Former New York governor Eliot Spitzer, once in headlines over a prostitution scandal, is in the news again. President Obama, Spitzer says, talks tough on Wall Street, yet shrinks from attempts at real reform. Spitzer adds that, with this president, “you have to distinguish between the rhetoric and the reality.”
Parsing the rhetorical guile of political Newspeak turns up helpful hints, especially when it comes to talk of reining in the likes of Bank of America and Citigroup. The truth is that the president is far from unique among the political class in his coziness with the banking elite. Historically, the largest and most influential banks have benefited enormously at the growth of the central state, including naturally the growth of the US central bank, the Federal Reserve System.
But there is an alternative to cursory talk of reform, one that actually would limit the dominion of plutocratic central decision-makers — both in business and in government — over the economic system, and in turn over our lives.
Stateless, free banking, the height of free association and voluntary trade, does not rely on the myth that the state and the economic ruling class are at odds. Rather free banking proceeds from and accepts, as economist Lawrence H. White writes, “the less question-begging assumption that government acts in its own pecuniary interest,” an interest that in practice has been closely aligned with that of a “central bank’s private constituency — presumably the large commercial banks.”
As usual, the effect of state intervention is not and never has been to place limitations on the growth and power of big business. It has instead been to structure, through a medley of entry barriers, an environment in which the economic ruling class is exempt from the hassles of legitimate competition.
All of the theoretical palavering, even where well-intentioned, regarding the best way to tinker with interest rates or the monetary base is completely empty, at least as an attempt at resolving the current state of affairs in finance. Even assuming that some single regulation — considered in the context of the existing oligopoly system — could indeed promote its purported goal of consumer protection, the overall product of the regulatory regime does not and cannot square with that goal.
And of course we couldn’t expect it to. Only free and open competition, with neither arbitrary constraints nor special privileges, can safeguard consumers against the abuses associated with monopoly. The common analytical mistake is to look upon the banking system of the present as relatively free from government interference, and to therefore impute its characteristic faults to laissez faire.
It shouldn’t be taken as coincidence, though, that the Wall Street giants and the Federal Reserve System are towering, dominant features in a banking system constantly lurching toward crisis. Market anarchists have long understood that the problems created by monetary centralization cannot be combated with yet more centralization.
Competition among banks as well as currencies would lead to stabilization of a type impossible for economies commanded by central banks (even assuming they had the necessary angelic motivations so often credited to them). Just the information necessary to arrive at, for instance, the ideal supply of circulating money at a given time is neither available to, nor susceptible to analysis by, a group of central bankers.
Only the unimpeded ebbs and flows of a genuine freed market, defined by billions of seemingly trivial consumer decisions, are competent to provide such coordination. Accordingly, the stability and efficiency functions of free banking harmonize seamlessly with its consumer protection functions.
It’s time to start treating the state and Wall Street like a single enemy. And in doing so, free banking is the natural solution.