This whole debate going on, once again, concerning free banking and full reserve banking has encouraged me to tell some of my experiences at the Mises Institute last year. Ironically, I went into the Mises Institute as a person advocating the full reservist position and by the end of the week I rejected it. What is also ironic was the fact that I never really was interested in learning about free banking going into the institute, instead my main interest there was to learn more about the Mises regression theorem to try to discredit bitcoin, which at the time was a popular topic. My interest quickly changed though after a discussion I had with a fellow student on Mises and free banking. I was told that Mises’ position on the gold standard was not as straight forward as others made it out to be and was encouraged to read “In Defense of Fiduciary Media”, which is an article defending the free banking position (ie. responding to claims that FRB is fraud, or responding to claims proposing that free FRB does not work) but is also an article in trying to show Mises’ free banking side. I eventually read White’s article in A Man of Principle: Essays in Honor of Hans F Sennholz (a book that is in the Mises Institute’s library), ‘Mises on Free Banking and Fractional Reserves’ which furthered the point of Mises as a free banker. Using these articles as sources and also listening to debates and discussions on the free banking issue, I started also to debate, defending the free banking side. *
I was disappointed in debates because for the most part, people just wanted to talk about the ethical issues of FRB, while I wanted to debate about the actual applications of FRB to better understand the position. Even talking to some faculty, I felt disappointed because most didn’t want to talk about free banking, and if they did, only appealed to the ethical argument. Walter Block, for example, mainly talked about how multiple people cannot own the same property** and giving the example of how you wouldn’t expect a bike stored at a warehouse to simply be lent out to others (ethical argument). He did at one point also question how a free banking system deals with bank runs (which if one takes the time to read up on the theory, it is easily addressed).
The only stimulating discussion I had with a faculty member on free banking was with Roger Garrison. Garrison and I probably talked for a good half hour on issues of free banking, especially the issue of the free banker Mises, which Garrison personally went through passages in The Theory of Money and Credit with me, and he also had some favorable things to say about Selgin’s book. He did say that he didn’t agree with everything in Selgin’s book, but unfortunately we did not have time to discuss this in detail.
At the same time, I would always be around the student that initially brought me into looking at free banking theory after lectures because he always had free banking like questions for the faculty. It was pretty obvious that after a while, most of the faculty was annoyed by the free banking questions.
I think this is obvious if one attended the faculty panel on theory in Mises U 2011, which there was some talk about fractional reserves, and some questions on free banking. Salerno at one point did tell students to stop asking free banking questions (or told us to limit them, I can’t remember which he said). I assume it was because this was an issue that was took up some time during the panel, but also I assume, Garrison was actually defending the FRB position, quite well actually, and there was a little mini debate for a moment. To be fair though, Salerno did tell the students to stop asking bitcoin questions too, since there were a lot of them. Unfortunately, I can’t seem to find this discussion in the Mises Institute archives for Mises U 2011. I see that one was posted for 2010 but not 2011. This was definitely one of my favorite discussions while I was at Mises U, it’s unfortunate that it was not published.
Also, I found interesting that Hulsmann’s lecture on Mises, “Mises as Model”, he explicitly stated that Mises was an anti-FRB economist, appealing to his book Theory of Money and Credit for justification for this claim, the same book that Garrison cites as justification for the claim that Mises was a free banker economist.
This said though, I must admit that Mises U was a fun experience. I met people from Austria, Germany, Poland, Argentina, and Venezuela and had fun discussing libertarian ideas and Austrian economics. Also, I hope there will continue to be debates on fractional reserves at Mises U, which I think is going to continue, given that Leland Yeager will join the faculty for Mises U 2012!
* I actually do not recommend reading these articles if one is just starting to read on free banking. My case was special because I was listening to debates that went over free banking theory and thus, was able to learn the basics of free banking theory through debates.
**for example if person A deposited some gold, Block would claim that this shouldn’t just be lent to or withdrawn to person B because it is A’s gold. What Block fails to understand is that when you deposit gold and you redeem it at a later time in a FRB system, you will get back the amount you want redeemed, not the exact same gold as what you deposited at an earlier time.