Cycles, relativity and behaviours

This week I strayed into the absolutist world of free-banking enthusiasts.

Now, it’s not like I haven’t come across these guys before — they lurk everywhere — but this week I discovered they don’t just represent an extreme economic faction, they (like goldbugs, bitcoiners etc) seem to be reason and logic deniers.

I’ve written about this before so I don’t want to bore people. But the main issue I have with them is that they appear to have no understanding or appreciation of the cyclicality of systems or the fact that whenever we’ve had free-banking systems they’ve resulted in chaos or alternatively co-beneficial collusion to the point the system is not free by the standard definition of free.

It’s really not a difficult point to understand. Systems are cyclical. And as Chris Cook always says there is a fundamental paradox inherent in the system which drives that cyclicality: namely, if it’s liquid it’s not neutral and if it’s neutral it’s not liquid.

This comes down to the fact that value is based on asymmetry.

Nor do the free-banking enthusiasts appreciate that central banks are mostly the product of private cartels. Nor do they appreciate that most economies already feature a huge plethora and mix of public and private monies that trade side by side. Nor do they appreciate that it was standardizing certain subjective values like weights, distances, time itself that has allowed society to cooperate, grow and thrive. (If we all had a different understanding of when 3pm is, there would be chaos.)

Last of all, and the thing that really annoys me is that they don’t seem to realise that stability is assured by the private sector acting in opposition to the public sector, both keeping each other honest, (so acting more riskily and competitively if the public sector is proving too rigid, and acting more prudently and wisely if the public sector is corrupt and behaving too imprudently). And it goes without saying that the public sector offers a similar counterbalance the other way.

There’s another issue that came up, which is caveat emptor society. Free bankers seem to want society to be free to make mistakes on its own. They consequently advocate a Wild West model where no one can trust anyone and everyone has to do the due diligence themselves, and because you’re so busy not trusting anyone nothing useful, beautiful or constructive can get done.

They also think it’s a perfectly logical proposition to have people reconcile all scams and fraud on an ex post-facto basis via private arbitration. i.e they don’t think people should be protected by laws or promises of recourse to higher bodies.

To me this is nuts for two reasons: 1) ex post-facto justice is usually a luxury that only the elite can afford, or in the best-case scenario is provided to the poor only if large amounts of them are ripped off in the same way allowing for a class action suit. 2) are they really trying to tell us that it’s better for society to implement punishment on a post-facto basis only and forget about prevention?

Furthermore they seem to completely forget the part about enforcement.

I’m not saying that ex post-facto “you have to get burned so as to learn from the experience” justice isn’t appropriate in many instances, especially when it comes to crimes and frauds that regulators and authorities haven’t anticipated yet. I’m just saying society should — as ever — be a blend of both systems: preventative and caveat emptor. We need both and in varying degrees, because as one begins to over dominate the other it needs to be snapped back and tested, and so on.