Can someone explain to me the Panic of 1907 from an Austrian School perspective?
I hate to just throw a link at you, but this Mises Wiki entry sums it up rather nicely: http://wiki.mises.org/wiki/Panic_of_1907
Seriously? That article is a joke. It offers nothing but "inflation caused the panic of 1907."
EDIT: The article asserts government stimulated inflation caused the panic of 1907, and not the practice of fractional-reserve banking. Blaming the panic of 1907 on inflation of money fails to explain why we don't have a panic whenever the deposit ratio reaches a certain point. Evidence falsifies the theory that inflation causes bank panics. The evidence clearly demonstrates that bank panics are a result of promising to redeem notes with assets you don't have, and can just as easily happen with a shrinking money supply. M2 shrank by one-third from 1929–1933, yet we had a bunch of bank runs.
Stay cool please.
It is a wiki entry. You can go edit it, can't you?
Shrinking the money supply during a recession is one of the worst ideas of all time. Why do you want to tighten the money supply and lower liquidity during hard times?
Monetarists, including Milton Friedman and current Federal Reserve System chairman Ben Bernanke, argue that the Great Depression was mainly caused by monetary contraction, the consequence of poor policy-making by the American Federal Reserve System and continued crisis in the banking system.[23][24] In this view, the Federal Reserve, by not acting, allowed the money supply as measured by the M2 to shrink by one-third from 1929–1933, thereby transforming a normal recession into the Great Depression. Friedman argued that the downward turn in the economy, starting with the stock market crash, would have been just another recession.
It seems to me that every time there was a serious panic or depression, it was just after the Federal government had just mucked with the economy.
Here it seems that a lot of it had to do with the bigger banks playing games on the smaller banks. If fractional reserve banking is allowed in a free-market, how does the free-market cope with something like that?
In a free market nothing would prevent bank runs for banks issueing deposits without having the assets to back them.
Isn't this a problem for the general population?
Only if they put money in banks that follow such a policy.
Is that not a problem that should be fixed?
If it was fixed it would not be a "free market." In a free market, banks could practice fractional-reserve banking as long as the terms are known when people deposit their money.
I would think fractional-reserve banks would continue to exist in a free market, since many people would assume the risk to avoid paying for banking services directly.
I don't think fractional reserve is necessarily bad. A 50% reserve bank would certainly be ready to deal with a panic, would it not?
With something like a "Panic of 1907".
Ok. So you assert then that the free market must have a mechanism on fractional reserve banking?
How would that mechanism be implemented?
In a free market the failure of banks that pursue fractional reserve banking would lead to other banks refraining from fractional reserve banking as it would be bad for their business Those banks would instead pursue sound money banking for commission along with other financial services.
Yeah. That's what I'm looking for. Thanks.
Fractional reserve banking has its place in the swapping of bank notes and deposits between banks. The problems arise when fractional reserves are used beyond its purview to expand the money supply and create fiduciary media with no backing. The government currently allows the federal reserve and its member banks to expand with things like FDIC and other methods.
On a free market, a bank's reputation is everything. You are entrusting your capital with someone else for convenience. If a bank on the free market delves into insolvency and expands beyond its capacity, eventually the word gets out. When that happens there will be a run on the bank (in the most extreme case) and the bank would be forced to contract. If it did not react quickly and concisely enough the bank would go out of business.
Praxeologically the ends sought by a banker (or any entrepreneur for that matter) is to make money. If you do so through dubious methods, people catch on. Fraud is a crime punishable not necessarily just by law, but by lowered public reputation and loss.
The same logic against things like censorship and any other type of social regulation like drug use is that it confers a punishment aprior to the deed in question. The only fair way to punish someone for a crime is ex post facto.
Be that as it may, remember something very important. Markets are simply not utopian. Humans are necessarily incapable of achieving utopia. Humans will always be faced with want and scarcity. Until those fundamental problems are dismissed through some scifi-esque 'ascension' of humanity, as it were, then we have these very real problems to deal with.
However, the problems posed by a free market's alternative, being that of any type of interventionist state or communist/fascist method of production, are greater in number to justify those systems. Free markets are far more capable of utilizing the various resources at the cheapest costs and fastest growth rates.
Well, don't some argue that FRB is fraud?
Well.. suppose FRB is re-classified as 'fraud'. Then banks will just put FRB into their customer agreements. It's no longer fraud.
What does the free-market do now?
the key part of the article you linked:
The April 1906 earthquake that devastated San Francisco contributed to the market instability, prompting an even greater flood of money from New York to San Francisco to aid reconstruction.[3][4] A further stress on the money supply occurred in late 1906, when the Bank of England raised its interest rates, partly in response to UK insurance companies paying out so much to US policyholders, and more funds remained in London than expected.[5] From their peak in January, stock prices declined 18% by July 1906. By late September, stocks had recovered about half of their losses.
The Hepburn Act, which gave the Interstate Commerce Commission (ICC) the power to set maximum railroad rates, became law in July 1906.[6] This depreciated the value of railroad securities.[7] Between September 1906 and March 1907, the stock market slid, losing 7.7% of its capitalization.[8] Between March 9 and 26, stocks fell a further 9.8%.[9] (This March collapse is sometimes referred to as a "rich man's panic".)[10] The economy remained volatile through the summer. A number of shocks hit the system: the stock of Union Pacific—among the most common stocks used as collateral—fell 50 points; that June an offering of New York City bonds failed; in July the copper market collapsed; in August the Standard Oil Company was fined $29 million for antitrust violations.[10] In the first nine months of 1907, stocks were lower by 24.4%.[11]
of course, in the greater historical context, it's also VITAL to understand that J.P. Morgan was able to use his role in this crisis as leverage for the creation of the Federal Reserve system only 6 years later.
But didn't JP Morgan have to bail-out the US prior to this? Wouldn't the creation of the Fed be a way to offload that risk to others?
sort of. Grover Cleveland apparently contracted with Morgan and the Rothschilds for 3.5 million ounces of gold in exchange for a bond issue with 30 year maturity, following the Panic of 1893.
of course, this kicked up the usual nonsense accusations of "anti-Semitism," when Cleveland was accused of selling out the public to the Morgans and Rothschilds and taking profit for himself in the process:
http://projects.vassar.edu/1896/morganbonds.html
the U.S. has a fucked up history, let me tell you.
Didn't he buy shares of it?
If that was the cause of the panic, then wouldn't Central Banking be justified to prevent such a panic?
If that was the cause of the panic, then wouldn't Central Banking be justified to prevent such a panic?
well, in a dishonest way, yes.
Playing devil's advocate
How so? The people call for a solution to panics. Isn't the Federal Reserve one such solution?
sounds like you're confusing the FDIC with the Federal Reserve.
FDIC insures your money. Federal Reserve insures the banks' solvency.
Or that laws against fractional-reserve are justified...
And just what would that law look like? Is 20% ok? 50%? or must the bank have 100% of your money in the vault at all times?
100%, otherwise it's still fractional-reserve and there will still be bank runs.
The only thing that can assuredly stop bank runs is to stop issuing deposit receipts without the assets to back them. A central bank suffers from the same problem of fractional-reserves as the banks it is purposed to rescue.
So you're in favor of regulating the banks so that they have to be 100% reserve?
A bunch of large banks colluded to call in loans and shrink the money supply. This forced smaller banks into bankruptcy. They then used this panic as justification to create the Federal Reserve.
A fractional reserve bank is technically insolvent at any given time, if all customers simultaneously demand withdrawal. If a newspaper prints a rumor "Small bank XYZ is insolvent", then the ensuing panic CAUSES bank XYZ's insolvency! Therefore, any small fractional reserve bank can be bankrupted at will, merely by spreading rumors.
After causing a recession, the big banks bought up assets at a discount.
It's the usual "Problem! Reaction! Solution!" paradigm.
In 1907, the financial industry was heavily regulated. This enabled big banks to collude and cause a panic. This was used as justification for more regulation of the market.
Rumors alone and mass withdraw alone are not enough, but blacklisting by enough banks from the money market are necessary to kill off a bank. The size of the bank would not matter because a small bank needs less money to make up for shortages and finding a lender would be easier. A large bank would have more leverage and it is less likely you could turn the market against them without players themselves being harmed, but simultaneously they have but larger shortages to make up.
Do you have any evidence in the historical record you could point to, to support this theory?
Which part do you doubt?
The whole "large banks colluded to call-in loans" statement. Is there any evidence of this beyond the mere fact that a bunch of banks called-in loans at the same time?
I don't doubt any of it, really. But for arguments sake, is there any factual evidence for this?
Here is a PDF of Rothbard's A History of Money and Banking in the United States. Page 240. While you're at it, read the whole book. Good stuff in thar'.
Cool. I will read pg240+. I'm reading Dissent on Keynes right now. That one looks awfully long, but I'll consider reading the whole thing.
More posts you may like
r/Anarcho_Capitalism
Libertarians Should Use DeGoogled Phones to Reject the NSA (Video)
r/Anarcho_Capitalism
Google Censors Freedom (& how to fight back)
r/Anarcho_Capitalism
Linux for Libertarians
r/Anarcho_Capitalism
IT’S HAPPENING: Anarcho-Capitalist Javier Milei WON the ‘PASO’ Argentine Elections by A HUGE MARGIN
r/Anarcho_Capitalism
Covid 2.0
r/Anarcho_Capitalism
Leading Argentine presidential candidate Milei explains why taxation is theft and the roads should be privatized
r/Anarcho_Capitalism
Makes me so angry that so many economists think that deflation is bad and think that inflation is better than deflation , despite its flaws( even when persistent inflation resulted in the dollar being devalued by 98 percent)
r/Anarcho_Capitalism
The government used the fear of drugs, terrorism, and then covid as an excuse to take away our rights, what do you think the next "crisis" will be?
r/Anarcho_Capitalism
Socialism Is NOT libertarian
r/lpus
This is what hate speech laws look like
r/Anarcho_Capitalism
Taxation is theft
r/Anarcho_Capitalism
The Paw Patrol movie is pure libertarian propaganda
r/Anarcho_Capitalism
Will no one acknowledge how the government and big corporations have destroyed male testosterone?
r/Anarcho_Capitalism
"Capitalist Lenin caused the Holodomor and the Communist death toll shouldn't include prisoners untried prisoners of war dead from poor conditions."
r/lpus
A student was kicked out of class yesterday in Colorado Springs for having a Gadsden flag patch on his backpack. The school apparently claimed it has “origins of slavery” - Get your kids out of public schools
r/Anarcho_Capitalism
My trip to conservative America
r/Anarcho_Capitalism
What an objective discussion subreddit! I am so excited to see the various types of people that have different opinions!
r/Anarcho_Capitalism
3 years living in a small community has solidified my volunteerism beliefs.
r/Anarcho_Capitalism
Put it all together... The Hawaiian Governor and Mayor passed legislation to steal land, they blockaded the only paved roads out of the Maui Fires, deliberately turned off the siren warning systems, denied residents any water to fight fires, and now refuse to allow inspection of the fires origin?
r/Anarcho_Capitalism
California ——-The clerk at a 7-Eleven in Stockton, Northern California, who was captured on video taking down a man threatening to pull a gun and filling up a barrel full of products ———is now the one under investigation by the cops.
r/Anarcho_Capitalism
Unvaxxed Canadian woman dies after being denied organ transplant, an MP says she deserved her fate.
r/Anarcho_Capitalism
"Libertarians can't win when they're bold and uncompromising," they said. "The central bank is a scam. It is a mechanism by which politicans cheat people through the inflationary tax." - Javier Milei, libertarian victor of Argentina's first presidential round.
r/Anarcho_Capitalism
Guide: How to Reject Government Money & Use Crypto
r/Anarcho_Capitalism
Anonymous AnCap Crypto Cellphone Plans Reviewed
r/lpus