Three Blog Posts of Interest

Steven Horwitz

Three blogs posts within the last week are worthy of note for CP readers.

Over at the Free Banking blog, Larry White has posted his testimony on fractional reserve banking from his appearance at Ron Paul's House subcommitte on monetary policy.  It's perhaps the most concise and thorough (and accurate) discussion of fractional reserve banking out there.

At Bleeding Heart Libertarians, Matt Zwolinski has a nice post on "Libertarianism and Good Manners," part of which stressed the bottom-up, spontaneous order nature of the rules of etiquette.

Finally, this month's Cato Unbound is on "Liberty, Commerce, and Literature," and the lead essay is Sarah Skwire's "Bonfire of the Cliches," which begins with this:

There is a problem with the relationship between literature and business. But it’s not the one you think.

Linda Woodbridge’s Money and the Age of Shakespeare: Essays in the New Economic Criticism contains sixteen essays meant to establish the New Economic Criticism as a valid and important approach to the wealth of literary material that is available from “the age of Shakespeare.” Eleven of the sixteen essays use Shakespeare as their major or only literary source, and five of these are about only one play, The Merchant of Venice. Yet relying on The Merchant of Venice as the source for our image of Shakespeare’s attitude toward money means that we’re getting an impression that is about as reliable as depending solely upon Macbeth as the source for Shakespeare’s attitude towards marriage. Shakespeare wrote, after all, around 38 plays, 154 sonnets, two long narrative poems, and a variety of other shorter works. And Merchant is one of the briefest plays in his entire body of work. It is one small piece of the puzzle of how Shakespeare felt about money and markets.

In the same way that Shakespeare’s works dominate our thinking about literature in the English Renaissance, the novels of Charles Dickens dominate our thinking about literature in Victorian England. The standard reference points for talking about economics in the works of Charles Dickens, which both build the case that he is anti-business—A Christmas Carol and Hard Times—total up to 141,925 words, which seems like quite a few until you remember that Dickens published more than 4 million words. That’s about 3.5%, and that’s before you start counting the short stories and the nonfiction.

In other words, what we have here is a failure to calculate.

I’m making this point not merely for the fun of being a poet who gets to pick on economists for having a non-representative sample size, but because this kind of incomplete evidence is a plague in current discussions of markets and literature and produces nothing but problems for all of us who love both.

Comments

[Nicholas Freiling]

Regarding Larry White's testimony:

I'm not well-versed enough in the literature to have anything near an intelligent discussion about the merits of fractional reserve vs. full-reserve banking. I do, though, think that Mr. White's argument in favor of FRB that utilizes the benefits of banknotes (which could not exist in a full-reserve system) falls short.

For instance, I use a debit card to make almost all of my purchases. This means that any payments I make are transferred on the "back end" almost immediately. Thus, banks are very aware of who owns how much of their fungible deposits. Charging "storage fees" would then be very easy--simply charge all depositors a percentage of their average deposit over a given time period.

Does that make sense? Basically, I'm saying banknotes are no easier than debit card, and that their coming into existence should not be used as an argument in favor of FRB.

Obviously that does not mean other arguments in favor of FRB are bunk. I think my point is, however, a good rebuttal to White's point regarding the anonymous transfer of bank notes.

I'd appreciate your thoughts...I'm still trying to work through this issue for my own understanding, and I very well may be overlooking some significant issues.

[David Johnson]

Your debit card is the rough equivalent of a checkbook: you are making a direct transfer of money out of your account. This is very different from a banknote. Anonymity is one differentiator, and in a society with a surveillance state, is not an insignificant feature. Banknotes also allow me to engage in transactions with those without the equipment and arrangement to handle debit cards. I can give you a $20 banknote at your yard sale for that old sofa, but you aren't set up to take my debit card. And there are also the transaction costs to factor in. The use of debit cards is not without an additional, though tiny, cost.

This is not to disparage debit cards. I think they are a marvelous innovation. But I do believe there will be a social use for the classic banknote for some time to come.