Wednesday, November 01, 2006

"Divine Economy Theory Can Answer Your Questions" #1 - What Do You Mean By A Free Banking System?

A free banking system described in the economic literature sets out clearly a viable alternative. After all, economics is the study of the means to attain the ends. If the ends is to advance the civilization, then capital is necessary to move us into the future.

Free banking functions in a manner similar to the selection of a medium of exchange. To understand this we have to look at the history of how indirect exchange (medium of exchange) came into being, that is, how mediums of exchange were selected in the various cultures in the past.

Those commodities that were universally valued and verifiable were chosen. In like manner free banking works by checks and balances. If an entity, a bank, is trustworthy and therefore reputable people will feel confident that their savings are safe in their care. This contractual relationship necessarily defines clearly the uses of the funds. Only those agreed upon to be used as capital can be used in that manner and interest is paid as compensation.

In a free banking system only trustworthy entities will prosper because property rights (the funds are the property of the depositor) are protected under a system of justice.

This free banking system is much more detailed and beautiful than this simple explanation but the point here is that it is a means to an ends. Under the current system of intervention it is simply not permitted. Property in the form of money (the medium of exchange defined as legal tender) is not currently protected by the justice system since the government can change its purchasing power by actions of the central bank without any recourse. If a free banking system was allowed to operate it would quickly be the preferred choice which is why the interventionists outlaw this 'means to an ends.'

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