12 October 2008

47. Free-Market vs. State-Controlled Banking

This is my presentation and discussion regarding Free-Market Unregulated Banking under Laissez-faire Capitalism versus State-controlled Regulated Banking under Statism. My discussion regarding Free-Market Banking comes first, followed by my discussion regarding State-controlled Banking.

Free-market Unregulated Banking.

Laissez-faire Capitalism represents unrestricted, unregulated, competitive, free-market private banking and financial systems based on a gold standard. This means that under Capitalism, there is no centralized-government controlled or regulated banking and/or financial system(s).

Under Capitalism, all banking and financial institutions and systems, including all procedures, policies, practices, and activities, are private, and completely unrestricted and unregulated. Free-markets, meaning free-acting individuals and businesses, are then free and able to respond and act accordingly (independently, privately, and voluntarily), without government interference or intervention, towards changes and activities in the economic system as needed and necessary.

There is no Centralized or Federal Banking Reserve, as well as no government regulation, control, or manipulation of the banking and finance institutions and activities under a true capitalist economy and free society.

To understand what a gold standard based economy is, and how it works and functions in a free-market based economy, please see Dr. George Reisman’s Capitalism, Chapter 19, “Gold versus Inflation,” particularly Part C, “Gold,” pp. 951-959 (Jameson Books, 1998).

State-controlled Regulated Banking.

Statism represents Centralized-government controlled and regulated banking systems (such as the United States Federal Reserve) based on fiat monies (no gold standard), credit expansions, manipulation and control of interest rates, and practices and implementations of governmental-manipulative economic theories (such as Marxism, or that proposed by John Maynard Keynes) through government force and control.

Under Statism, a centralized, government banking reserve is usually established to control and regulate the money supply and banking activities – from the national level to the local level. Statism generally encourages government forced removal of a gold standard based economy, and replacing it with a government manipulated fiat money and credit expansion based economy. This is done in order for the government (including the political elite in power) to gain even more control and manipulation of the economy through the money supply that affects all banking and finance activities. This, in turn, leads to the continual attempt by the government to regulate, control, and manipulate the fiat money’s value through constant expansion and/or contraction of the money supply, which actually only ends up leading to more and more expansion of the fiat money supply (including credit expansion) in order to feed the hungry, growing statist government and welfare state, thus leading to the continual decline of the fiat money’s value. Finally, it is this regulation, control, and manipulation by the government of the economy’s money supply, credit structure, and banking-financial sector – intensified by the government’s additional interference, intervention, regulation, control, and manipulation of the rest of the economy - that is the cause of inflation, including national recessions and depressions, and eventually economic demise and chaos.

Many people mistakenly accuse and blame Capitalism, i.e. the free-market, for the cause of inflation, national recessions, and depressions. But they forget that in order for such damaging conditions to exist at all, the government must first – fundamentally – be the controlling, regulating, and manipulating element of the country’s economy, financial, and banking system, including the money supply, that first creates the necessary destructive conditions for economic instability and chaos to occur. With the government in control of the banking system in the first place, the private sector has no means and ability to plan against, react to, or defend, or protect itself against the damaging consequences of government interference, restriction, regulation, statist policies and mandates, dictates, manipulation, control, force, and tyranny.