The term Wildcat Bank refers to a particularly unsound and risky bank chartered under state law in the United States. They flourished after the national bank was decommissioned when a bank was started in a small town. When the banks acquired enough assets their owners would leave town with all deposits. The debt, which hurt many people, eventually became a reason for the Panic of 1857.
Wildcat banks were banks that issued money without proper gold in stock to back up the supply. These banks were often short-lived. Unfortunately, since these banks were issuing large amounts of money, many people lost their investment as the worth of their bank note dropped. These banks became a large problem, and were eventually restricted by the US Government.
Critical in the development “free” banking was the ability of individual banks to gains the privilege of issuing bank notes without being chartered by the state legislature:
In 1838 New York State passed a free banking law. Before this date all incorporated banks had been chartered by states and had been granted the note-issuing privilege. Under free banking, charters could be obtained without a special act of the state legislature. The main requirement for new banks was that they post collateral of government bonds equal in value to the notes to be issued. In principle, noteholders were protected because, if the bank failed, proceeds from the sale of the collateral would be used to reimburse them. Free banking was soon adopted by other states. Because there was little regulation of new banks, many banks failed and bank fraud occurred. The free-banking years of 1837 to 1863 are also known as the Wildcat Banking era. [Encarta]
What we have seen in the last 25 years is the return of wildcat banking, brought about largely through a very insalubrious mixture of government intervention and deregulation. Financial institutions have, in effect, used the securitization of debt to create a kind of money, which they’ve used to leverage more debt that is subsequently used to drive up asset and real estate prices and drive up the current account deficit.
One of the causes of this wretched state of affairs is the false dichotomy introduced by two ideologies which, although they seem poles apart, have each helped bring about the current mess. I have in mind free market fundamentalism on the one side and anti-market fundamentalism on the other. Both of these ideologies are more interested in their pet ideas than they are in understanding the facts of the matter. The free market fundamentalist won’t acknowledge any exception to his conviction that markets are purely “self-regulating” and that the only role of the state is to protect private property and uphold contracts between freely acting parties. The anti-market fundamentalist suffers from a pathological detestation of market processes and results. The debate about economic problems in too many instances has degenerated into a tug of war between these two unrealistic extremes—that is, into a debate between knee-jerk “deregulation” on the one side and knee-jerk anti-market regulation on the other. But the real issue is not between deregulation and regulation, but between pro-market regulation and anti-market regulation. Markets in an advanced, industrial society require a framework of law in order to flourish. Whether one wants to call these laws “regulations” or not is merely a matter of semantics. But laws are needed to define the extent and limitations of property rights, to determine which kind of contracts should be enforced, and to prevent systematic fraud and irrationality from harming the integrity and efficiency of the market.
Now Rand and her apologists clearly belong to the extreme wing of free market fundamentalist camp, where ideology trumps good judgment. Laissez-faire is a slogan, not an insight or a coherent policy. It is a product of rationalism, rather than of experience and wisdom.
19 comments:
Ayn Rand CLEARLY covered this.
http://aynrandlexicon.com/lexicon/contracts.html
Also, when are you going to remove that quote of mine? I'm NOT an Objectivist. I ASSUME that what you mean by Objectivist in "Objectivist Quote of the Day" is that it is a quote by an actual Objectivist.
Quote is from an Objectivist
⇔
it can be a potential "Objectivist Quote of the Day"
¬Quote is from an Objectivist
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it can not be a potential "Objectivist Quote of the Day"
HerbSewell,
Here's the link you gave us. It doesn't do much to discredit Greg's argument though. Its pretty much shows that I already knew Rand's views on the subject were.
Herbsewell:
>Also, when are you going to remove that quote of mine? I'm NOT an Objectivist.
Done!
herbsewell: "Ayn Rand CLEARLY covered this."
I don't know where the "clearly" comes from. My post is more than just about contracts, and Rand doesn't even cover that adequately. Even though she acknowledges the complexity of the issue of contracts, she's naive enough to think that issue is merely one of the voluntary consent of the contracting parties and arbitration through "objective" laws. Contracts are not merely an issue of voluntary consent. There are any number of things we don't allow people to make contracts over, even if they are "voluntary." For example, the contract entered into between Shylock and Antonio in The Merchant of Venice, an entirely voluntary contract, would not be upheld in any modern civilized society, for obvious reasons. And Rand's attempt to describe a breach of contract as an "indirect use of force" is simply bizarre, a sacrifice of good sense and logic to the monistic urge to have all socio-political issues regulated by a single principle.
But laws are needed to define the extent and limitations of property rights, to determine which kind of contracts should be enforced, and to prevent systematic fraud and irrationality from harming the integrity and efficiency of the market.
Rand may have been vague in defining property rights, but do you really think she disagreed with any of the above?
The only place for government control over contracts and their legal validity is statues, which is more for the benefit of the government than the benefit of the people. It simply makes it more efficient for the government to use force against people who initiate force.
Also, I see no problem with the contract between Shylock and Antonio in The Merchant of Venice. In America, we supposedly give people the right of the pursuit of happiness. If two citizens in their own free will, not in duress, decide to enter into a contract then that is perfectly acceptable and if both parties gave consent to it being legally binding at the time the contract was made then it certainly should be protected by the law.
>Rand's attempt to describe a breach of contract as an "indirect use of force" is simply bizarre, a sacrifice of good sense and logic to the monistic urge to have all socio-political issues regulated by a single principle.
It all boils down to the single principle of creating a society where the only relation that is allowed between people is acting in mutual consent, or the protection of individual rights. The man who breaks the contract originally gave consent to it being legally enforced, meaning he was fully aware the repercussions of not fulfilling the requirements of him by the contract he signed. It is structured this way so people who enter into contracts can have the security of it being enforced.
Jay: "Rand may have been vague in defining property rights, but do you really think she disagreed with any of the above?"
Rand may have agreed with my statement as it is written, but that would only be because she would not have entirely understood it. Whatever concessions she may have made on the issue of the complexity of enforcing contracts, the fact that she believed the whole issue could be solved by arbiters following "objective" law means that she really didn't have a clue. As Hernando de Soto demonstrated in The Mystery of Capital, the issue of property rights is far more perplexing and complicated than most property rights advocates (particularly rationalists like Rand) realize. The fact, for example, that Rand believed that common law could be entirely replaced by "reason" shows how clueless she was about all this. Further evidence of her ignorance can be seen in her violent detestation of Friedrich Hayek's work, which emphasizes the complexity of the social order and criticizes laissez-faire as a criterion for determining what is and what is not admissible in a free society.
>Rand may have agreed with my statement as it is written, but that would only be because she would not have entirely understood it.
Not once in that entire paragraph did you make an argument that was not an ad hominem.
"...because she would not have entirely understood it.
"...she really didn't have a clue"
"...the issue of property rights is far more perplexing and complicated than most property rights advocates (particularly rationalists like Rand) realize."
Calling Rand a rationalist is a stretch.
"...shows how clueless she was about all this."
"...evidence of her ignorance..."
I'm not criticizing you for using them, I simply won't accept them as arguments.
herbsewell: "Also, I see no problem with the contract between Shylock and Antonio in The Merchant of Venice... If two citizens in their own free will, not in duress, decide to enter into a contract then that is perfectly acceptable and if both parties gave consent to it being legally binding at the time the contract was made then it certainly should be protected by the law."
Well, at least this shows an honesty and consistency to one's principles on herbsewell's part; for the enforcement of all consensual contracts is precisely what laissez-faire of the Randian "no initiation of force" sort must entail; though I suspect that Rand herself would have shrunk from accepting some consensual contracts, like the Shylock-Antonio contract, or contracts permanently binding the services of a person. If Rand had indeed shrunk from accepting such contracts, this would have constituted a betrayal of her laissez-faire ideology. The better solution is simply to admit that laissez-faire is not an adequate criterion of a free society.
Greg,
Could you please tell me what was the contract between Shylock and Antonio in The Merchant of Venice? I'm not familiar with that story and I would like to understand the analogy you are trying to make.
"The better solution is simply to admit that laissez-faire is not an adequate criterion of a free society."
Reasoning?
"Could you please tell me what was the contract between Shylock and Antonio in The Merchant of Venice? I'm not familiar with that story and I would like to understand the analogy you are trying to make."
The Internet
Google is your friend.
>Could you please tell me what was the contract between Shylock and Antonio in The Merchant of Venice?
It's basically a loan with a pound of flesh as collateral. Literally.
With this talk of contracts, free will, and consent I can't help but think of the Milgram experiment. It has been repeated several times with the same results and the implications are troubling to say the least.
Andrew Priest,
do you mean human flesh?
Damien: "do you mean human flesh?"
Not just any human flesh: Antonio's human flesh, to be taken from wherever Shylock wishes. They did a film version of the play with Jeremy Irons as Antonio and Al Pacino as Shylock that's worth a look.
herbsewell: "Calling Rand a rationalist is a stretch."
I mean here rationalist in the sense of the word used by Hayek and Oakeshott—which is not a stretch at all.
As supposedly well known as this subjective definition of a "rationalist" is, as used by Hayek and Oakeshott, enlighten me on it.
herbsewell: "As supposedly well known as this subjective definition of a "rationalist" is, as used by Hayek and Oakeshott, enlighten me on it."
I've covered this in previous posts, particularly the one on Oakeshott and rationalism here.
Using "practical knowledge" and separating it from "technical knowledge" is a form a pragmatism. Knowledge can not contradict itself as reality can not contradict itself. Rand was not a rationalist because she was against all forms of deriving knowledge without reason, whether it is subjectivism, relativism, Panrationalism, etc.
Rand was not a rationalist by any means.
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