goldsmiths, meant printing more receipts for gold than they had gold in their vaults, and using these to acquire assets for themselves- i.e., counterfeiting- based on their knowing that not all receipt-holders would likely show up at the same time. (Sort of like United’s overbooking- complete with bodies being hauled away in the ensuing melee).

        • dave jr

          During those discussions a few years ago, that Bischoff is referring to, I recall the DB editor (back then) had no problem with Fractional Reserve practices, whereas I argued against it, until Mr. Bischoff educated me.
          It might be argued that the Real Bills Doctrine could not have existed without it, but that would depend on the definition of ‘reserves’. When currency was created for the purpose of discounting bills of exchange, then the Real Bill became the ‘reserve’ while that currency was circulating. So long as the currency was extinguished by the bank once the matured Real Bill was collected on, there was no harm to the general economy. It was the illegal practice of the banks not retiring said currency, and instead, speculating in real estate is where the harm was done because too much currency circulates without a commensurate amount of production to represent it. This, I believe added to the frenzy of the roaring 20’s, culminating in an economic depression.
          In todays world of irredeemable currency, adequate collateral backing of loans would act as ‘reserve’? I tend to suppose so. But without specie, where does ‘fractional’ fit in?…other than to regulate new currency creation through borrowing. But wait! Currency on deposit at banks is idle currency, suggesting there is less economic output calling on it, and the banks can ramp this idle currency up 900%? Doesn’t this tempt them to make riskier (subprime) loans?
          I think the rules have changed so much that we need clearer definitions and stop letting the central banks get away with so much fedspeak, innuendo and dazzling financial wizardry… with terms such as ‘extraordinary measures’.
          Those are my rambling thoughts for today that I meant to address to Mr. Bischoff as his comment is being moderated. Thanks for letting me bend your ear if you have read this far.

    • esqualido

      In Louis Sullivan’s fascinating book, Prelude to Panic, written in 1933 as the banking crisis came to a climax, he stated that the Depression in the U.S. was actually triggered by Britain’s precipitously abandoning their gold standard in 1931, leaving their depositors high and dry. Many Americans, seeing the handwriting on the wall, began demanding gold for their paper gold certificates, i.e. dollars (!) $20 and up. But the banks only had $40 in gold for every $100 of assets (loans)- fractional reserve banking- and one by one they went bankrupt. Yet, compared to today’s standard( 5-10% paper money or T-bills on deposit for every $100 assets), what passed for banking security in 1933 was like a Sherman tank compared to today’s Ford Fiesta- and the Federal deposit insurance goes broke if 10% demand cash for their savings.
      Now here is a novel suggestion: put ALL the nation’s gold reserves into the citizens’ pockets by making the absurdly named “security strip” out of gold instead of Mylar. No more need for Fort Knox. But no deficits either: if your friendly Congress decided they needed another billion dollars for a single B2 bomber, they would have to tax you and get their gold back- but people would be much less willing to stomach massive deficits when the gold, or silver was literally leaving their hands. Venezuela should try it.

      • Doc

        I believe the source of the Great Depression was that they destroyed the classical monetary system before WWI and it never recovered.

        Specifically, the destroyed the market and clearing of bills of exchange. This took away the basis for the funding of business ongoing operations, including wages. Businesses suddenly had no means of funding production even if they had orders.

        Mass layoffs became a consequence, basically introducing permanent underemployment that we still see.

        To try to easy this, an unsound credit boom started and that ended in the Great Depression. “Welfare” programs, scapegoating, despots and war followed, as people scrambled for solutions.

        Few spotted that destroying the bills market was the starting point, but some did.

        It looks like history is repeating itself.

  • Praetor

    No panic, except the ones that have put their full faith, in the credit system. The debt will come due and then everyone’s legal tender for all debts, public and private, those funny little notes in you’re pocket and bank will disappeared from you’re possession. Forever lost and you’re hard work for not, that’s how they roll. Get prepared.!!!

    • Roy bean

      Ya know Praetor, I’m starting to get to the point when I can’t wait for that day!

      • Praetor

        Fires in the forest are natures way of cleansing and producing new growth. We may need a cleansing.!!!

  • Adam Smith

    I’ve been stacking for about 40 years and sometimes think I’m Scrooge McDuck sitting on his pile! I would never put my first investment dollar there, as the currency Armageddon I like to read about may never happen in my lifetime. But I do have grandchildren……..

  • Fractional Reserves are the root of the problem. Wether state banks, central. Wether gold standard or paper fiat currency. Fractional reserves being outlawed is the one regulation banks need and will probably never get.

    • generalisimo

      Outlawing a thing is part of the problem. Instead of outlawing, why not allow. Allow a free market in currencies and persecute none. Let the market decide if we (the market is simply you, me, and them) want to have our money inflated to oblivion as fiat, gold backed, specie, crypto, shells and beads, whatever. The problem is that the state forces us to participate in fiat, so do not emulate the mistakes of the state but learn from the market. Let people voluntarily act according to their values, and suffer the consequences of their actions good or bad.

      • For the same reason that theft and fraud are outlawed. There is no free market in thievery.

        • Doc

          Are you saying the reason you are not stealing is because it’s outlawed? Would you steal if there was no law against it?

          • No, I am saying the reason the bankers are stealing is because it is not outlawed. The only way to stop them is to outlaw their practice of it.

          • Doc

            Well, they basically have put a law in place that allows them to steal or defraud. People then think it’s okay to behave that way because the law allows it. That is what the belief in the law tends to do to a lot of people.

            But that doesn’t hold up to scrutiny from a moral point of view.

            Do the moral thing and no law is needed. The very few that still do wrong could be dealt with and it wouldn’t affect the overall society negatively, like the laws do. Morality must stand above the law.

            I’m more in agreement with generalisimo above in this thread.

          • Thievery is both immoral and a crime because it aggresses against the property rights of others. Things that are merely immoral but not also crimes should be legal. Theft is not one of those things. It is legitimately both.

          • Doc

            Ok, but who writes the law then? Who would it apply to?

          • In a Republic the law would be written at the state levels, or if one considers it to be a constitutional issue then amend the Constitution. It would apply to everyone equally of course. Granaries could not practice fractional reserves, no parking garages, etc, etc. Of course most businesses that steward other people’s property are outlawed from fractional reserves already. It is only the banks that are exempted.

          • Doc

            Isn’t that exactly the arrangement that got for example the US to where it is?

            Laws applying to everyone in a territory defined by imaginary borders. Hmm. A monopoly is always abused in one way or another. I can’t see how one can expect anything else, regardless of how great it would be in fantasyland.

            It’s wrong in theory and clearly wrong in practice.

          • I am not an anarchist, but a monarchist. The proper role of the state is to defend the God given rights of the people. You are couching this issue in terms that only an anarchist would agree to. I am a Jeffersonian, the state’s place is to protect rights. Property is a right, there is no freedom to choose to commit a crime such as this. There is no right to steal. So it needs to go. I am for outlawing this for similar reasons that I am pro-life. There is no right to choose to murder someone. It’s nonsense.

          • Doc

            Minarchist, anarchist, monarchist. Why can’t people have the government or non-government of their preference? Why do you want to impose your God and your republican dream on others? I’m all for you having your dream government, so no need to try to classify me as something I’m not.

            I am a panarchist, believing in non-territorial governance. Each to his own. This isn’t a desktop fantasy, but somewhat of a forgotten legacy of mankind. It’s only in the last couple of hundred years the territorial monopolistic governments have appeared, with it’s monopolistic law, monopolistic banking, etc.

            Murder has become the law of many republics, monarchies and probably every kind of -archy. Certainly not less with the current territorial monopolistic governments.

            That will of course never make murder right. But that’s where monopolistic governments tend to go.

          • I meant to write minarchist, but the auto correct keeps changing it. Second as such a minimal state is not an imposition but rather a very light burden if a burden at all.
            The argument that all states tend to become increasingly heavy handed is both true and not a good argument for anarchy since all anarchies have become states as well. So that sword cuts both ways.

          • generalisimo

            That auto correct “monarchist’ thing has happened to me several times also.

          • Doc

            I’m still a panarchist with a “p”, no autocorrect there. I still hope you can get your minarchist dream one day. I might prefer that as well.

            But I’m also thinking about the 7 billion who want somthing else. They stand in your way because you stand in their way. Under the current dogma, there can only be one way of organizing government in any single spot.

            Until we realize that political freedom is very similar to religious freedom, where we are allowed to have as many religious organizations we want in any single spot, you and everyone else will never see the political organization or government they like.

            That’s a fundamental truth.

            So stop arguing for your political dream, argue for political freedom. Or you will never have your political freedom.

          • I don’t see how something that has already been done, but now is abandoned, is merely a dream. Also I don’t see how tyranny for some but freedom for others is really freedom at all. Well the people want tyranny you say, at least in some places. I don’t think so, but perhaps. I am satisfied to allow some to be slaves if that is what they choose as long as those who do not want that can be free of it. So I don’t think we are that far from each other. I just don’t think that is how things will work out. While libertarians may be satisfied to let others have their “socialist utopias” the socialists are rarely satisfied to allow anyone to escape their grasps. Nor other totalitarians for that matter. That is the nature of totalitarianism, it does not allow for others to go their own way. So I don’t think your solution is workable because it assumes that totalitarians will not somehow want total power. Seems definitionally true that they will. Hitler was not happy that Switzerland was free for example, as were others.
            Again as libertarian I am perfectly content to let others have their statist system, but just leave me out of it. The leave me out of it part is the trick. Total states and such do not tend to leave people alone, and that is the whole problem.

          • Doc

            Have I said that some people want tyranny? Nobody would want that.

            You say that you are happy to “let others have their statist system”, but how can you then have your kind of statism (minarchism) in the same place?

            The only way is if we can have political freedom in the way we have religious freedom.

            Let they laws follow the person, not the territory, just as mankind organized things in the past.

            As I said before, this isn’t a desktop fantasy society I have come up with. It’s a most significant part of human history that nobody is told about in school.

            Here is an introduction:
            https://www.lewrockwell.com/2005/02/richard-cb-johnsson/to-the-monopolists-of-all-parties/

            Here is a new Routledge publication on the topic:
            https://www.amazon.com/Panarchy-Political-Theories-Non-Territorial-Routledge/dp/1138884847

          • I don’t believe in relative laws. The natural law is universal, it’s part of nature. Legislation is entirely different. But the natural law is not relative it is God given and part of the right of every man. What if we have someone on our hands whose “law” allows them to murder? Or do other crimes. This is exactly the argument that Jefferey Dahmer makes. I am a self owner, killing make me happy, so I can do what I want. How does pantheism prevent this person from saying that their law is just as legit as the law of a pacifist. I don’t see what you are saying as even theoretically workable. The natural law is real and is universal, it needs to be enforced.

          • Doc

            Well, if you aren’t open to reading a short article about a very important part of human history you were just told about, that you never heard of before and that is at the core of the discussion, then we can end this discussion right now.

            Thanks for the chat mate.

          • I didn’t catch your link to any article.

          • Doc
          • I have read all of the arguments for anarchy, panarchy and minarchy before. I have read this very article before as well. I don’t find the arguments against minarchy and for anarchy/panarchy to be very compelling. I remain a committed minarchist. Thanks for the link though.

          • Doc

            No worries, as I said before I wish you good luck. Considering the fact that all the minarchists in the world likely are less than 0.1%, there’s quite a few you would need to convince. Just don’t come knocking on my door.

            More importantly, don’t fall for the lure of trying to force your favorite political system on others. Just as “anarchy for all” is authoritarian to the non-believers, so is “minarchy for all”.

          • Minarchy as properly conceived would no more be an imposition on anyone then would be enforcing the natural law in a private way. All a minarchy would do is enforce the natural law. Anyone who violates the natural law SHOULD be imposed upon for they are a criminal. It’s like saying, well I know you murdered some one but I don’t want to impose my system of justice upon you. WHAT? Makes no sense. There is a absolute morality that exists and those natural laws are enforceable, and rightly so. Beyond those I agree the state proceeds to far, but in those areas it does not. Secondly, that few or many agree does nothing to disprove or prove this idea.

          • Doc

            And those among the population that disagree with you, family members, neighbors m, friends an colleagues, would they just have to accept minarchy just because you think it’s a good idea? What if they refuse to sign that contract?

            What if they have another idea they want to realize for themselves, peacefully and while leaving you alone to do your thing?

            I hope you can see that even though minarchy mught be the bedt way ever, it’s still authoritarian unless you also allow other people to have it their way.

          • The natural law is not something to legitimately be in disagreement with. To be in disagreement with the natural law is to be or advocate theft or violence. Neither is acceptable in any circumstance.

          • Doc

            You might be 100% right, but 99.9% of everyone else might still disagree. Are you going to convince each and every one of them, force them or let them have their utopia if they let you have yours.

            Take your pick.

          • I am not advocating utopia, and criminals are not to be convinced that their crimes are wrong and reasoned with they are merely to be dealt with and let the punishments fit the crimes. That is all.

          • Doc

            Why do you call everyone else criminals? That makes very little sense. If they want a central bank and FRB for themselves, that doesn’t make them criminals. They would do you no harm, only themselves.

          • I don’t call everyone else criminals, but only actual criminals. Those who violate the natural law are by definition criminals. If you aggress or steal you are a criminal. You have violated the natural law and should be subject to prosecution and punishment.

            What your talking about has no historical example at any time in human history. While my system does and not only that but the system we live in today is descended from such a natural law system however far from that it may have drifted.

            Criminals are not to be reasoned with or given their “choices” it is not a legitimate choice to aggress against others and commit crime.

          • Doc

            What are those countries where law has descended from natural law?

            The rest of them, are they criminal then?

          • nations that had a common law tradition for example, the UK, Switzerland, the US. All are a long ways from their roots these days. That said the theoretical framework still exists and should be advocated for.

          • Doc

            The rest are built on wrong ideas then I guess and criminal origin. Interesting viewpoint.

            And the ones that you mentioned have basically abandoned the natural law. Why is that do you think?

          • That is usually how governments are established. Some criminal raider comes into a territory and pillages. The pillaging becomes normalized and wallah you got a state. So yes most states have their origins as criminal enterprises.

            And yes, to one degree or another common law nations while not having totally abandoned natural law, for example you can still be prosecuted for committing crimes against others, but they have rather added a tonnage of law on top of the natural law that amounts to aggression against the natural law itself. So yes they have drifted from the ideal. Some more so then others however, and some due to no fault of their own. Switzerland for example had Napoleonic law imposed upon them doing away with their once genteel common law system. That said Switzerland is a paragon of virtue compared to a criminal state like N. Korea.

          • Doc

            Yeah, but still all a bunch of monopolies, imposed from above, some just worse than others.

          • The truth is a monopoly, but a justifiable one. That 2+2=4 excludes any other possible solution but it is no injustice that it does so. It is merely a natural truth. So to any state that merely enforces the natural law is perhaps technically a monopoly, but it is a justifiable one that has committed no injustice. I am perfectly happy to admit that no such government exists today, but that doesn’t mean that it is theoretically a problem for one to exist, or that it would be immoral for one to exist.

          • Doc

            I guess It’s your problem to deal with those that want another setup then. All 7 billion.

          • Wow, I didn’t know there were that many criminals in the world. Things have really gone downhill.

          • Doc

            If you don’t agree with Lorin you are a criminal.

            We are lucky you’re not in charge. Talk about downhill.

          • No, if you steal or aggress against others your a criminal, not because I say so but because it is just a fact. Theft and aggression are actual crimes not opinions.

          • Doc

            I don’t necessarily agree with you on your ideal society. Am I then criminal? A thief and aggressor?

          • First of all I am not talking about an ideal society, but merely a just one. Second of all having a different opinion is perfectly legal so long as you don’t act on it and commit a crime. If you think that aggression against your neighbor is perfectly moral, like Jefferey Dahmer does, fine so long as you don’t act on your sick twisted amoral ideas. If you harm no one then you are free to think whatever twisted thoughts you like. The crime is in the action only.

          • Doc

            That’s scary.

          • Your easily frightened.

          • Doc

            It’s probably a wise thing to be scared of, i.e. people that believe their world view is the only moral one and the rest of the world population that don’t share it are amoral and criminal.

            That scares me easily.

          • The natural law is not a “worldview” it is merely a political one. There are many aspects of life that it does not deal with. All it deals with is what constitutes crime and what does not. That you are a relativist is your issue, not mine. Relativism fails for precisely this reason, you are incapable of making any distinctions between what is moral and what is not. All is fine. There is no moral difference between pouring hot tea in someone’s cup and pouring it in their lap. Nope, it’s all just fine. If that is your worldview then yes I reject that whole cloth, it’s nonsense, always has been.

          • Doc

            Thanks for the chat. Although it was mostly for the benefit of the other readers so they can see how wrong it is to think about one solution for the whole of mankind and how dogmatic that might look like.

          • Or for the benefit of those who now know how futile moral relativism truly is. Thanks for putting on display as you have. It is very entertaining.

          • Doc

            Monopolistic imposed government = moral
            Non-monopolistic voluntary government = immoral

            Questioning this is moral relativism? Give me a break.

          • If you want to call justice a monopoly fine, but it is not a unjust one. Monopoly does not equate to immorality, immorality is immorality. There are unjust monopolies, but to claim that enforcing the natural law on the criminal is immoral is radically incorrect. You MUST impose justice upon the unjust. Criminal behavior doesn’t seem to exist for you and hence you are more outraged that a thief go to prison then that someone was harmed. Totally backwards. Nope, I agree with Mises, Jefferson, John Locke, etc, etc. The natural law should rule, and there is no immorality or injustice in that. You want to make monopoly a definitional immorality, but it is not. Besides under such a system there is every opportunity for self defense so the ability of the people to bring justice themselves is there, so there IS NO MONOPOLY anyway. You doth protest in vain.

          • Doc

            An important tenet of minarchism (like with Mises et al) is that the government should have a monopoly on the use of force.

            No you’re actually saying that the “IS NO MONOPOLY anyway” in minarchism.

            I give up. You will get the final word if you wsnt as this is a waste of time.

          • A government that allows the people to defend themselves and arm themselves does NOT have a monopoly on the use of force. That does not stop it from being a government.

          • panarchism, dam auto correct again.

          • minarchist.

        • Arrow

          Actually, the market is free for thievery. The micro/macro controlled, manipulated, fractional reserve, fiat monetary system run by the masters of fraud, the bankers, is the antithesis of free markets. The true “market” for thieves allows them to pillage indiscriminately. See where this is going? The money-go-round. The so-called free-market is not free, but controlled. They’re free to pillage from that controlled “market” with no concern for repercussion.

          • that was not convoluted at all. My point was simple. Thievery is not a legit free market enterprise and so fractional reserves should be outlawed.

        • generalisimo

          My point is that if no claim of 100% liquidity or redemption is made, and if the bank is transparent with it’s books, so that others may make honest valuations, then why not FRB?
          Let consumers decide if they prefer the flexible FRB notes or something more sound like specie.
          What is not economic or moral is to coerce someone to act counter to their subjective values. FRB is thievery because of all the back room deals, off book transactions, and inflation inflated currency, not necessarily the FRB portion of the scheme. This is fraud, or theft by deception, when the bank deceive or withhold information material to a valuation.
          I’d hold FRB if the dividends made it part of a rational and diverse portfolio.

          • Consider the coat check at a fancy restaurant. When you leave your coat (property) you get a receipt for the property. You expect that coat to be there when you come to collect it. The receipt is merely evidence that the property actually belongs to you. Now, if the restaurant started printing up more receipts for coats then they actually have coats to cover and lent them out or sold them, would customers consider this a legit business practice that they do not prefer or would they consider it theft? But considered theft or not, it actually is theft. Simply because the property itself does not change hands does not mean that telling someone to whom it does not belong that they can have a claim to the property by someone who is supposed to be stewarding the property is theft. Rothbard was right, FRB is theft since it creates unjust claims to property that are not legitimate and only for the purpose of taking people’s money unawares. It’s a fraud, which involves a lying as well. Outlaw it.

          • generalisimo

            I agree that if you make a claim of demand deposit, that FRB is fraud. You’re missing the point. If there is no claim of redemption on demand, if time constraints were part of the contract for deposit and withdraw, then FRB is a bond device, not thievery, but we both know this is not what is done.

            Outlaw it?
            When there is no coercion, and no fraud, there has been no aggression against the right to property, hence no crime. To outlaw it is against the first principle of non-aggression, and is not a libertarian or Austrian thing to do. Respect people’s decisions to voluntarily agree, even if fools get fleeced. Do not open the Pandora’s Box legitimate use of coercion.

            Don’t get me wrong, FRB as it stands, with our Fed/UST system, is an affront to property rights and legalized fraud. But this does not exclude the possibility that a voluntary agreement for FRB is impossible, or even preferred in some instances, depending on the values/wants/needs of the consumer. I disagree with Rothbard, and don’t want to believe that the arch-anarchist would aggress against voluntary actors, but I’ve read the same. If I was compensated for the risk and inflation, I might consider it. Essentially, I would be buying into the banks skill at identifying investments that grow my money through increased production and utility. My fortune would ride theirs and I would have to accept that I may take losses as well as gains.
            Not the easiest thing to do, picking winners and losers. But that is why our current scheme is coerced, backed by government force, and why we are forced to participate in fiat, because no one wants to take losses. It is a bankrupt business model and ultimately needs coercion to “work”.

          • If there is no thievery then yes it should be legal, but I believe that thievery is precisely what it is. A 100% reserve system would not lend out on demand deposits but only timed deposits and those timed deposits need to sync up with the payment of the loans.

            I would not go so far as to say that to outlaw it is not the Austrian thing to do since Murray Rothbard was in favor of outlawing it and is of the view that it is in fact theft. I don’t see this as inconsistent at all with the NAP or somehow that this is coercion, but rather it is consistent with the defense of property rights which is the proper role of the state. Again, Jeffersonian idea of the state, which is my view.

            I don’t think anyone is going to argue that Rothbard is not an Austrian or a Anarcho/libertarian. He is THE Anarcho/libertarian.

            I am not an anarcho/capitalist but a Misesian/Jeffersonian. However I believer Rothbard’s assessment on FRB is accurate and I do not see the state as being in the business of protecting thieves, which they currently are. The Central bank merely enables the practice further. So today we have the exact opposite of what should be. We have a state that does not merely allow banister thievery, but aids it.

          • generalisimo

            NAP means to never initiate aggression, a negative law restricting liberty, and peaceful voluntary exchange, is a clear violation of this.
            If you believe that FRB is too risky, then do not invest, but do not restrict the liberty of others to do so. If you see the inevitable bust, then short it, and profit from it.
            On Rothbard, love him, I read everything I can that he has ever written. On this, he is correct that inevitably some criminal will act criminally, but FRB does not necessitate it, and it is not proper to restrict the liberty of others for a criminal act that may or may not happen. Let the market decide if it is worth the risk, it just may incentivise FRBers to act civilly or be broke.
            I’m an ancap, but a realist. The goal is ancap, that we may never achieve it should not stop us from always facing the truth and being committed to move toward it, never taking eyes off of the goal.

          • Fraud may be peaceful but it is not voluntary. For example if I sold you a basket of strawberries at $1 a pound and weighed them in front of you and sold them to you at that rate then all fine and dandy. However, If I tilted my scale to favor me in the transaction just a bit then I have now defrauded you. You peacefully went along with the transaction but under false pretenses and so what you thought you were voluntarily agreeing to is not what actually transacted. There is theft by violence and theft by fraud. Theft by violence violates peace, theft by fraud violates the voluntary nature of a transaction. Both are theft. FRB is fraud, and when it is government enforced if its theft by both fraud and violence since the state is enforcing the deal. Which is the current situation.

          • Fraud is a theft by deception rather then violence, which perfectly describes FRB since what depositors are told and the reality that exists do not square.

          • generalisimo

            I cannot defend fraud.
            My entire point is that theft is already immoral and illegal, so theft by deception, fraud, is immoral and illegal. FRB doesn’t necessitate fraud, as I pointed out in prior posts.
            To ban a voluntary action is not economic or moral. The solution is not to ban, but to liberalize currency regulation (read as repeal) and simply enforce property rights (no theft/fraud).
            Rothbard is wrong on this. It is fair to state that the fiat schemes he witnessed ALL were fraudulent, and therefore should be illegal, but this does not mean FBR is necessarily fraudulent. I imagine he would have been very impressed with BTC and crypto, being the gold bug he was. Wish he were here.

          • I and Rothbard disagree with you, FRB IS a fraud. We can go round and round on that point, but I am not inclined to change my mind. As such it can and should be banned precisely because it is NOT a voluntary action.

            I agree that regulations should be lightened, but this is the one regulation that is necessary. Just like making any theft a criminal offense is perfectly legitimate.

            I would ask you this question if it is not fraud, then why is it already illegal for granaries to engage in fractional reserves? If it is not fraud then why does everyone recognize it as such when done in other industries? I think the answer is straightforward.

          • generalisimo

            Let us move along and agree to disagree on this point. We’ve beat this dog enough.

          • Agreed.

  • Danny B

    Under a gold standard, a person had to actually be productive to earn a living. a year currency expansion just wasn’t enough to keep the financial sector happy. The god-of-gold controlled interest rates and currency inflation. Despising this god, the bankers were always trying to over throw him. When gold was overthrown, man held sway in controlling currency expansion.

    According to the Bank of International Settlements, this (FOREX) market
    has swelled to some $5.1 trillion a day, 25 times global GDP and 73
    times all trade in goods and services.
    The last few presidents have each doubled the debt. Trump must double obummer’s $20 trillion into $40 trillion to keep air flowing over the wings of the credit airplane. It can’t be done.
    The FED came in 1913. By 1920, the head of the FED, Benjamin Strong, was illegally selling treasury debt on the secondary market. By 1929, inflation had blown the markets. Bankers have as much self-control as a meth-head in a free crack house.
    The original FED charter allowed it to make overnight loans for GOOD collateral ONLY.
    It’s not that a CB is necessarily bad. A CB always escapes rational control. USUALLY at the hands of politicians,,, often at the hands of bankers.

    We will never again see gold-backed currencies. After this credit meltdown, we will never again see running trade deficits. All accounts will be zeroed out with gold payment.

    • Ingo Bischoff

      Good to see you again, Danny………
      To return to the gold standard is just as easy as for the Congress to strip the FRN of its “legal tender” protection which the Congress extended to it with the Coinage Act of 1982.
      That would leave states free to charter banks based on the Real Bills Doctrine. States can form a currency union for a national currency using Article I, Section 10 of the Constitution.
      Then let the FRN compete with the restored redeemable U.S. currency in the FX markets. At some time down the road, the Treasury should convert FRNs into Greenbacks (Bills of Credit), At that point we are back to the parallel currency system that existed from 1862 until 1933.

      • Danny B

        Bischoff, good to see you again. I’ve been in other places rather than the Bell.

        I need some perspective on a question. Nobody else comes to mind,,,, besides Ingo.

        I’m sure that you are familiar with FOFOA. He has a VERY interesting post. He claims (citing Another) that our debt overhang is far too big to allow us to change over to a digital currency. It certainly seems like we are carrying a LOT of debt forward. It’s true that FOFOA is a gold-bug but, that doesn’t mean that he is wrong on all fronts.

        Could you read the article and let me know your thoughts?
        http://fofoa.blogspot.com/2017/05/money-or-wealth.html
        Thanks, Dan B.

        • Bischoff

          Danny….
          I read most of the referenced blog. What almost everyone fails to understand is the function of Bills of Exchange

        • Danny……

          FYI, I posted a response to your request. Evidently, it seems not to have been approved. I will try again in the near future.

          • Danny B

            Ingo, well, it’s been 6 days and no post. It does seem that our legacy debt is just too big to pay,,, too big to ignore,,, too big to go away quietly.

  • Fred762

    The article ignores the effects of the world-wide ,Rothschild-controlled, central banking system. The War of 1812 [co-incidentally?] began right after the US Congress refused to renew the charter of the Bank of the US in 1812.. The “war” happened to end right after the US Congress renewed that Bank of US Charter( they were for 20 yrs then).. In 1836 the Bank came up for renewal [and having learned], Congress renewed it. Pres Andy Jackson vetoed the bill (remember..”you R a den of vipers and by God I will roust you out”). The Brits (Lord Rothschild)got really mad at this and voila’ pulled their money out..ergo Panic of 1837. A few yrs later Lincoln refused to go hat-in-hand to Rothschild to borrow money to fight the Civil War….you may remember the results.

  • 789

    just one nitpicking:
    by 1837 the united States (the federal government) was not depending on loans from anywhere, debt was paid off by the end of 1835.
    It were some of the member States that went on a borrowing rampage

    “During the existence of the first Bank of the United States, the States owed nothing; and we find that, up to 1830, which was fourteen years after the charter of the last Bank of the United States, the debts were trifling, and were confined to a few of the most wealthy and populous States. The charter of the second Bank of the United States expired in 1836.

    “We find that the increase of the State debts, from 1830 to 1835, down to the period of the very close and termination of the Bank charter, that the State debts were increased from a very trifling debt, by the still trifling additional debt of forty millions.

    “Soon as the Bank of the United States was destroyed, and its days were known to be numbered, and its branches in the several States were being withdrawn, the States went to work to supply their places. They had no money to start their banks, and, from necessity, went into the market with their bonds to raise it. The ball, once put in motion, could not be stopped. If one city had a bank, another city must have one also; and if the cities had banks, the country villages must have them also. And in this way, the work was overdone, and too many banks were established; and as they were all banking upon borrowed capital, for which they were paying a high interest, it was necessary for them to make at least that interest, over and above their expenses. Each bank was driving at the same object; and to accomplish it, they were led into excessive issues of their paper, and we all but too painfully know the result. This is one of the causes of the State debts.”

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