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Saturday, April 19, 2008

Agorist Toolkit - Banking

I saw a discussion of someone developing a free market banking system. Someone said in the comments section "Ask FSK about setting up a free market bank."

A free market bank has two essential purposes. First, it provides people with a way to trade between sound money (gold or silver) and Federal Reserve Points. Second, a free market bank will provide warehouse receipt banking, so that people have a safe place to store their money. It isn't feasible to make gold-based or silver-based loans yet. The Federal Reserve keeps real interest rates artificially negative. The Fed Funds Rate is 2.25% while inflation is 6%-30%, depending on what measure you use (M2 or M3 or the price of gold). A gold-denominated loan would have an implied interest rate of 20%-30%, making a gold loan unattractive. Austrian-style "time-deposit banking" won't be feasible until after the State collapse.

A Free Market Gold or Silver Barter Network

In a free market bank, you need to be able to trade freely between Federal Reserve Points and real money. Most stores only accept Federal Reserve Points as valid for payment. Part-time agorists may purchase goods and services using Federal Reserve Points instead of real money. The agorist economy should run a "trade surplus" by selling some products and services to part-time agorists.

If you keep Federal Reserve Points, you're letting the State steal your purchasing power via inflation. An agorist should only keep enough Federal Reserve Points for short-term slave economy needs. Long-term savings should be stored as sound money. The profits of an agorist business *CANNOT* be deposited in a bank, because that would trigger "anti money laundering" reporting requirements.

Here's how you set up a gold or silver barter network. Suppose you are trading 1 ounce silver rounds for Federal Reserve Points. You ask everyone to place their orders, and you get:

BidQtyAsk Qty

At a price of $18.25/oz, there are 2+3+5+5+5=25 ounces offered to buy and 5 ounces offered to sell.
At a price of $18.50/oz, there are 20 ounces offered to buy and 10 ounces offered to sell.
At a price of $18.75/oz, there are 15 ounces offered to buy and 15 ounces offered to sell.

The most quantity is traded at $18.75/oz. The price is $18.75/oz and 15 ounces trade.

This is how you conduct a "dutch auction".

It doesn't matter what the "slave economy" price of silver/$ is. The free market price is whatever price the # of buyers equal the # of sellers. Agorists will tend to be net buyers of gold and silver, so the free market price of gold and silver should be *HIGHER* than the slave economy price. Agorists cannot deposit their profits in a bank, so gold or silver is their most attractive investment opportunity. If the difference in price is too great, people could profitably buy gold or silver in the slave economy and sell it in the free market, as described below.

I would also offer change for larger bars. For example, someone might be willing to trade a 100 ounce silver bar for 98 1 ounce rounds. A 1 ounce round is worth more than 1/100 of an 100 ounce bar, because of the effort required to cast a 1 ounce round.

In this manner, you can set up a free market gold and silver barter network. All transactions would be anonymous, in cash, and not reported to the State.

It is important to avoid taxation. The capital gains tax rate for gold and silver is 28%. Suppose I buy an ounce of gold today for $950/oz. In two years, suppose I sell it for $1450/oz. I owe 28% times $500 in capital gains tax. The value of an ounce of gold has not changed. The value of the dollar has decreased. I was taxed on my "gain" due to a decline in the value of the dollar.

If you want to use gold and silver as money, there *NEEDS* to be a mechanism for freely trading between gold/silver and Federal Reserve Points. They have to be anonymous cash transactions, not reported to the government.

Suppose I have a profitable agorist business. Some of my customers are part-time agorists, and they pay me in Federal Reserve Points instead of sound money. If I take $10,000 cash and deposit it in my checking account, that transaction is automatically reported to the red market. "Anti money laundering" laws don't just catch drug dealers. They catch anyone engaged in free market economic activity.

If you have profit from a free market business, you can't deposit that money in your checking account. If you hold onto Federal Reserve Points, you're guaranteed to be ripped off by inflation. If there were a free market gold/silver barter network, I could spend my $10,000 cash and buy 10 ounces of gold. Then, I will be hedged against inflation. Physical gold is a safe store of value. I can accumulate savings without it being reported to the red market. If there's a free market gold/silver barter network, I can always sell my gold for Federal Reserve Points, without being taxed on the transaction.

Suppose I did not have an agorist business. I could still profit by participating in the gold/silver barter network. Suppose my trading partners had some Federal Reserve Points they need to convert to gold or silver. Instead of withdrawing $500 from my checking account via an ATM, I can buy $500 of silver from an online dealer and then sell it in the barter network for $550 or some reasonable profit. In this way, "anti money laundering" regulations can be dodged.

If you *IMMEDIATELY* trade any Federal Reserve Points for sound money, then you are limiting the extent to which you subsidize the State. An agorist can sell goods and services for Federal Reserve Points, provided he then trades the Federal Reserve Points for real money.

Warehouse Receipt Banking

If I had only 10-50 ounces of gold, I probably would store it in my apartment and take the risk it won't be stolen or seized by policemen.

Suppose I had 500 ounces of gold. I would not be comfortable taking the risk of storing 500 ounces of gold in my apartment. Ordinary criminals or policemen may seize my gold. Asset forfeiture laws follow the principle of "guilty unless proven innocent". On-the-books theft insurance probably won't cover physical metal stored in my apartment, especially if I didn't report the purchase to the State.

Suppose I had 50 trusted trading partners. I could ask each of them to store 10 ounces of gold for me. They could even charge me a small storage fee. It's very unlikely that the police would raid all 50 of my trading partners simultaneously. In this manner, I have a distributed bank where I can safely store my savings. Even if one of my trading partners defaults, I still have the remaining 49.

My trading partners could, if they chose, practice time-deposit banking instead of warehouse receipt banking. To be honest, they should tell me if they're doing this. They could sell my gold and invest the proceeds in their own businesses. In that case, they should credit me with interest instead of charging me a storage fee.

Operating an "on the books" warehouse receipt bank isn't feasible. Taxes and regulations make it impossible to legally operate a warehouse receipt bank.

A free market banking system needs to be distributed and decentralized, so the State won't violently shut it down.

1 comment:

eagledove9 said...

Have you read Antal Fekete's "The Second Greatest Story Ever Told"? It starts here: and the articles continue here:

He convinced me that warehouse receipt banking isn't the only type of honest banking. He advocates "real bills of exchange" as described by Adam Smith, and says that they are the historical origin of the bills circulating today. They behave very differently than warehouse receipts.

I personally would not mind seeing ordinary people printing their own fiat money as long as it wasn't made a government monopoly. They'd quickly find out that some kinds of money are better than others. A consumer group could advise people about which kinds of money are safest.

About coins: I want to see coin presses so cheap and commonplace that you can buy them at the arts and crafts stores, or Wal-Mart, and let even your children mint their own coins out of whatever metals they want. I also want to see coin verifiers that check the metal content of your coins, using something nondestructive like electromagnetic/sound waves.

I have a feeling that silver and gold might have more grocery-buying power than the official spot price indicates. You might be able to buy $30-$40 of groceries using a $17 ounce of silver. This is because it's "almost illegal" to spend silver at the store, so nobody has much information about whether its official price is accurate. There might be a huge arbitrage opportunity. I don't completely think the Liberty Dollar is fraudulent, for that reason - although I don't buy the Liberty Dollar myself, I just go to the coin collector shop for my coins. I mostly agree with you about the Liberty Dollar, except for that hunch about silver's unknown buying power.

I didn't know I was an agorist until I read your blog. I called myself a minarchist.

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