The practice of fractional-reserve banking has been variously defined. A standard and neutral definition is: the practice by which a bank maintains readily available reserves that represent only a portion of its customers’ deposits while lending out or investing the rest. At the same time, the bank stands by its obligation to redeem demand deposits upon request. Fractional-reserve is often viewed as an aspect of centralized banking or government regulation but it is an entirely separable practice that has functioned within free banking systems. Indeed, fractional-reserve was standard in the 18th century Scottish free banking system which economist Lawrence H. White described in his classic work Free Banking in Britain – Theory, Experience and Debate 1800-1845.

The iconic Austrian economist Murray Rothbard offered a different definition. In an article published by The Freeman (September and October 1995), he described his view of how fractional reserve operated even in the absence of a central bank. Rothbard explained, “I set up a Rothbard Bank, and invest $1,000 of cash (whether gold or government paper does not matter here). Then I ‘lend out’ $10,000 to someone, either for consumer spending or to invest in his business. How can I ‘lend out’ far more than I have? Ahh, that’s the magic of the ‘fraction’ in the fractional reserve. I simply open up a checking account of $10,000 which I am happy to lend to Mr. Jones. Why does Jones borrow from me? Well, for one thing, I can charge a lower rate of interest.” Rothbard called this “counterfeiting” because money is created “out of thin air.”

Additionally he viewed fractional-reserve as a fraud perpetrated on the original depositors. Why? If “the American public…in unison, demanded cash. What would happen? The banks would be instantly insolvent, since they could only muster 10 percent of the cash they owe their befuddled customers.”

Rothbard’s depiction encounters some practical objections. For example, he is assuming all deposits could be demanded in unison – that is, he assumes they are demand deposits and not term ones. Moreover, the same sort of logic could be used to discredit insurance companies. If all (or a significant enough number of) insurance holders filed claims in unison, the insurance companies would go bankrupt. And, yet, I am not aware of insurance companies being similarly viewed as fraudulent.

Instead of dwelling on side issues, however, I accept the description of fractional reserve offered by Rothbard and various other Austrians. I will disagree with them on their own terms.

What Is NOT Being Debated

Both libertarian defenders and opponents of fractional-reserve reject a state monopoly of money or banking; most of them reject any state involvement at all. Instead, both sides advocate privately issued currency that enjoys no legal privileges beyond those enjoyed by individuals. They argue for banking and currency by contract, by voluntary acceptance.

The disagreement on fractional-reserve banking is twofold. Is it fraud? Is it economically prudent? Only the first question is a libertarian one.

Libertarianism can be loosely defined as the political and social philosophy based on the right of every person to the peaceful use his own body and property. Stated in a ‘negative’ manner: libertarianism opposes force and fraud; the latter is a form of theft because it is the wrongful assumption of a property title.
Thus, if fractional-reserve banking is fraud, then it falls squarely within the realm of libertarian theory, and it would be outlawed by a free-market system. But if it is not fraud and merely imprudent, then it falls outside of libertarian analysis however interesting or useful an economic issue it may be. In other words, if fractional-reserve banking is voluntary and non-fraudulent, then a libertarian society would not outlaw the practice even if it proved to be a foolish one.

Is Fractional-Reserve Banking Fraud?

Theft is the non-consensual use of another person’s property. The owner relinquishes some or all control of his property in exchange for a described value. If the value is not as described, then no legitimate exchange or contract has occurred. As economist Bryan Caplan stated, “If you offer me a Mitsubishi 5500 projector in exchange for $2000, and hand me a box of straw instead, you are using my $2000 without my consent (which was contingent, of course, on you giving me the projector).”

The issue upon which fraud hinges is “informed consent.” If depositors at a fractional-reserve bank are fully informed of the bank’s policies and practices, then fraud is not possible. With full knowledge of the terms and the risk, the depositors are entrusting their money to the bank in exchange for an interest rate. (By contrast, a 100%-reserve bank that would not have the benefit of using most of the money deposited would presumably charge a storage fee rather than offer interest. Indeed, this is what happens with the 100%-reserve storage called safe deposit boxes.) Otherwise stated, an informed depositor may make a poor choice with whom or where to entrust his money but the free market and libertarianism does not prohibit even stupid choices.

To maintain the accusation of fraud in the presence of informed consent, some Rothbardian economists expand the definition of ‘fraud’ itself. As a counter to Bryan Caplan’s arguments in defense of fractional reserve, for example, Walter Block responded, “But, lying is only sufficient for fraud, not necessary. There are other ways to commit fraud besides an outright lie. For example, it is fraudulent for a bank or anyone else to try to sell you a square circle, even if they do not lie about it. Why? Because there is no such thing as a square circle, and, in order for a contract to be a valid one, not only must both parties agree to it (neither lies to the other), but, also, the contract must be in accordance with LOGIC.”

This is a strange requirement. It means a 3rd party would be able to invalidate a contract in which there is full disclosure and with which the contracting parties are satisfied. As with insurance policies that cannot be paid out if there is a ‘run’, there are quite a few contracts that may well involve what some Austrians see as a breach of ‘logic’. For example, a man might well pay a priest to hear confession and absolve his sins, or a psychic to tell his future. As long as both parties accept the logic of the exchange, it is not the business of an atheistic 3rd party to intervene and invalidate the contract. Just as the free market and libertarianism do not outlaw stupidity, neither do they prohibit a breach of logic. And a 3rd party has no business substituting his logic for that of the contracting parties.

The 19th century individualist anarchist Benjamin Tucker wrestled with much the same issue as the “illogical” contract. Like many contemporaries, Tucker believed that charging interest or rent was “usury” – an unethical or immoral monetary practice. He thought such practices were sustained by the state and would naturally disappear in a free market. When confronted with the possibility of people choosing to pay interest in a free market, Tucker agreed that such contracts would be valid. They would be immoral, unwise, and worthy of scorn but they would be valid because they would be voluntary.

Equally, contracts that seem illogical to a 3rd party are valid nonetheless.

Is Fractional-Reserve Banking Foolish?

The work of the libertarian monetary theorists White and George Selgin long ago convinced me that fractional-reserve banking would thrive in the free market, as it has done in the past.

The free market is well able to manage the problems perceived by fractional reserve opponents. Banks would rest increasingly upon their reputations as good managers; those with impeccable records of redemption would probably offer the lowest available interest on deposits. Defaulting banks would not be bailed out except in a free-market manner – e.g. by an insurance policy or buy-out. Perhaps insurance would be an optional purchase for individual depositors as well. Moreover, a bank that diluted the value of its own notes through an ‘inflation’ of supply would be ‘corrected’ with a loss of reputation and customers.

Opponents of fractional reserve would disagree, of course. But the important point here is that the disagreement is no longer libertarian but utilitarian. The question has become “Which is the best banking system: fractional or 100% reserve?” My answer: let the free market decide. Let individuals choose for themselves.

“They crowd our imagination. They hide under our beds. They lurk within the dark recesses or our primal unconsciousness. You can’t run, you can’t hide – it’s going to get you. The beast, the ravager, the Lusus Natura. What is it, and why do we fear it?” ~Mark Rein Hagen

The best monsters are personifications of real fears, and the monsters that survive the test of time and cinema are those that evolve into psychological metaphors for something human. I want to put forward what may be an uncomfortable premise for some. I believe that the key to the success in the zombie genre lies in their ability to tap into subconscious and unacknowledged fears that democratic government isn’t working.

Vampire folklore began as a fear of the night, and disease. The original Nosferatu was a personification black plague. But with the advent of Anne Rice’s novels the vampire took on more human traits and largely became a metaphor for unrequited love, jealousy, and sexual passion.

Werewolf folklore began as a fear of the wilderness, but they also evolved into something far more human. Echos of the werewolf appear in characters like Dr Jekyll and Mr Hyde, or even the Incredible Hulk. They have become the embodiment of human rage, and the fear of losing control.

The popularity of both has culminated, and is I’d argue terminating, with the Twilight series. Jealousy and rage, locked in an eternal soap opera of teen angst. They are more human than monster now. We need new monsters.

What about zombies? We’ve seen a huge surge in the popularity of this genre. The record breaking series The Walking Dead won the American Film Institute “Program of the Year” award for 2010 and 2012. In 2010 the comic book the show is based on won the Eisner Award for “Best Continuing Series.” The zombie audio drama, We’re Alive was named “Best of 2012” in the podcast category by iTunes.

We’re also seeing mutations in the zombie mythos, growing pains as they change from literal fear to metaphoric fear. The Reavers in Firefly are an adaptation of the zombie aesthetic for space. The rage-virus of 28 Days Later and the T-virus of Resident Evil provide a scientific explanation. In Warm Bodies the zombie is adapted for romantic comedy, although I don’t think there’s enough glitter in the world to make zombies appealing to teenage girls. The point is zombies are searching for their metaphorical home.

The great thing about metaphors is that they are bigger than the artists who wield them. Like the price mechanism in a free market, the best metaphor will manifest as long as artists are free to play with the symbols.

To figure out where zombies are going, let’s start with where they are from. The canonical zombie is the creation of George Ramero in the classic Night of the Living Dead, but before that there was Richard Matheson’s I Am Legend. The 1954 novel is credited as Ramero‘s inspiration, but unlike the 2007 film starring Will Smith, the original I Am Legend was about vampires, not zombies. That split in the taxonomic classification of monsters is where we’ll find the quintessential zombie.

So, zombies are cousins of vampires, but Matheson’s vampires are a kind of intermediary form between blood sucker and flesh biter. For starters, they were not supernatural. There is a pandemic causing vampire like symptoms, beginning the trend toward scientific explanation. But the primary innovation is apparent in Matheson’s first description of the monsters:

“Why do you wish them destroyed? Ah see, you have turned the poor guileless innocent into a hunted animal. He has no means of support. No measures for proper education. He has not the voting franchise. No wonder he is compelled to seek out a predatory nocturnal existence.”

Matheson was making a point about majoritarianism. In his story vampires are no longer solitary monsters, or small broods. They are the majority, and the protagonist Robert Neville is the minority. Even the name “I Am Legend” meant that Neville was a legend among the monsters, who were building the new world from the corpse of the old, not a legend among other survivors. In short, Matheson democratized the vampire and gave us the zombie.

Zombies are unique among monsters because they are a majority, enacting one of modern cinema’s most enduring themes: the triumph of the individual over the collective. Matrix, V for Vendetta, Hunger Games, Star Wars, Lord of the Rings, and virtually every story that rises to mythic proportion enacts this theme, and zombies bring it to the horror genre. Frankenstein is arguably part of the zombie family, except that the monster is the individual, dispatched by the collective townspeople. Without this theme, it’s just not a zombie story.

The old vampire personified natural disease like plague, but zombies are usually the result of a man-made infection. They personify the fear that governments are not only devising the biological weapons that will destroy us, but also that they are incompetent enough to release them accidentally. Further, the military and police in these movies almost always fail to protect people from the outbreak, and are usually cast as villains, further playing on a latent skepticism of government. But there are other parallels.

Fundamentally, democracy is a means by which the majority live at the expense of the minority, by force if necessary, just as a zombie horde “lives” at the expense of the survivors. Zombies perfectly obey the majoritarian ethic. The old adage that democracy is two wolves and a sheep deciding on dinner is literally realized in these stories. We know this is a strong parallel because every election cycle we see political cartoons portraying grassroots supporters as zombies. Search the internet and you will find supporters of every campaign photoshopped to look like the undead. Intuitively we know that every democratic movement seeks to impose its will on others by force, and we fear being ruled by the mob, especially the stupid masses.

Reading cannibalism as a symbol for collectivist violence, the rest of the metaphor becomes clear.

The zombie outbreak is always worse in cities, where government is strongest, and the best movie survivors are always rural prepper types, the gunnies and stockpilers who avoided reliance on government. Not to mention, the character who holds out for government rescue is often among the first to die… or turn.

Another interesting trope is the emotional turmoil of dealing with infected family members. How do survivors deal with loved ones who in all likelihood will eat their face off? Well, we few fringe radicals who actually reject democracy know full well how emotionally taxing it is when our own family actually advocates violence against us if it be the will of the majority.

Similarly, a common defense in recent zombie movies is for survivors to disguise themselves and walk among the zombies, until they are discovered. Many anarchists choose this strategy to get by in democratic society, preferring to keep quiet and blend in, rather than face aggression and horizontal discipline from those who accept the ethics of majoritarianism.

By far the strongest parallel between the zombie genre and democratic society is the apocalypse scenario. Zombie stories are not just about monsters, they are about the complete breakdown of government, utilities and commerce. They are about surviving when the entire infrastructure of civilization disappears overnight. Just as the zombies must eventually starve to death, nation states that subsist on ever increasing debt must eventually collapse. We even call financial institutions that operate this way “zombie banks.” The political model of promising constituents ever increasing public consumption is a recipe for an apocalypse scenario, and we all know this on some level.

If I am correct that the success of the zombie genre is a reflection of an unacknowledged public fear that democratic government isn’t working, than the zombie movies that will succeed are those that capitalize on this metaphor. More importantly, if this is why the triumph of the individual over the collective is such an enduring theme, that means that latent voluntaryist principles are more widespread than we imagine, but they are manifesting in our art and storytelling instead of our politics.

Let’s examine the Russian defense of Stalingrad, and the Chinese defense of Manchuria during World War II, and just so you know it can happen here too, the battle known as “First Bull Run” to the Union and “First Manassas” to the Confederates, and the Battle of Gettysburg, both during the American Civil War.

In 1942 Germany launched an offensive to capture the Russian city of Stalingrad which was considered a key city to hold to maintain the psychological health of the Soviet Union. The city had strategic importance due to it’s location at the confluence of the Volga and Tsaritsa rivers.

Russia threw massive resources into its defense. They even sacrificed civilians, throwing them into the battle unarmed and shooting those who attempted to run away. The battle of Stalingrad was marked by a blatant disregard for civilian casualties. Russia placed priority on the industrial centers of the city as these were key to the war effort.

German tactics called for close coordination of armor, air, infantry, and engineers. The Soviets knowing this developed a strategy which they dubbed “hugging,” making sure to place their lines so close to the Germans that it nullified German air support and hindered artillery support. It worked. The German infantry so used to fighting with armor, air, and artillery support was totally unprepared for the vicious close quarters combat they faced in Stalingrad.

All this while Russia conscripted it’s own citizens and sent them to their death. When Russia fought bitterly for residential zones it wasn’t for the civilians. It was because they wanted the Germans to suffer for every foot. During the siege the factories kept rolling out tanks because the Soviets defended the industrial zones over the residential zones. The priority was not defending the civilians.

In 1931 Japanese forces invaded the Chinese city of Manchuria in direct violation of orders from the Emperor. The order came from the Imperial General Headquarters’ general Jiro Tamon. The goal was to seize the South Manchurian Railway.

The civilian government of Japan was thrown into chaos due to the massive insubordination of its generals and armed forces. The Chinese army was unable to repel the Japanese forces and when news of Japan’s victories reached Tokyo, the civilian government of Japan was no longer able to control it’s own army. This shows that governments can’t reliably command their own military, regardless of their stated intentions. As each Chinese province fell the Japanese setup occupational governments and spearheaded the creation of secessionist movements. These governments declared their independence from China, and remained under Japanese control until the end of the war.

Troops loyal to China resisted Japan at the Nen River bridge. Chinese propagandists spread news of the resistance across China, increasing recruits in the volunteer armies. Seeing defeat on the horizon, the Chinese general defected to the Japanese, leaving the Chinese people to fend for themselves. They were massacred by the Japanese forces, showing that governments will allow foreign armies to murder their people, provided it is strategically advantageous. There are reports that Japanese officer’s had local women raped and then cannibalized them.

The Manchurian and Russian campaigns demonstrate two things. First, there is no guarantee that a military will listen to it’s government. In fact a military coup is always a risk. Second, the military has its own priorities. If those priorities overlap with protecting civilians it is a coincidence, not an objective.

The defection of the Chinese general also shows us that military personnel don’t necessarily uphold their oaths if it doesn’t suit them. In fact, upholding an oath to the US Constitution could land a soldier the brigg. It also shows that the military is not subject to the desire of the government it “serves.” The military possess superior force, and when push comes to shove it can do whatever it wants.

What is normally claimed in the United States is that the State can control the military because Congress controls the budget. Therefore Congress can decide what the President has the power to do, by either funding it or not. This is false. Organizations like the CIA are capable of self funding through gun running, drug dealing and other illegal enterprise. Congress technically has the power to defund the Unconstitutional wars of the president, but to exercise this power is political suicide, due to the perception of the troops as heroes, who “defend freedom and democracy”.

Perhaps you think these are only the actions of foreign States, despotic governments, and it’s different in America. Not so. The US military has had fewer opportunities to show its true colors, but when it does it behaves no differently.

Early in the American Civil War a battle took place that became known as “First Bull Run” to the Union, and “First Manassas” to the Confederates. It was the first major land skirmish of the war. Both sides were eager to end the war quickly by taking the other’s capital.

Union forces marched South to assault the Confederate capital in Richmond, Virginia. Confederate forces marched North, pressing toward the Union capital of Washington DC. The battle took place near the city of Manassas. Both sides had green troops, meaning they lacked experience, which made their commanders hesitant to engage. Lincoln pressured Union General, McDowell saying “You are green, it is true, but they are green also. You are all green alike.” McDowell reluctantly attacked.

The battle was a victory for the Confederates. Northern civilians and soldiers alike were terrified that nothing stood in the way of the rebels reaching Washington, but they caused enough damage that the Confederates couldn’t march on to the capital. The battle of First Manassas demonstrates that both States were unconcerned with civilians. The civilian territories were something to be trampled on their way to other objectives, and protected only when it happened to overlap with the primary strategy. Perhaps civilians resources were seized if it served a military function. Attack the capital. Defend the capital. Those are the primary objectives.

The Gettysburg Campaign was a series of Civil War battles fought in 1863. The Confederate State wanted General Robert E. Lee to defend the Vicksburg Garrison, but Lee decided to move North into Union territory. He thought being aggressive in the North could force a defensive withdrawal from the South. The Battle of Gettysburg coincided with the Union victory at Vicksburg, and is generally considered the turning point in the war.

The Battle of Gettysburg occurred because the Confederate army was in need of supplies and went to Gettysburg to seize them. A chance meeting between the Northern and Southern armies lead to battle. Gettysburg was a key city to hold for both sides due to the civilian supplies there. The supplies were not Union property. They were civilian property, and the Confederates were there to steal them. But the Northern Army wasn’t there to protect the property of Northern civilians. It was also there to steal the supplies. The armies met there by chance because they both had similar plans to expropriate the property they claimed to protect.

The military “defends” a civilian population in the same way that a wolf defends a calf, by consuming it. When an army moves into an area it expropriates all it needs. If its logistics cannot support it, it takes what it wants, and needs, from the population. It is of no consequence whether that population is its own citizenry or if they are foreign. The atrocities are brutal in either case. This is what the Statist who cries, “Defense! Defense!” either doesn’t realize or chooses to ignore. Even when the State does defend a civilian area, after it has prioritized its own facilities and those necessary to win the conflict, before any of that happened the civilians were already aggressed against to pay for everything the army does.

It doesn’t matter whether the priority of the military is truly to defend its civilian ward or not. Because of what it is, and how it runs, the military simply cannot defend the civilians! The claim that it does so is entirely fallacious, even if we naively assume that the military is there for us, to protect us, and its members are loyal and trustworthy. And because the nature of the State is consistent across time and distance, there is no reason to believe the US and its military will not eventually behave like other foreign, despotic governments.

As we can see from all these examples, State armies don’t defend their civilians when it doesn’t suit them. Armies always prioritize securing strategic positions and supplies, even at the expense of civilians, and States always prioritize conquest and the protection of their own centers of power. When States aren’t murdering their own people they are failing to defend them, as they prioritize defending themselves.

Naturally, as a market anarchist my initial thoughts were along the line that private detectives would have done a better job, and that police waste countless resources going after victimless criminals instead of real criminals. But that’s not really outside of the box thinking, at least not for somebody well steeped in libertarian philosophy. No, it wasn’t until I started thinking about children’s rights that I discovered a nuance in the statist reaction towards missing children.

Kidnapped children are a subset of missing children. Runaway children are also a subset of missing children. When children go missing the state is presented with a challenge that I believe would be greatly mitigated in a stateless, or market anarchist, society. The challenge is in searching for a number of missing children that is considerably larger under statism than under voluntaryism. Why is this?

Ultimately, whether the detectives are employed by a state or the market all missing children are desired to be found. However, under a regime where children’s rights are respected, the number of runaway children would be nearly non-existent, thus reducing the overall number of missing children desired to be found.

Many children, particularly ages thirteen to seventeen, run away from home. And they do this of their own free will. Sometimes they do it because their home life is so terrible. Sometimes they do it for love. The reasons are countless. But most often when a child runs away from home they know they must do so secretively, without being caught. If they are caught one of two things will happen. They will either be returned to their parents or they will become wards of the state, being sent to foster care or possibly an institution.

Under a stateless paradigm, however, children who wished to homestead themselves and leave their parents or guardians would never be compelled by force to return. To do so would be understood as kidnapping. With this protection in mind, children would not have to keep their presence or location a secret. This would necessarily reduce the number of missing children to those that are kidnapped or legitimately lost, say, in the city or wilderness. Thus, whoever is in charge of search and rescue would have a greatly diminished number of children to find and the confidence that those children actually want to be found.

I’ve seen rumblings about this on anarchist sites for about a year, but I haven’t seen anyone state it outright and I think it should be: The State is a non-consensual group “BDSM” scene. That’s not an analogy, but an exact description.

There are obvious comparisons between BDSM and the State. BDSM can involve locking people in cages. Statism can involve locking people in cages. BDSM can involve electrocuting people (tasers/violet wand). Statism can involve electrocuting people (tasers/electric chair). BDSM can involve beatings. Statism can involve beatings. BDSM can involve a Dom micro-managing their sub’s life. Statism can involve a legislature micro-managing their citizen’s lives. BDSM can involve sadism, including bringing someone very near death (If the dynamic includes RACK). Statism can involve sadism including outright killing people, even children. BDSM can involve financial domination where someone’s finances are put under the control and supervision of someone else. Statism can involve financial domination where someone’s finances are put under the control and supervision of someone else.

There are similarities between the tools and methods used in BDSM and in Statism

I suspect there may also be similarities in the underlying motivations and emotions in Statism and BDSM. Within the division of labor of the modern State, different desires for domination can be played out only in certain roles. For instance, if someone is a sadist who enjoys hurting people they could join the police or the military. If they want a feeling of control or importance in some one’s life they might join the legislature or become a teacher depending on how they have thought about that desire and the way they want to express it. And then there are different departments for more specific kinks, some of which are only legal in the context of working for the State, like a pedophile working for the TSA. (Clearly not everyone who works in these areas necessarily has the related kink, but these departments give an outlet for people who do poses them. Not all TSA agents are pedophiles or vice-versa, but if someone is a pedophile, they’d have an incentive to join the TSA. Also, these desires are necessarily conscious desires.)

There are also examples of the State providing an outlet for submissive desires. Many submissives talk about liking a feeling of being protected or of security. There’s also the idea of “being contained,” of knowing the boundaries and not having to think so hard. Some submissives work through emotional or physical abuse with their Dominants. In a similar way, many citizens put the same emotions they had for important parental figures in their life onto the State. And many people just want to know they’ll be taken care of. The State may not actually provide these things, and I think most anarchists would argue it does not, but it does seem to fulfill the emotional need and desire to feel like those needs and desires are being met. The State may not actually “protect people from foreign threats” (no protection and no foreign threats) but people feel like there are threats that they need to be protected from. The State puts that fear onto foreigners, and then promises to protect people from those scary foreigners. (Scary because they are a conscious proxy for subconscious fears.)

Different types of governments all have Dominant/submissive positions

Historically, one of the best examples of this dynamic has been feudalism. Under feudalism there is a strict hierarchy of “Dominants” and “submissives” with a king (or Pope, depending on what time period and country) at the top and his vassals, and their vassals etc. down to the peasants, who, though they were almost slaves, had an agreement with their lord who was required to feed them in times of difficulty and protect them from foreign threats. Feudalism, because it was largely based on heredity, was rather ridged and often didn’t allow for different people’s needs and desires to be met. If someone wanted to take on a role with responsibility, but was a serf, they might have a very small field of action to do that in. Of course, this was also true the other way around. If someone were born in a position that made them Dominant, but whose emotional needs were that of a submissive, it could be very hard to get those needs met. (Especially because the society did not allow for experimenting with kink.) There is the story of an emperor who would beat people so they would stop fearing him and love him. Within feudalism there was a vast network of submission and dominance and many people were Dominant in some of their relationships while being submissive in others.

Eventually, with the rise of the market place, feudalism began to breakdown as a system of government. However, though feudalism was breaking down, people still looked to the State to fulfill (often) subconscious emotional needs. People eventually divided into two diametrically opposed camps, each desiring two diametrically opposed systems: people who wanted to be Dominant and people who wanted to be submissive. These different groups wanted democracy and communism respectively. These governmental systems are not opposite for the reasons that the State likes to propose: liberty vs. enslavement, free market vs. planned economy etc. They are opposite in that each sell themselves to different groups. Democracy focuses on dominant personalities, with rhetoric about allowing people to exercise desires for domination through their interactions with other people through the State (voting, running for public office, being a judge, being on a jury or being a police officer etc.). Communism focuses on people’s desire for submission through the interactions with other people through the State (everyone serves everyone else, you will be taken care of and protected, every one’s abilities will be directed to their best use etc.) Both communism and democracy have people in positions of dominance and positions of submission, the difference lies mainly in the way the State sells the dynamic, either focusing on the emotional needs of Dominants or the emotional needs of submissives.

I suspect that any governmental system will have elements of dominance and submission, and will do things that, if they were consensual, could be part of a BDSM scene. The existence of prisons, locking people in cages, is a form of bondage and domination. To the extent that the State regulates how people live their lives there is a slave/Master dynamic. And to the extent people are punished with physical or emotional abuse for breaking the government’s rules there is a sadism/masochism dynamic, and the more authoritarian the regime the more pronounced the s/M and S/m dynamic will be. I even suspect that some forms of governance for an anarchist society that have been proposed would, in practice, include elements of BDSM, though perhaps with some element of consent, which is the main problem that statist BDSM has: there’s no room and no possibility for consent.

Huge, bright line between BDSM and Statism: consent

Despite some outward, superficial similarities between BDSM and the State there is a huge, bright red line between them: consent.
BDSM is play, but without consent it can be abuse, or rape, or worse. When two people feel comfortable with each other, have talked before hand, have a safe word, etc. and one of them ties up and punches and beats the other person, that’s play. When a police officer handcuffs and beats someone that’s abuse. When a Dominant orders a willing submissive to strip naked and plays with their genitalia that’s play. When a police officer searches a woman and orders her to strip in front of her children and removes her tampon as part of the “search,” that’s rape. When two (or more) people enjoy playing with pain and decide to tase each other, that’s play. When a police officer tases someone that’s torture.

It may be useful to compare the State’s lack of consent with the things people who practice BDSM do to ensure consent to find things that may be good to have in an anarchist legal system, like a system of safe words. Currently, when a cop pulls you over they have a lot of discretion about what they do, which can often lead to terrible results, especially if they set off a trigger that someone has. An excellent example of this is Linda A. from “The Stranger in the Mirror.” Linda was pulled over by the police, who used racial slurs against her, had her partially strip, and do a side-of-the-road alcohol test. The police officer decided to arrest her. When the officer went to handcuff Linda she asked him to handcuff her in the front instead of the back. The officer ignored this and handcuffed her in the back which Marlene Steinberg, the author of “The Stranger in the Mirror,” believes caused a disassociative event and Linda tried to defend herself. Things really went downhill. Linda wound up bound with her hands cuffed above her head being maced. Even if an anarchist legal system had some form of arrest it would be essential to have a mechanism that allowed people to communicate their needs.

Another aspect of BDSM that doesn’t exist with the State that anarchists should consider is two concepts that are closely linked: an intimate relationship and trust. One of the biggest problems with Statism is that it attempts to legislate for a wide variety of people, and judges a huge number of cases with little or no knowledge about the people involved in any given case. With BDSM people will tend to get together with people they know and who know them. This allows for much, better, more personalized treatment. An example of this is law in Somalia where the patriarch/council has seen the perpetrator grow up and so knows them and has much more of a vested interest in their welfare than a judge who has never seen or known the defendant before the trial.

Conclusion

The State seems to have some similarities with BDSM. It is almost as if the State is just a massive BDSM scene, except that it isn’t consensual. An excellent example of this is Feudalism. After the fall of feudalism, the two main contenders as replacement organizations of the State: democracy and communism , which appealed to different general groups. Democracy’s ideology seems to be mainly geared towards people with Dominants while communism’s ideology seems mainly geared toward submissives. It may be true that any governmental system will have BDSM-like interactions. The State seems to encourage people to get their kinky desires met through the State while discouraging people from doing kinky things outside of the Statist avenues. There is, however, a huge, bright line between Statism and BDSM, and that is consent. Looking at how Statism differs from BDSM suggests some things that anarchist legal systems might incorporate, like safe words and judgments made by people who know the parties in the dispute.

David Graeber is an anarchist author who teaches anthropology at Goldsmiths College, University of London. His book, “DEBT: The First 5,000 Years” takes an anthropological approach to the history of debt, not just who owed what to who, but how debt was used and what it meant in various cultures. David gave this talk as part of the Authors@Google program. It’s a long view, but utterly fascinating. I was especially astounded to hear him claim that there is no historical basis for barter economies, and in fact recording debt was the common means of transacting without currency. This video is chalked full of startling information, that was at least new to me. Enjoy!

When do we know it is money?

As I was preparing a report for subscribers of the Laissez Faire Club, I was going through the list of goods and services currently priced at and available on the web. It is mind boggling how many there are. I’m not sure I knew just how much you can get right now. The conspicuous hole in this panoply are local merchants — the pizza joint down the street, the rent, the cab fare. Otherwise, anything you can buy on the web, you can buy with Bitcoin.

Then it suddenly occurred to me.

If you put this list together and look at the total, what you find are more goods and services available right now using Bitcoin than have been available to most everyone in all times and places in all of human history except for the past few years using any money that has ever existed.

True, you can buy more with dollars now, but you can get more stuff with BTC now than you could get with dollars in the 1980s or any other time in history. You can buy more varieties of grain, cereal, and spices now than you could get with government money at the local grocery back then. You can buy smartphones, tablets, scanners, and cameras that didn’t even exist back then. You can get clothing at prices that were unthinkable back then.

In other words, from a broad historical perspective, Bitcoin is already one of the most functional currencies in the history of humanity. What’s more, some estimates put the population of current Bitcoin users at approximately 500,000.

Why isn’t Bitcoin money?

What keeps it from being money — Bitcoin’s value is constantly assessed in terms of its exchange ratios with government currency — is not its usability but its stage of development. Its volatility is a problem that raises other problems. The other problem has to do with current infrastructure of Bitcoin that is not sufficiently mature to justify calling it a full-blown money at this stage. All the signs look great but we are not there yet.

For example, many in the Bitcoin world today are enormously frustrated with Mt. Gox, the Bitcoin exchange in Japan that processes some 67% of the Bitcoin business on the web. That’s down from its near-monopoly status just two years ago, and its percentage of overall business will continue to decline.

One factor that troubles many is that Mt. Gox is highly conventional in its political relationships with the state. Just getting an account there requires a great deal of information, more than most people would give even to open up a local bank account. There is no anonymity; not even close. However, this situation is surely short lived. The more government money moves to digital currency, the more exchanges can rely on a self sustaining Bitcoin economy. The problem of state-connected, privacy violating corporations are a feature of the transition but not of the long-term operation of the system.

The process toward this self-sustainability will follow no predictable course. In the digital age, conditions can change extremely rapidly. As we saw with Cyprus, if people believe that government can rob them of their money, they will do what they can to move it, regardless of ideology. No one likes to be robbed. A technology that can prevent that can go from obscurity to ubiquity in days.

But there are other problems with Mt. Gox. It has borne the brunt of anger for several instances of technical failure since 2009. Most recently, the runup of the BTC to dollar exchange ratio from $30 to $266 in a matter of days overwhelmed MT. Gox’s servers. At the same time, the service was hit by DDoS attacks. After the onslaught and constant crashes that drove a selling panic, the company finally declared a cooling off period of 12 hours while it upgraded its servers.

Mt. Gox needs more competitors

Right now, we are watching a mad scramble for other services that can provide more reliable service and thereby diversity the Bitcoin trade. Many people sense that the market function of price discovery is being inhibited by industrial concentration with the world of Bitcoin. It seems unsustainable for there to exist tens of thousands of Bitcoin retailers and services but for one company to so thoroughly dominate the producer end.

But there’s a beautiful thing going on here. There are no restrictions on establishing a Bitcoin exchange. The barriers to entry are extremely low, and there are not yet any prohibitive legal barriers. This means the competition for handling coins is already very intense. For Mt. Gox to survive in this environment will require it to be unrelentingly innovative.

Is it? With all services like this, they wear their flaws on their sleeves because they are seen by 100% of users. When things go wrong, we lunge for our rotten tomatoes and start hurling them. Having been on the other side of this for many years, my sympathies go out to any company faced with these sorts of problems.

In the world of server administration and website management, problems are preludes to solutions. The failures serve a profoundly important purpose: they draw attention to the weak points of the current server and database configuration. Things have to break in order for them to be fixed properly and with precision. One hates for this to happen in real time, but such is the way with markets. This is no perfection out of the box, and this is the way it must be. The upheavals are more productive in a market economy than the stability. And, again, these problems have nothing to do with Bitcoin but rather the infrastructure in which it is being introduced to the market.

Bitcoin is deflationary

A larger problem with Bitcoin concerns its essential structure that lends itself to growing value in terms of goods and services over time. This is also known as deflation. With a supply that grows on a predictable basis leading to a final fixed supply, it will always buy more and more. Why would that be a problem? Deflation poses special problems for merchants.

Let’s say you buy 5 tablets for 100 Bitcoin that you intend to resell at a profit. But by the time they enter on the market, the value of Bitcoin has risen and you can’t resell them at a reasonable markup. This is a similar situation many merchants found themselves in with regard to memory sticks and thumb drives over the last 10 years. They buy them and end up eating them given the falling price of the goods on the retail market.

How can merchants deal with this? Well, we can be inspired by the software and computer markets over the last 20 years. Deflation has been the rule. The retailers who have made it through have proven themselves to be radically “antifragile” in the neologism of Nassim Nicholas Taleb. They have adapted through limited inventory, providing top service, excellent marketing and a general reliance on relentless improvements in product quality to carry the day. These have been gigantically profitable industries in spite of the constant fall in price of their goods relative to money.

If Bitcoin does indeed grow in value over time, savers will be rewarded. But never forget this fundamental truth: the only point of saving is eventual spending. Those who are hoarding Bitcoins today will be on the market for Bitcoin products and services tomorrow. This is a truth that Keynesians of all sorts turn away from but it highlights the reality that hoarding is actually a productive force in the market economy.

Still, replicating that model with today’s wild volatility of Bitcoin seems implausible. But this raises another issue.

Bitcoin is volatile

Why should this volatility matter in our minds at all? Because the market is still in its infancy. We are accustomed to constantly checking the price of Bitcoin in terms of other currencies. It does not always have to be this way. For example, most people today couldn’t tell you anything about the Dollar-Euro exchange rate because it just doesn’t matter. The more you deal in one currency, the more we think in terms of that currency and not its exchange rate.

Bitcoin will have matured as a currency when people stop concerning themselves with the exchange rate in terms of other monies but mostly in terms of its value against the goods and services it buys. At that point, it will not be necessary for merchants to constantly adjust prices. The prices in Bitcoin will have meaning on their own. Even now, Bitcoin users grow tired and frustrated with the relentless focus on its dollar price. This focus tempts people to think of Bitcoin as a speculative product or investment rather than what it seeks to be, which is an emerging unit of account.

Part of the irony of Bitcoin’s volatility is that it is a sign of its success. The markets are testing it, flitting between belief and doubt based on events such as bank runs and currency upheavals. It is a viable option today to government currencies, which is why we are seeing panic rushes to buy followed by panic rushes to sell. Once the futures markets of Bitcoin have matured, we will start seeing those ups and downs smoothed over in a way that at least incorporates the speculative judgements of the players with skin in the game.

So, yes, there are myriad problems between where we are today and where I think we will eventually be, with money finally leaving the analog age and entering the digital age. But the trajectory is clear and those who see this and act on it will be ahead of the historical curve.

Many organizations seek non-profit recognition from the IRS in an attempt to protect themselves from asset confiscation. In April 2012, Fr33 Aid applied for this privileged status, but since then the process has been nothing but a bureaucratic nightmare. Today Fr33 Aid announced they have abandoned their IRS application and adopted bitcoin as their primary financial instrument.

Fr33 Aid Treasurer, Teresa Warmke said:

“Now that there are ways for us to do banking without government involvement, we decided fulfilling (IRS demands) would not be a responsible way for Fr33 Aid to spend its money nor for our volunteers to spend their time.”

They determined that their attempt to comply with the IRS’s confusing demands was  not only unnecessary, but counterproductive to their mission of supporting volunteers who provide first aid and educational services at liberty-oriented events, and demonstrating the value of voluntary mutual aid. By making this bold transition into a bitcoin based organization they will be able circumvent the complex and burdensome requirements of state regulated banks, retain complete control over their assets, and focus entirely on their important mission. Teresa adds:

“It feels great to stop doing business with government agencies now!”

This as an important step toward the development of a robust non-profit sector in the bitcoin economy. Further, Fr33 Aid’s Director of Operations, Dr. Stephanie Murphy and Treasurer Teresa Warmke will participate in a panel about Bitcoin for Non-profit Organizations at the Bitcoin 2013 conference in San Jose, CA next month. They will be joined by Angela Keaton of AntiWar.com and Carla Gericke of the Free State Project.

Fr33 Aid is keeping their current bank account in order to accept dollar donations via check, credit card, PayPal and Dwolla, but the account will be kept as empty as possible to minimize the risk of either bank or government confiscation in the future. Teresa says:

“We don’t consider any of these payment methods as trustworthy as direct bitcoin donations. In the future, any donations we receive via traditional banking methods will be converted to bitcoin in a timely manner.”

Fr33 Aid is still committed to the level of transparency that the state requires from recognized non-profit organizations. They publish an annual report on their site with at least as much information as is normally disclosed on IRS Form 990.

You can send Fr33 Aid bitcoin donations to: 1Fr33Aidr4gokeCcHHxbnDi8vasKHEaRUm

The second reason for recent Bitcoin skepticism is its meteoric (some would say bubble-like rise), which indeed experienced a sharp correction the day after Parik’s article. Time will surely tell, but for the impatient, the philosophers and the gamblers, I offer these reasons for measured optimism in everything but the very-long term.

Good Money

Gresham’s Law is often misstated simply as “bad money pushes out good.” What’s left out is that this only happens when people are forced to accept bad and good money at a comparable exchange rate. When people are not (or CANNOT) be forced to accept a nonsensical exchange rate then quite the opposite happens – good money pushes out bad.

Gold unquestioningly has superior intrinsic value to Bitcoin,which have none aside from their value as a medium of exchange and wealth delivery.

The other characteristics of good money are:

• Acceptability
• Durability
• Portability
• Scarcity
• Divisibility
• Cognizability
• Malleability
• Uniformity

Bitcoin seems to win on all or almost all of these characteristics.

Acceptability – While the gold market is significantly bigger than the current Bitcoin market, it is a market for relatively privileged people, relegated to wealth preservation, and it requires intermediary brokers. The sale of consumer goods already happens in Bitcoin, and the huge e-commerce sector seems primed for a very low-cost transition to Bitcoin. It would save them considerable transaction costs, namely the percentage of each transaction paid to credit card companies or Paypal.

 Durability – The advantage seems to lie with Bitcoin which is immune to physical harm.

Portability – Clearly, this is Bitcoin’s biggest advantage. Anyone can send fifty cents worth of Bitcoin to an Asian online casino almost instantly with zero transaction cost. The rules for the transport of gold across international borders are vague and varied. The cost of wire transfers make such a small transaction unlikely.

Scarcity – Though it is still early to call Bitcoin non-counterfeitable, the advantage seems to lie with them. Also, there are no Bitcoin rich meteors floating through space.

Divisibility – Though technically gold may be divisible into smaller units (a very technical question) the cost of performing such a division, plus the transaction cost of verifying such a minuscule payment of gold gives the advantage to Bitcoin.

Cognizability – Again, it is still early in the life of this new technology, but the advantage seems to belong to Bitcoin. Gold does get counterfeited, whether explicitly through debasement or through the sale of paper certificates for non-existent gold.

Malleability & Uniformity – These aren’t even issues with Bitcoin, whereas the verification of uniformity places a heavy transaction cost on all deals involving gold.

Curiously, state barriers to the emergence and use of rival currencies accentuate Bitcoin’s advantage. Customs laws which are too slow and stupid for Bitcoin only ensnare gold. The gold market is fraught with regulations. Mints have been raided. Owners, like Bernard von NotHaus have been convicted of counterfeit, even though Liberty Dollars looked nothing like Federal Reserve notes. By many accounts, the price of gold is actively suppressed by the orchestrated sale of gold which doesn’t actually exist.

All this gives Bitcoin an edge in today’s world. However, it may very well be that Bitcoin carries the seed of its own demise. If they do elude the fiat system and help speed its withering away, many barriers to gold will wither away with it.

Bitcoin is a jailbreak

Not only are the advantages of Bitcoin over gold accentuated by the restrictions which entrench the world’s fiat systems, it is likely that Bitcoin’s emergence is a reaction to those restrictions.

It is hard to imagine their development in a completely free market where successful banking is based on service and competition instead of the political privilege which licenses select institutions to counterfeit, where regulatory burdens would be very low and tending toward increased efficiency, where, rather than restricting the flow of commerce across borders, major institutions would be dedicated to enabling it, where we could instantly transfer fractions of a commodity money to anyone in the world.

In such a free market, there would simply be no need for a crypto-currency without a commodity backing.

So what is Bitcoin’s value? It is a means of escaping the enforcement of the world’s currency monopolies, a jailbreak. It is a service, like Western Union, only cheaper, easier and faster. Bitcoin is a vehicle. Bitcoin HAS an intrinsic value as a wealth delivery service with the peculiar feature that wealth needs to transform into Bitcoin before it can be exchanged.

In an environment of extreme Bitcoin skepticism, a transaction would look as follows: wealth transforms into Bitcoin, zips instantly to anyone in the world (or beyond, so long as they have internet access), and then transforms out of Bitcoin.

People would be willing to thus transform their wealth so long as they are saving money, time or convenience over rival money transfer systems like conventional bank-wires, credit card purchases, or Western Union.

In the skeptical environment, the amount of wealth people leave in the form of Bitcoin would reflect the fees associated with changing wealth into and out of Bitcoin (for example, the fees charged by btc-e.com or mtgox.com).

I think this kernel of value as a wealth delivery vehicle in our fiat world is sufficient for Bitcoin to survive. The modicum of value establishes enough confidence that when people need a quick, easy store of value they will turn to Bitcoin. It will be readily available every time a fiat system enters into its death throes, and it will be a commodity available for speculation.

The Bubble

Just because the value of something goes up, doesn’t mean it will crash down to nothing. It’s telling that the video linked in Patrik Korda’s essay discusses the possibility of a Bitcoin bubble at a time when they were $18 each. Cellular technology saw a meteoric rise. E-commerce, despite also being fueled by an artificial liquidity bubble, also had a dramatic rise. It was a bubble, but it wasn’t just a bubble.

Companies who raised millions of dollars to sell dog food over the internet went bust. Companies that effectively indexed and made searchable the greatest catalog of human knowledge ever did not. They thrived.

Coincidentally, I opened a bank account just a day after gifting to a friend his first fraction of a bitcoin. He didn’t have to leave his home to open an account. It took seconds. The only delay was downloading the blockchain, but that happens with no effort on his part besides patience.

By contrast, I had to make two trips to the bank because the first time I forgot to bring a proof of address. I rode buses. I signed my name at least a half-dozen times. I showed a photo ID. I had to dress myself before beginning the trip.

Returning from the light-speed world of Bitcoin finance to standard banking is like giving up email and writing letters to people and putting them in boxes for pick-up the following morning. It’s like wanting to call someone and instead of reaching into your pocket, going somewhere and standing next to a rotary telephone on the wall and listening to it ring and ring while you measure the opportunity cost of making another trip a half hour later.

Once you’ve seen the smart way of doing something, it’s hard to stop noticing the inefficiency of the past mechanisms. There’s also the unlikelihood of paying a $35 wire fee because you want to place a fifty cent bet in an online Asian casino. There’s also the huge potential for all e-commerce to lower their transaction costs.

As a final bit of skepticism, the essay called into question the anonymity of Bitcoin. Maybe it’s true, maybe it’s not, but the world is a checkerboard of jurisdictions and there do exist government in the world which do not care whether their citizens fling these obscure bundles of electrons back and forth. And even within the control-obsessed jurisdictions of the US and EU, people can almost instantly create as many accounts as they want.

Even if they were 100% traceable, so what? The wind is likewise traceable, but tracing it and stopping it are two very different matters.

Conclusion

Daily Anarchist readers will likely agree firstly that their needs to be competition, and secondly that the market is the best mechanism for selecting a medium of exchange. Bitcoin has many advantages over gold and one considerable disadvantage: the lack of obvious intrinsic value. Its value lies in its utility as a wealth-transfer vehicle.

Not only do the attempts of states to entrench their monopolistic fiat systems accentuate Bitcoin’s advantages over gold, they are likely the reason for the emergence of Bitcoins in the first place.

Barring any technological sabotage (so far, the system seems resilient), the greatest threat to Bitcoin will come after commodity money is re-established and after (God willing) capitalism returns to the banking industry.

Once financial entrepreneurs offer the service of safe, secure, perhaps anonymous, low cost, high speed, anywhere-in-the-world wealth transfers in a form that has commodity backing, I’ll sell every last one of my Bitcoins. Until then, I’m hanging on and trying to enjoy the roller-coaster.

“Select Board member Tedd White resigned Thursday, the fourth official in the town of about 330 residents to step down since a March 12 special election to replace a selectman who died in office.

White said in his resignation letter he would rather ‘pound my thumbs with a hammer’ than attend ‘crooked, rigged’ board meetings.”

The short write-up goes on to say that:

“White said he cannot endure the ‘rudeness, disrespect, bias, and disregard for procedure’ of Board Chairman Phil Keenan.

The town clerk, town moderator and a member of the regional school committee have also resigned this month, saying they cannot work with the board.”

Let’s set aside for the moment that these resigning “officials” are, in all total likelihood, not adherents to Voluntaryist philosophy, and that, according to the AP article, 105 Hawley residents evidently signed a petition in support of Keenan. Let’s also place no particular significance on specificities of the brouhaha that led to these four former bureaucrats’ walking off the government job.

Henry David Thoreau most famously stated that, “When the subject has refused allegiance, and the officer has resigned his office, then the revolution is accomplished.” No doubt, Thoreau, once a resident of Concord – not far at all from Hawley – would’ve been delighted by this development.

As am I.

This is what we Libertarian Voluntaryist Market Anarchists would like to see happening everywhere, en masse, no? Thus, I’m calling for an experiment.

Let’s reach out. The website, TownOfHawley.com is incomplete, poorly constructed, and contains no relevant e-mail addresses in any case (no surprise for a government endeavor). And while I do not like to encourage use of the state-monopolized (and duly failing) postal system, you might consider sending some friendly Voluntaryist outreach letters or postcards with website URLs, stickers, the aforementioned Thoreau quote, or other pro-Market Anarchist literature and materials to the legal fiction known as:

Town of Hawley
8 Pudding Hollow Road
Hawley, MA 01339

Explain in a positive manner that you read this column, or the AP article, and both admire and approve of the actions of these former town government employees – and would like to see their example followed by others. As well, you can make a brief phone call to:

(413) 339-5518

As with whatever you send by snail-mail (or private courier, should the less commendable though likely cheaper protectionist government alternative sear your conscience), don’t necessarily expect anyone to answer. But you can likely leave a short polite message in support of the four walkaways and perhaps with an appropriate Voluntaryist internet address to visit.

The beginning of my own letter reads as follows:

“Dear Town of Hawley, Massachusetts employees,

As you are likely aware, the Associated Press recently released an article carried by numerous regional and national publications, in which it was reported that four individuals formerly on your local government payroll resigned from their positions.

While the actual motivation for those resignations remains unclear from the standpoint of outside observation, I would like to commend all of them unilaterally for their decision, and warmly recommend one and all to the following Web addresses as an explanation for the favorable and optimistic view I take of these developments…”

I then include Daily Anarchist, Voluntaryist.com, an TheAnarchistAlternative.info bumper sticker, and one or two others. Recommendations of books to read, such as The Lysander Spooner Reader (himself a native of nearby Athol, Massachusetts), or the Tannehills’ The Market for Liberty might also be helpful.

It will be interesting to see if anyone does garner any favorable replies. I expect that, if enough people do participate (Keeniacs, wherefore art thou?), it may cause something of a local sensation. At any event, it cannot hurt our cause. I invite you to post your own letters to Hawley, Massachusetts below. I, for one, would also be just as eager to read these, as any responses that may be garnered thus.

And somewhere, I’d like to think, Henry David is smiling down on all of this with gleeful satisfaction.