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By Dr Tim Evans, on 29 January 10
Yesterday evening, James Tyler and I spent a pleasurable time speaking to, answering questions from, and then socialising with, students at Warwick University. It was a good gathering with some twenty people present. With students coming from different courses and levels of study, James and I were particularly impressed by the quality of debate and the sheer enthusiasm of those present.
As a departing gift, James and I gave our hosts a dozen copes of the Adam Smith Institute’s excellent recent publication A Beginners Guide to Liberty. Containing an excellent collection of highly engaging essays, this book also includes a chapter by the Cobden Centre’s Founding Fellow, Dr. Anthony J. Evans. His ‘Banking, inflation and recessions’ is highly recommended.
You can download your free copy here.
By Dr Tim Evans, on 28 January 10
Later today, James Tyler from TCC Advisory Board and I are heading off to speak at a seminar organised by some of the free market students at Warwick University.
From now on, the Cobden Centre is open for such outreach ventures with young people in schools, sixth form colleges and universities.
If you want speakers on free markets, free trade, what a liberal banking and monetary system might look like, and radical ideas on genuine social reform, then please feel free to contact me directly here. For as well as our planned events, publications and media outreach, the CC is now in business to receive invitations to address tomorrow’s opinion formers.
By Dr Tim Evans, on 27 January 10
This is my first posting as the CEO of The Cobden Centre. I recent months I have been working with our Chairman, Toby Baxendale, and Corporate Affairs Director, Steve Baker, and our Founding Fellow, Dr. Anthony J. Evans, to get the basics in place.
Today, TCC has a world-class team, including an outstanding network of Senior Fellows, a tremendously supportive and pro-active Advisory Board and an ambitious and exciting business plan.
It is in this context that I will mainly be jotting my postings. For as well as representing and commenting on the policy perspectives of the Centre, my missives will tend to focus on articulating the organisation’s priorities, activities and ventures. As such, the weeks and months ahead are going to see the TCC go through a major step change in its outreach work – across a wide range of areas. I hope you are looking forward to it. I certainly am.
By Steven Baker MP, on 26 January 10
By Steven Baker MP, on 26 January 10
By Steven Baker MP, on 25 January 10
Via The Guardian, City minister campaigns to protect taxpayer from bank failures:
City minister Lord Myners today stepped up the government’s campaign to ensure taxpayers will never again need to bail out banks by urging delegates to a Downing Street seminar to hammer out ways to transfer the risk of bank failures away from the public sector.
At the start of the meeting with academics, country officials from the G7, international and UK policymakers, Myners said: “There is clearly a strong rationale to charge for the externality caused by the financial sector and financial institutions should shoulder the responsibilities for losses they may face”.
“Numerous innovative ideas including contingent capital and systemic risk levies have recently emerged to increase the resilience of the financial system globally and to ensure that the costs of any future failures primarily fall to banks and bank investors rather than taxpayers,” Myners said.
Well, yes indeed: businesses should certainly shoulder their own risks.
However, rather than raising a levy on the systemic risk, the law should remove it: bank deposits should be subject to sound property rights and contract law.
Further reading
By Steven Baker MP, on 25 January 10
Via The Centre for Associative Economics, the next Colours of Money Seminar takes place in Stroud UK, on the first weekend of February 2010. From the flyer:
Understanding money has never been more important than today. Whether it be unfair trade, widespread poverty, burgeoning debt or bank bail-outs, modern life is marked by a ceaseless and unhealthy chase after money, which then acts more as our master than our servant. Whether locally or globally, can we understand and use money in ways that enable competition to give way to more cooperative ways of doing business?
Derived from Rudolf Steiner’s contribution to economic and monetary history, The Colours of Money© seminar looks at the history and purpose of money and how it can be the main instrument for bringing about real and lasting change in our economic circumstances. Grounded in associative economics – an approach that covers many schools of thought, beginning with Aristotle and leading up to today’s wide range of views from mainstream to alternative – the seminar ranges from the problems of small businesses to larger questions of global finance and the power of corporations. Offering a radical yet concrete and in-depth approach to money in our times, it is presented using coloured chalk imagery on black paper, a technique intended to overcome the reputation of economics as a dismal science!
For registration and programme details, please contact: Arthur Edwards: Tel/Fax: 01453 756728 / mail AT arthuredwards.net
By Antoine Clarke, on 25 January 10
An interesting development in the campaign for free banking has been the emergence of social media. I admit that when I first read F.A. Hayek’s “The Denationalization of Money” I felt that a very good pamphlet ended on a rather damp note, with the following call:
What we now need is a Free Money Movement comparable to the Free Trade Movement ofthe 19th century, demonstrating not merely the harm caused by acute inflation, which could justifiably be argued to be avoidable even with present institutions, but the deeper effects of producing periods of stagnation that are indeed inherent in the present monetary arrangements.
– Hayek, F.A. The Denationalization of Money, the Argument Refined (The Institute for Economic Affairs, 2nd edition, 1978)
The problem to my mind was: “that’s nice. But how on Earth do we achieve such a goal?”
Until recently, I was pessimistic about the creation of “a Free Money Movement comparable to the Free Trade Movement” along the Manchester Free Trade Association model. The universities were not helping much, there were no grassroots movements campaigning for this.
What’s changed is social networking platforms such as Facebook. One of its features is the aggregation of people with something in common, for example fanatics of chess, The Velvet Underground, Hello Kitty fashion accessories, and free banking.
As I write there are only 461 fans who list “free banking” on their Facebook profiles, but they are assembled from all over the world. Normally, a group of this kind would tend to become inward looking: a tiny (and shrinking) gathering of money theory nerds meeting once a month in a draughty room in what was once a town hall. But the 461 have listed “free banking” among their lists of causes they support, along with, in some cases chess, The Velvet Underground and Hello Kitty.
So when I happened to look at one of my friends list of causes, and saw “free banking,” I was intrigued enough to check out the group (one click of a mouse), and with another I had joined, and invited 20 more to join. This is how the networks of enthusiasts and the curious can come together, across borders and without the transaction costs of trying to organise a mass movement from scratch.
I’ll make one precdiction: there are going to be a lot more than 461 fans of free banking on Facebook.
By Steven Baker MP, on 25 January 10
 Should banks be permitted to operate with a fractional reserve on demand deposits or should 100% reserves be a legal requirement? Should there be a central bank with a monopoly on note issue? What are the consequences of these choices? These were mainstream questions in the 19th century and they demand attention today. Here, following the ESCP Europe/Cobden Centre “Colloquium on Honest Money”, Steve Baker frames the debate to be had about money and banking.
Today, people are well aware that we have a banking crisis, a “credit crunch“. That is, there is a problem in the financial system, a system which is centrally planned — see Economic Interventionism, Banks and the Crisis – and an approach which necessarily works badly – see Strip the Bank of England of its power. So, what are the features of the present system and what are the alternatives?
The two important features of the present, orthodox system are:
- The banks are not required to keep money in reserve to the value of demand deposits. That is, they operate with a fractional reserve. As Toby Baxendale has pointed out, today if more than one person in 34 asks their bank for their money back in notes and coins, which is a reasonable, contractually-sound request, we will have a systemic banking crisis — a run on all banks — because there is simply not as much cash as people’s bank statements say there is.
- There are, across the world, central banks in which committees of experts set “monetary policy” — see The kindness of geniuses – a rate of interest which, through various mechanisms, affects the entire economy. And the economy is, of course, what people choose to do, since the economy is nothing more or less than the cooperation of thinking, acting individuals and of corporations run by thinking, acting individuals; therefore, manipulating the interest rate necessarily distorts the actions of people and the productive structure. Central banks also act as “lenders of last resort” in the event of a run on a particular bank — which is possible because of their fractional reserve — but in the case of Northern Rock, the Bank of England did not ultimately fulfill that role.
Stepping back from today’s monetary orthodoxy — a fractional reserve and a central bank — the options are plain: we can have a 100% reserve on demand deposits, or not, and separately, we can have central banks with a monopoly on the supply of currency, or not. Hence, Jesús Huerta de Soto models (PDF) the banking debate as follows:
 The shape of the debate (click to enlarge) As Irving Fisher, one of the founders of Monetarism, pointed out in the sub-title and content of his book 100% Money, there are potential benefits to be gained from moving to another system. For example, Fisher identified the following as the headline benefits of moving to a 100% reserve requirement:
- keeping chequing banks 100% liquid so that there can be no more runs on banks,
- preventing inflation and deflation,
- largely curing or preventing depressions,
- and wiping out much of the National Debt.
Since we have had a run on a bank, since the money supply has deflated, since attempts to reflate the money supply risk price inflation and distort the economy, since the boom-bust cycle is evidently still in progress and since we are doubling our national debt, it is perhaps worth taking seriously the question of how our system of money and banking is organized.
Furthering that discussion was the purpose of the recent ESCP Europe/Cobden Centre Colloquium on Honest Money directed by Founding Fellow Dr Anthony J. Evans, Chaired by Corporate Affairs Director Steve Baker and attended by Chairman Toby Baxendale amongst 9 other academics and practitioners in the field of money and banking.
We will continue to develop and promote a range of ideas to open up and further the debate on money and banking.
Further Reading
- Baxendale, A day of reckoning: how to end the banking crisis now
- Frank Whitson Fetter, Development of British Monetary Orthodoxy 1797 – 1875
- F. A. Hayek, Denationalisation of Money: The Argument Refined
- Huerta de Soto, Money, Bank Credit and Economic Cycles
- Gordon Kerr, How To Destroy the British Banking System and Bailing out the Banks – Glaring Evidence of Moral Hazard
- James Tyler, My Journey to Austrianism via the City, Money is not working and How to avoid future encounters with financial meltdown
- Irving Fisher, 100% Money, 1935
By Steven Baker MP, on 22 January 10
Today, we publish our brief guide to money and banking.
The Guide comprises:
- Four charts showing how Baxendale and Evans’ measure of the money supply correlates to economic activity whereas the Bank of England’s measures do not,
- How wealth is created,
- What is and is not money,
- What is wrong with the mechanistic Quantity Theory of Money,
- The role of the interest rate in the business cycle,
- How banking has become socialised through legal privilege and taxpayer guarantee,
- The shape of the debate on money and banking.
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