The Economics and Ethics of Private Property

Freedom of contract does not imply that every mutually advantageous contract should be permitted…. Freedom of contract means instead that A and B should be allowed to make any contract whatsoever regarding their own properties, yet fractional reserve banking involves the making of contracts regarding the property of third parties.

First off, it should be noted that anything less than 100 percent reserve deposit banking involves what one might call a legal impossibility, for in employing its excess reserves for the granting of credit, the bank actually transfers temporary ownership of them to some borrower, while the depositors, entitled as they are to instant redemption, retain their ownership over the same funds. However, it is impossible that for some time depositor and borrower are entitled to exclusive control over the same resources. Two individuals cannot be the exclusive owner of one and the same thing at the same time. Accordingly any bank pretending otherwise—in assuming demand liabilities in excess of actual reserves—must be considered as acting fraudulently. Its contractual obligations cannot be fulfilled. From the outset, the bank must be regarded as inherently bankrupt—as revealed by the fact that it could not, contrary to its own presumption, withstand a possible bank run.

The primary means for the expansion of state power and the elimination of rival exploitation centers is war and military domination. Interstate competition implies a tendency toward war and imperialism. As centers of exploitation their interests are by nature antagonistic. Moreover, with each of them—internally—in command of the instrument of taxation and absolute counterfeiting powers, it is possible for the ruling classes to let others pay for their wars. Naturally, if one does not have to pay for one’s risky ventures oneself, but can force others to do so, one tends to be a greater risk taker and more trigger happy than one would otherwise be.

the basic proposition of the Marxist theory of the state in particular is false. The state is not exploitative because it protects the capitalists’ property rights, but because it itself is exempt from the restriction of having to acquire property productively and contractually.

Under a system of socialized production, quite contrary to Marx’s proclamations, the development of productive forces would not reach new heights but would instead sink dramatically.

If the laborer were not permitted to sell his labor services and the capitalist to buy them, output would not be higher but lower, because production would have to take place with relatively reduced levels of capital accumulation.

hat is wrong with Marx’s theory of exploitation, then, is that he does not understand the phenomenon of time preference as a universal category of human action.

the result of free market processes, the state finds gold established as money and a system of free banking. Its goal is the destruction of this system and with it the removal of all obstacles to counterfeiting. Technically (ignoring for the moment all psychological difficulties involved in this), the sequence of steps that must be taken in order to accomplish this objective is then dictated: In a first step the minting of gold must be monopolized by the state. This serves the purpose of psychologically denationalizing gold by shifting the emphasis from gold as denominated in universal terms of weight to gold as denominated in terms of fiat labels.

On the other hand, there is the problem that while enrichment through counterfeiting is no doubt less conspicuous than doing so by means of taxation, it is nonetheless a measure that is bound to be noticed, certainly by the banks, particularly if it occurs on a regular basis. And so it is also impossible for the state to get away with institutionalized counterfeiting unless it can be combined with redistributive measures which are capable of bringing about another favorable change in public opinion.

the state’s position regarding money and banking is obvious: Its objectives are served best by a pure fiat money monopolistically controlled by the state. For only then are all barriers to counterfeiting removed (short of an entire breakdown of the monetary system through hyperinflation) and the state can increase its own income and wealth at another’s expense practically without cost and without having to fear bankruptcy.