                  10 Would laissez-faire capitalism be stable?

   Unsurprisingly, right-libertarians combine their support for "absolute
   property rights" with a whole-hearted support for laissez-faire
   capitalism. In such a system (which they maintain, to quote Ayn Rand,
   is an "unknown ideal") everything would be private property and there
   would be few (if any) restrictions on "voluntary exchanges."
   "Anarcho"-capitalists are the most extreme of defenders of pure
   capitalism, urging that the state itself be privatised and no voluntary
   exchange made illegal (for example, children would be considered the
   property of their parents and it would be morally right to turn them
   into child prostitutes -- the child has the option of leaving home if
   they object).

   As there have been no example of "pure" capitalism it is difficult to
   say whether their claims about are true (for a discussion of a close
   approximation see the section [1]10.3). This section of the FAQ is an
   attempt to discover whether such a system would be stable or whether it
   would be subject to the usual booms and slumps. Before starting we
   should note that there is some disagreement within the
   right-libertarian camp itself on this subject (although instead of
   stability they usually refer to "equilibrium" -- which is an economics
   term meaning that all of a societies resources are fully utilised).

   In general terms, most right-Libertarians' reject the concept of
   equilibrium as such and instead stress that the economy is inherently a
   dynamic (this is a key aspect of the Austrian school of economics).
   Such a position is correct, of course, as such noted socialists as Karl
   Marx and Michal Kalecki and capitalist economists as Keynes recognised
   long ago. There seems to be two main schools of thought on the nature
   of disequilibrium. One, inspired by von Mises, maintains that the
   actions of the entrepreneur/capitalist results in the market
   co-ordinating supply and demand and another, inspired by Joseph
   Schumpeter, who question whether markets co-ordinate because
   entrepreneurs are constantly innovating and creating new markets,
   products and techniques.

   Of course both actions happen and we suspect that the differences in
   the two approaches are not important. The important thing to remember
   is that "anarcho"-capitalists and right-libertarians in general reject
   the notion of equilibrium -- but when discussing their utopia they do
   not actually indicate this! For example, most "anarcho"-capitalists
   will maintain that the existence of government (and/or unions) causes
   unemployment by either stopping capitalists investing in new lines of
   industry or forcing up the price of labour above its market clearing
   level (by, perhaps, restricting immigration, minimum wages, taxing
   profits). Thus, we are assured, the worker will be better off in "pure"
   capitalism because of the unprecedented demand for labour it will
   create. However, full employment of labour is an equilibrium in
   economic terms and that, remember, is impossible due to the dynamic
   nature of the system. When pressed, they will usually admit there will
   be periods of unemployment as the market adjusts or that full
   unemployment actually means under a certain percentage of unemployment.
   Thus, if you (rightly) reject the notion of equilibrium you also reject
   the idea of full employment and so the labour market becomes a buyers
   market and labour is at a massive disadvantage.

   The right-libertarian case is based upon logical deduction, and the
   premises required to show that laissez-faire will be stable are
   somewhat incredible. If banks do not set the wrong interest rate, if
   companies do not extend too much trade credit, if workers are willing
   to accept (real wage related) pay cuts, if workers altruistically do
   not abuse their market power in a fully employed society, if interest
   rates provide the correct information, if capitalists predict the
   future relatively well, if banks and companies do not suffer from
   isolation paradoxes, then, perhaps, laissez-faire will be stable.

   So, will laissez-faire capitalism be stable? Let us see by analysing
   the assumptions of right-libertarianism -- namely that there will be
   full employment and that a system of private banks will stop the
   business cycle. We will start on the banking system first (in section
   [2]10.1) followed by the effects of the labour market on economic
   stability (in section [3]10.2). Then we will indicate, using the
   example of 19th century America, that actually existing ("impure")
   laissez-faire was very unstable.

   Explaining booms and busts by state action plays an ideological
   convenience as it exonerates market processes as the source of
   instability within capitalism. We hope to indicate in the next two
   sections why the business cycle is inherent in the system (see also
   sections [4]C.7, [5]C.8 and [6]C.9).

10.1 Would privatising banking make capitalism stable?

   It is claimed that the existence of the state (or, for minimal
   statists, government policy) is the cause of the business cycle
   (recurring economic booms and slumps). This is because the government
   either sets interest rates too low or expands the money supply (usually
   by easing credit restrictions and lending rates, sometimes by just
   printing fiat money). This artificially increases investment as
   capitalists take advantage of the artificially low interest rates. The
   real balance between savings and investment is broken, leading to
   over-investment, a drop in the rate of profit and so a slump (which is
   quite socialist in a way, as many socialists also see over-investment
   as the key to understanding the business cycle, although they obviously
   attribute the slump to different causes -- namely the nature of
   capitalist production, not that the credit system does not play its
   part -- see section [7]C.7).

   In the words of Austrian Economist W. Duncan Reekie, "[t]he business
   cycle is generated by monetary expansion and contraction . . . When new
   money is printed it appears as if the supply of savings has increased.
   Interest rates fall and businessmen are misled into borrowing
   additional founds to finance extra investment activity . . . This would
   be of no consequence if it had been the outcome of [genuine saving] . .
   . -but the change was government induced. The new money reaches factor
   owners in the form of wages, rent and interest . . . the factor owners
   will then spend the higher money incomes in their existing
   consumption:investment proportions . . . Capital goods industries will
   find their expansion has been in error and malinvestments have been
   inoccured." [Markets, Entrepreneurs and Liberty, pp. 68-9]

   In other words, there has been "wasteful mis-investment due to
   government interference with the market." [Op. Cit., p. 69] In response
   to this (negative) influence in the workings of the market, it is
   suggested by right-libertarians that a system of private banks should
   be used and that interest rates are set by them, via market forces. In
   this way an interest rate that matches the demand and supply for
   savings will be reached and the business cycle will be no more. By
   truly privatising the credit market, it is hoped by the business cycle
   will finally stop.

   Unsurprisingly, this particular argument has its weak points and in
   this section of the FAQ we will try to show exactly why this theory is
   wrong.

   Let us start with Reckie's starting point. He states that the "main
   problem" of the slump is "why is there suddenly a 'cluster' of business
   errors? Businessmen and entrepreneurs are market experts (otherwise
   they would not survive) and why should they all make mistakes
   simultaneously?" [Op. Cit., p. 68] It is this "cluster" of mistakes
   that the Austrians' take as evidence that the business cycle comes from
   outside the workings of the market (i.e. is exogenous in nature).
   Reekie argues that an "error cluster only occurs when all entrepreneurs
   have received the wrong signals on potential profitability, and all
   have received the signals simultaneously through government
   interference with the money supply." [Op. Cit., p. 74] But is this
   really the case?

   The simple fact is that groups of (rational) individuals can act in the
   same way based on the same information and this can lead to a
   collective problem. For example, we do not consider it irrational that
   everyone in a building leaves it when the fire alarm goes off and that
   the flow of people can cause hold-ups at exits. Neither do we think
   that its unusual that traffic jams occur, after all those involved are
   all trying to get to work (i.e. they are reacting to the same desire).
   Now, is it so strange to think that capitalists who all see the same
   opportunity for profit in a specific market decide to invest in it? Or
   that the aggregate outcome of these individually rational decisions may
   be irrational (i.e. cause a glut in the market)?

   In other words, a "cluster" of business failures may come about because
   a group of capitalists, acting in isolation, over-invest in a given
   market. They react to the same information (namely super profits in
   market X), arrange loans, invest and produce commodities to meet demand
   in that market. However, the aggregate result of these individually
   rational actions is that the aggregate supply far exceeds demand,
   causing a slump in that market and, perhaps, business failures. The
   slump in this market (and the potential failure of some firms) has an
   impact on the companies that supplied them, the companies that are
   dependent on their employees wages/demand, the banks that supplied the
   credit and so forth. The accumulative impact of this slump (or
   failures) on the chain of financial commitments of which they are but
   one link can be large and, perhaps, push an economy into general
   depression. Thus the claim that it is something external to the system
   that causes depression is flawed.

   It could be claimed the interest rate is the problem, that it does not
   accurately reflect the demand for investment or relate it to the supply
   of savings. But, as we argued in section [8]C.8, it is not at all clear
   that the interest rate provides the necessary information to
   capitalists. They need investment information for their specific
   industry, but the interest rate is cross-industry. Thus capitalists in
   market X do not know if the investment in market X is increasing and so
   this lack of information can easily cause "mal-investment" as
   over-investment (and so over-production) occurs. As they have no way of
   knowing what the investment decisions of their competitors are or now
   these decisions will affect an already unknown future, capitalists may
   over-invest in certain markets and the net effects of this aggregate
   mistake can expand throughout the whole economy and cause a general
   slump. In other words, a cluster of business failures can be accounted
   for by the workings of the market itself and not the (existence of)
   government.

   This is one possible reason for an internally generated business cycle
   but that is not the only one. Another is the role of class struggle
   which we discuss in the [9]next section and yet another is the
   endogenous nature of the money supply itself. This account of money
   (proposed strongly by, among others, the post-Keynesian school) argues
   that the money supply is a function of the demand for credit, which
   itself is a function of the level of economic activity. In other words,
   the banking system creates as much money as people need and any attempt
   to control that creation will cause economic problems and, perhaps,
   crisis (interestingly, this analysis has strong parallels with
   mutualist and individualist anarchist theories on the causes of
   capitalist exploitation and the business cycle). Money, in other words,
   emerges from within the system and so the right-libertarian attempt to
   "blame the state" is simply wrong.

   Thus what is termed "credit money" (created by banks) is an essential
   part of capitalism and would exist without a system of central banks.
   This is because money is created from within the system, in response to
   the needs of capitalists. In a word, money is endogenous and credit
   money an essential part of capitalism.

   Right-libertarians do not agree. Reekie argues that "[o]nce fractional
   reserve banking is introduced, however, the supply of money substitutes
   will include fiduciary media. The ingenuity of bankers, other financial
   intermediaries and the endorsement and guaranteeing of their activities
   by governments and central banks has ensured that the quantity of fiat
   money is immense." [Op. Cit., p. 73]

   Therefore, what "anarcho"-capitalists and other right-libertarians seem
   to be actually complaining about when they argue that "state action"
   creates the business cycle by creating excess money is that the state
   allows bankers to meet the demand for credit by creating it. This makes
   sense, for the first fallacy of this sort of claim is how could the
   state force bankers to expand credit by loaning more money than they
   have savings. And this seems to be the normal case within capitalism --
   the central banks accommodate bankers activity, they do not force them
   to do it. Alan Holmes, a senior vice president at the New York Federal
   Reserve, stated that:

     "In the real world, banks extend credit, creating deposits in the
     process, and look for the reserves later. The question then becomes
     one of whether and how the Federal Reserve will accommodate the
     demand for reserves. In the very short run, the Federal Reserve has
     little or no choice about accommodating that demand, over time, its
     influence can obviously be felt." [quoted by Doug Henwood, Wall
     Street, p. 220]

   (Although we must stress that central banks are not passive and do have
   many tools for affecting the supply of money. For example, central
   banks can operate "tight" money policies which can have significant
   impact on an economy and, via creating high enough interest rates, the
   demand for money.)

   It could be argued that because central banks exist, the state creates
   an "environment" which bankers take advantage off. By not being subject
   to "free market" pressures, bankers could be tempted to make more loans
   than they would otherwise in a "pure" capitalist system (i.e. create
   credit money). The question arises, would "pure" capitalism generate
   sufficient market controls to stop banks loaning in excess of available
   savings (i.e. eliminate the creation of credit money/fiduciary media).

   It is to this question we now turn.

   As noted above, the demand for credit is generated from within the
   system and the comments by Holmes reinforce this. Capitalists seek
   credit in order to make money and banks create it precisely because
   they are also seeking profit. What right-libertarians actually object
   to is the government (via the central bank) accommodating this creation
   of credit. If only the banks could be forced to maintain a savings to
   loans ration of one, then the business cycle would stop. But is this
   likely? Could market forces ensure that bankers pursue such a policy?
   We think not -- simply because the banks are profit making
   institutions. As post-Keynesianist Hyman Minsky argues, "[b]ecause
   bankers live in the same expectational climate as businessmen,
   profit-seeking bankers will find ways of accommodating their customers.
   . . Banks and bankers are not passive managers of money to lend or to
   invest; they are in business to maximise profits. . ." [quoted by L.
   Randall Wray, Money and Credit in Capitalist Economies, p. 85]

   This is recognised by Reekie, in passing at least (he notes that
   "fiduciary media could still exist if bankers offered them and clients
   accepted them" [Op. Cit., p. 73]). Bankers will tend to try and
   accommodate their customers and earn as much money as possible. Thus
   Charles P. Kindleberger comments that monetary expansion "is systematic
   and endogenous rather than random and exogenous" seem to fit far better
   the reality of capitalism that the Austrian and right-libertarian
   viewpoint [Manias, Panics, and Crashes, p. 59] and post-Keynesian L.
   Randall Wray argues that "the money supply . . . is more obviously
   endogenous in the monetary systems which predate the development of a
   central bank." [Op. Cit., p. 150]

   In other words, the money supply cannot be directly controlled by the
   central bank since it is determined by private decisions to enter into
   debt commitments to finance spending. Given that money is generated
   from within the system, can market forces ensure the non-expansion of
   credit (i.e. that the demand for loans equals the supply of savings)?
   To begin to answer this question we must note that investment is
   "essentially determined by expected profitability." [Philip Arestis,
   The Post-Keynesian Approach to Economics, p. 103] This means that the
   actions of the banks cannot be taken in isolation from the rest of the
   economy. Money, credit and banks are an essential part of the
   capitalist system and they cannot be artificially isolated from the
   expectations, pressures and influences of that system.

   Let us assume that the banks desire to maintain a loans to savings
   ratio of one and try to adjust their interest rates accordingly.
   Firstly, changes in the rate of interest "produce only a very small, if
   any, movement in business investment" according to empirical evidence
   [Op. Cit., pp. 82-83] and that "the demand for credit is extremely
   inelastic with respect to interest rates." [L. Randall Wray, Op. Cit.,
   p. 245] Thus, to keep the supply of savings in line with the demand for
   loans, interest rates would have to increase greatly (indeed, trying to
   control the money supply by controlling the monetary bases in this way
   will only lead to very big fluctuations in interest rates). And
   increasing interest rates has a couple of paradoxical effects.

   According to economists Joseph Stiglitz and Andrew Weiss (in "Credit
   Rationing in Markets with Imperfect Knowledge", American Economic
   Review, no. 71, pp. 393-410) interest rates are subject to what is
   called the "lemons problem" (asymmetrical information between buyer and
   seller). Stiglitz and Weiss applied the "lemons problem" to the credit
   market and argued (and unknowingly repeated Adam Smith) that at a given
   interest rate, lenders will earn lower return by lending to bad
   borrowers (because of defaults) than to good ones. If lenders try to
   increase interest rates to compensate for this risk, they may chase
   away good borrowers, who are unwilling to pay a higher rate, while
   perversely not chasing away incompetent, criminal, or malignantly
   optimistic borrowers. This means that an increase in interest rates may
   actually increase the possibilities of crisis, as more loans may end up
   in the hands of defaulters.

   This gives banks a strong incentive to keep interest rates lower than
   they otherwise could be. Moreover, "increases in interest rates make it
   more difficult for economic agents to meet their debt repayments"
   [Philip Arestis, Op. Cit., pp. 237-8] which means when interest rates
   are raised, defaults will increase and place pressures on the banking
   system. At high enough short-term interest rates, firms find it hard to
   pay their interest bills, which cause/increase cash flow problems and
   so "[s]harp increases in short term interest rates . . .leads to a fall
   in the present value of gross profits after taxes (quasi-rents) that
   capital assets are expected to earn." [Hyman Minsky, Post-Keynesian
   Economic Theory, p. 45]

   In addition, "production of most investment goods is undertaken on
   order and requires time for completion. A rise in interest rates is not
   likely to cause firms to abandon projects in the process of production
   . . . This does not mean . . . that investment is completely
   unresponsive to interest rates. A large increase in interest rates
   causes a 'present value reversal', forcing the marginal efficiency of
   capital to fall below the interest rate. If the long term interest rate
   is also pushed above the marginal efficiency of capital, the project
   may be abandoned." [Wray, Op. Cit., pp. 172-3] In other words,
   investment takes time and there is a lag between investment decisions
   and actual fixed capital investment. So if interest rates vary during
   this lag period, initially profitable investments may become white
   elephants.

   As Michal Kalecki argued, the rate of interest must be lower than the
   rate of profit otherwise investment becomes pointless. The incentive
   for a firm to own and operate capital is dependent on the prospective
   rate of profit on that capital relative to the rate of interest at
   which the firm can borrow at. The higher the interest rate, the less
   promising investment becomes.

   If investment is unresponsive to all but very high interest rates (as
   we indicated above), then a privatised banking system will be under
   intense pressure to keep rates low enough to maintain a boom (by,
   perhaps, creating credit above the amount available as savings). And if
   it does this, over-investment and crisis is the eventual outcome. If it
   does not do this and increases interest rates then consumption and
   investment will dry up as interest rates rise and the defaulters
   (honest and dishonest) increase and a crisis will eventually occur.

   This is because increasing interest rates may increase savings but it
   also reduce consumption ("high interest rates also deter both consumers
   and companies from spending, so that the domestic economy is weakened
   and unemployment rises" [Paul Ormerod, The Death of Economics, p. 70]).
   This means that firms can face a drop off in demand, causing them
   problems and (perhaps) leading to a lack of profits, debt repayment
   problems and failure. An increase in interest rates also reduces demand
   for investment goods, which also can cause firms problems, increase
   unemployment and so on. So an increase in interest rates (particularly
   a sharp rise) could reduce consumption and investment (i.e. reduce
   aggregate demand) and have a ripple effect throughout the economy which
   could cause a slump to occur.

   In other words, interest rates and the supply and demand of
   savings/loans they are meant to reflect may not necessarily move an
   economy towards equilibrium (if such a concept is useful). Indeed, the
   workings of a "pure" banking system without credit money may increase
   unemployment as demand falls in both investment and consumption in
   response to high interest rates and a general shortage of money due to
   lack of (credit) money resulting from the "tight" money regime implied
   by such a regime (i.e. the business cycle would still exist). This was
   the case of the failed Monetarist experiments on the early 1980s when
   central banks in America and Britain tried to pursue a "tight" money
   policy. The "tight" money policy did not, in fact, control the money
   supply. All it did do was increase interest rates and lead to a serious
   financial crisis and a deep recession (as Wray notes, "the central bank
   uses tight money polices to raise interest rates" [Op. Cit., p. 262]).
   This recession, we must note, also broke the backbone of working class
   resistance and the unions in both countries due to the high levels of
   unemployment it generated. As intended, we are sure.

   Such an outcome would not surprise anarchists, as this was a key
   feature of the Individualist and Mutualist Anarchists' arguments
   against the "money monopoly" associated with specie money. They argued
   that the "money monopoly" created a "tight" money regime which reduced
   the demand for labour by restricting money and credit and so allowed
   the exploitation of labour (i.e. encouraged wage labour) and stopped
   the development of non-capitalist forms of production. Thus Lysander
   Spooner's comments that workers need "money capital to enable them to
   buy the raw materials upon which to bestow their labour, the implements
   and machinery with which to labour . . . Unless they get this capital,
   they must all either work at a disadvantage, or not work at all. A very
   large portion of them, to save themselves from starvation, have no
   alternative but to sell their labour to others . . ." [A Letter to
   Grover Cleveland, p. 39] It is interesting to note that workers did do
   well during the 1950s and 1960s under a "liberal" money regime than
   they did under the "tighter" regimes of the 1980s and 1990s.

   We should also note that an extended period of boom will encourage
   banks to make loans more freely. According to Minsky's "financial
   instability model" crisis (see "The Financial Instability Hypothesis"
   in Post-Keynesian Economic Theory for example) is essentially caused by
   risky financial practices during periods of financial tranquillity. In
   other words, "stability is destabilising." In a period of boom, banks
   are happy and the increased profits from companies are flowing into
   their vaults. Over time, bankers note that they can use a reserve
   system to increase their income and, due to the general upward swing of
   the economy, consider it safe to do so (and given that they are in
   competition with other banks, they may provide loans simply because
   they are afraid of losing customers to more flexible competitors). This
   increases the instability within the system (as firms increase their
   debts due to the flexibility of the banks) and produces the possibility
   of crisis if interest rates are increased (because the ability of
   business to fulfil their financial commitments embedded in debts
   deteriorates).

   Even if we assume that interest rates do work as predicted in theory,
   it is false to maintain that there is one interest rate. This is not
   the case. "Concentration of capital leads to unequal access to
   investment funds, which obstructs further the possibility of smooth
   transitions in industrial activity. Because of their past record of
   profitability, large enterprises have higher credit ratings and easier
   access to credit facilities, and they are able to put up larger
   collateral for a loan." [Michael A. Bernstein, The Great Depression, p.
   106] As we noted in section [10]C.5.1, the larger the firm, the lower
   the interest rate they have to pay. Thus banks routinely lower their
   interest rates to their best clients even though the future is
   uncertain and past performance cannot and does not indicate future
   returns. Therefore it seems a bit strange to maintain that the interest
   rate will bring savings and loans into line if there are different
   rates being offered.

   And, of course, private banks cannot affect the underlying fundamentals
   that drive the economy -- like productivity, working class power and
   political stability -- any more than central banks (although central
   banks can influence the speed and gentleness of adjustment to a
   crisis).

   Indeed, given a period of full employment a system of private banks may
   actually speed up the coming of a slump. As we argue in the [11]next
   section, full employment results in a profits squeeze as firms face a
   tight labour market (which drives up costs) and, therefore, increased
   workers' power at the point of production and in their power of exit.
   In a central bank system, capitalists can pass on these increasing
   costs to consumers and so maintain their profit margins for longer.
   This option is restricted in a private banking system as banks would be
   less inclined to devalue their money. This means that firms will face a
   profits squeeze sooner rather than later, which will cause a slump as
   firms cannot make ends meet. As Reekie notes, inflation "can
   temporarily reduce employment by postponing the time when misdirected
   labour will be laid off" but as Austrian's (like Monetarists) think
   "inflation is a monetary phenomenon" he does not understand the real
   causes of inflation and what they imply for a "pure" capitalist system
   [Op. Cit., p. 67, p. 74]. As Paul Ormerod points out "the claim that
   inflation is always and everywhere purely caused by increases in the
   money supply, and that there the rate of inflation bears a stable,
   predictable relationship to increases in the money supply is
   ridiculous." And he notes that "[i]ncreases in the rate of inflation
   tend to be linked to falls in unemployment, and vice versa" which
   indicates its real causes -- namely in the balance of class power and
   in the class struggle. [The Death of Economics, p. 96, p. 131]

   Moreover, if we do take the Austrian theory of the business cycle at
   face value we are drawn to conclusion that in order to finance
   investment savings must be increased. But to maintain or increase the
   stock of loanable savings, inequality must be increased. This is
   because, unsurprisingly, rich people save a larger proportion of their
   income than poor people and the proportion of profits saved are higher
   than the proportion of wages. But increasing inequality (as we argued
   in section [12]3.1) makes a mockery of right-libertarian claims that
   their system is based on freedom or justice.

   This means that the preferred banking system of "anarcho"-capitalism
   implies increasing, not decreasing, inequality within society.
   Moreover, most firms (as we indicated in section [13]C.5.1) fund their
   investments with their own savings which would make it hard for banks
   to loan these savings out as they could be withdrawn at any time. This
   could have serious implications for the economy, as banks refuse to
   fund new investment simply because of the uncertainty they face when
   accessing if their available savings can be loaned to others (after
   all, they can hardly loan out the savings of a customer who is likely
   to demand them at any time). And by refusing to fund new investment, a
   boom could falter and turn to slump as firms do not find the necessary
   orders to keep going.

   So, would market forces create "sound banking"? The answer is probably
   not. The pressures on banks to make profits come into conflict with the
   need to maintain their savings to loans ration (and so the confidence
   of their customers). As Wray argues, "as banks are profit seeking
   firms, they find ways to increase their liabilities which don't entail
   increases in reserve requirements" and "[i]f banks share the profit
   expectations of prospective borrowers, they can create credit to allow
   [projects/investments] to proceed." [Op. Cit., p. 295, p. 283] This can
   be seen from the historical record. As Kindleberger notes, "the market
   will create new forms of money in periods of boom to get around the
   limit" imposed on the money supply [Op. Cit., p. 63]. Trade credit is
   one way, for example. Under the Monetarist experiments of 1980s, there
   was "deregulation and central bank constraints raised interest rates
   and created a moral hazard -- banks made increasingly risky loans to
   cover rising costs of issuing liabilities. Rising competition from
   nonbanks and tight money policy forced banks to lower standards and
   increase rates of growth in an attempt to 'grow their way to
   profitability'" [Op. Cit., p. 293]

   Thus credit money ("fiduciary media") is an attempt to overcome the
   scarcity of money within capitalism, particularly the scarcity of
   specie money. The pressures that banks face within "actually existing"
   capitalism would still be faced under "pure" capitalism. It is likely
   (as Reekie acknowledges) that credit money would still be created in
   response to the demands of business people (although not at the same
   level as is currently the case, we imagine). The banks, seeking profits
   themselves and in competition for customers, would be caught between
   maintaining the value of their business (i.e. their money) and the
   needs to maximise profits. As a boom develops, banks would be tempted
   to introduce credit money to maintain it as increasing the interest
   rate would be difficult and potentially dangerous (for reasons we noted
   above). Thus, if credit money is not forth coming (i.e. the banks stick
   to the Austrian claims that loans must equal savings) then the rise in
   interest rates required will generate a slump. If it is forthcoming,
   then the danger of over-investment becomes increasingly likely. All in
   all, the business cycle is part of capitalism and not caused by
   "external" factors like the existence of government.

   As Reekie notes, to Austrians "ignorance of the future is endemic" [Op.
   Cit., p. 117] but you would be forgiven for thinking that this is not
   the case when it comes to investment. An individual firm cannot know
   whether its investment project will generate the stream of returns
   necessary to meet the stream of payment commitments undertaken to
   finance the project. And neither can the banks who fund those projects.
   Even if a bank does not get tempted into providing credit money in
   excess of savings, it cannot predict whether other banks will do the
   same or whether the projects it funds will be successful. Firms,
   looking for credit, may turn to more flexible competitors (who practice
   reserve banking to some degree) and the inflexible bank may see its
   market share and profits decrease. After all, commercial banks
   "typically establish relations with customers to reduce the uncertainty
   involved in making loans. Once a bank has entered into a relationship
   with a customer, it has strong incentives to meet the demands of that
   customer." [Wray, Op. Cit., p. 85]

   There are example of fully privatised banks. For example, in the United
   States ("which was without a central bank after 1837") "the major banks
   in New York were in a bind between their roles as profit seekers, which
   made them contributors to the instability of credit, and as possessors
   of country deposits against whose instability they had to guard."
   [Kindleberger, Op. Cit., p. 85]

   In Scotland, the banks were unregulated between 1772 and 1845 but "the
   leading commercial banks accumulated the notes of lessor ones, as the
   Second Bank of the United States did contemporaneously in [the USA],
   ready to convert them to specie if they thought they were getting out
   of line. They served, that is, as an informal controller of the money
   supply. For the rest, as so often, historical evidence runs against
   strong theory, as demonstrated by the country banks in England from
   1745 to 1835, wildcat banking in Michigan in the 1830s, and the latest
   experience with bank deregulation in Latin America." [Op. Cit., p. 82]
   And we should note there were a few banking "wars" during the period of
   deregulation in Scotland which forced a few of the smaller banks to
   fail as the bigger ones refused their money and that there was a major
   bank failure in the Ayr Bank.

   Kendleberger argues that central banking "arose to impose control on
   the instability of credit" and did not cause the instability which
   right-libertarians maintain it does. And as we note in section
   [14]10.3, the USA suffered massive economic instability during its
   period without central banking. Thus, if credit money is the cause of
   the business cycle, it is likely that a "pure" capitalism will still
   suffer from it just as much as "actually existing" capitalism (either
   due to high interest rates or over-investment).

   In general, as the failed Monetarist experiments of the 1980s prove,
   trying to control the money supply is impossible. The demand for money
   is dependent on the needs of the economy and any attempt to control it
   will fail (and cause a deep depression, usually via high interest
   rates). The business cycle, therefore, is an endogenous phenomenon
   caused by the normal functioning of the capitalist economic system.
   Austrian and right-libertarian claims that "slump flows boom, but for a
   totally unnecessary reason: government inspired mal-investment"
   [Reekie, Op. Cit., p. 74] are simply wrong. Over-investment does occur,
   but it is not "inspired" by the government. It is "inspired" by the
   banks need to make profits from loans and from businesses need for
   investment funds which the banks accommodate. In other words, by the
   nature of the capitalist system.

10.2 How does the labour market effect capitalism?

   In many ways, the labour market is the one that affects capitalism the
   most. The right-libertarian assumption (like that of mainstream
   economics) is that markets clear and, therefore, the labour market will
   also clear. As this assumption has rarely been proven to be true in
   actuality (i.e. periods of full employment within capitalism are few
   and far between), this leaves its supporters with a problem -- reality
   contradicts the theory.

   The theory predicts full employment but reality shows that this is not
   the case. Since we are dealing with logical deductions from
   assumptions, obviously the theory cannot be wrong and so we must
   identify external factors which cause the business cycle (and so
   unemployment). In this way attention is diverted away from the market
   and its workings -- after all, it is assumed that the capitalist market
   works -- and onto something else. This "something else" has been quite
   a few different things (most ridiculously, sun spots in the case of one
   of the founders of marginalist economics, William Stanley Jevons).
   However, these days most pro-free market capitalist economists and
   right-libertarians have now decided it is the state.

   In this section of the FAQ we will present a case that maintains that
   the assumption that markets clear is false at least for one, unique,
   market -- namely, the market for labour. As the fundamental assumption
   underlying "free market" capitalism is false, the logically consistent
   superstructure built upon comes crashing down. Part of the reason why
   capitalism is unstable is due to the commodification of labour (i.e.
   people) and the problems this creates. The state itself can have
   positive and negative impacts on the economy, but removing it or its
   influence will not solve the business cycle.

   Why is this? Simply due to the nature of the labour market.

   Anarchists have long realised that the capitalist market is based upon
   inequalities and changes in power. Proudhon argued that "[t]he
   manufacturer says to the labourer, 'You are as free to go elsewhere
   with your services as I am to receive them. I offer you so much.' The
   merchant says to the customer, 'Take it or leave it; you are master of
   your money, as I am of my goods. I want so much.' Who will yield? The
   weaker." He, like all anarchists, saw that domination, oppression and
   exploitation flow from inequalities of market/economic power and that
   the "power of invasion lies in superior strength." [What is Property?,
   p. 216, p. 215]

   This applies with greatest force to the labour market. While mainstream
   economics and right-libertarian variations of it refuse to acknowledge
   that the capitalist market is a based upon hierarchy and power,
   anarchists (and other socialists) do not share this opinion. And
   because they do not share this understanding with anarchists,
   right-libertarians will never be able to understand capitalism or its
   dynamics and development. Thus, when it comes to the labour market, it
   is essential to remember that the balance of power within it is the key
   to understanding the business cycle. Thus the economy must be
   understood as a system of power.

   So how does the labour market effect capitalism? Let us consider a
   growing economy, on that is coming out of a recession. Such a growing
   economy stimulates demand for employment and as unemployment falls, the
   costs of finding workers increase and wage and condition demands of
   existing workers intensify. As the economy is growing and labour is
   scare, the threat associated with the hardship of unemployment is
   weakened. The share of profits is squeezed and in reaction to this
   companies begin to cut costs (by reducing inventories, postponing
   investment plans and laying off workers). As a result, the economy
   moves into a downturn. Unemployment rises and wage demands are
   moderated. Eventually, this enables the share of profits first of all
   to stabilise, and then rise. Such an "interplay between profits and
   unemployment as the key determinant of business cycles" is "observed in
   the empirical data." [Paul Ormerod, The Death of Economics, p. 188]

   Thus, as an economy approaches full employment the balance of power on
   the labour market changes. The sack is no longer that great a threat as
   people see that they can get a job elsewhere easily. Thus wages and
   working conditions increase as companies try to get new (and keep)
   existing employees and output is harder to maintain. In the words of
   economist William Lazonick, labour "that is able to command a higher
   price than previously because of the appearance of tighter labour
   markets is, by definition, labour that is highly mobile via the market.
   And labour that is highly mobile via the market is labour whose supply
   of effort is difficult for managers to control in the production
   process. Hence, the advent of tight labour markets generally results in
   more rapidly rising average costs . . .as well as upward shifts in the
   average cost curve. . ." [Business Organisation and the Myth of the
   Market Economy, p. 106]

   In other words, under conditions of full-employment "employers are in
   danger of losing the upper hand." [Juliet B. Schor, The Overworked
   American, p. 75] Schor argues that "employers have a structural
   advantage in the labour market, because there are typically more
   candidates ready and willing to endure this work marathon [of long
   hours] than jobs for them to fill." [p. 71] Thus the labour market is
   usually a buyers market, and so the sellers have to compromise. In the
   end, workers adapt to this inequality of power and instead of getting
   what they want, they want what they get.

   But under full employment this changes. As we argued in section
   [15]B.4.4 and section [16]C.7, in such a situation it is the bosses who
   have to start compromising. And they do not like it. As Schor notes,
   America "has never experienced a sustained period of full employment.
   The closest we have gotten is the late 1960s, when the overall
   unemployment rate was under 4 percent for four years. But that
   experience does more to prove the point than any other example. The
   trauma caused to business by those years of a tight labour market was
   considerable. Since then, there has been a powerful consensus that the
   nation cannot withstand such a low rate of unemployment." [Op. Cit.,
   pp. 75-76]

   So, in other words, full employment is not good for the capitalist
   system due to the power full employment provides workers. Thus
   unemployment is a necessary requirement for a successful capitalist
   economy and not some kind of aberration in an otherwise healthy system.
   Thus "anarcho"-capitalist claims that "pure" capitalism will soon
   result in permanent full employment are false. Any moves towards full
   employment will result in a slump as capitalists see their profits
   squeezed from below by either collective class struggle or by
   individual mobility in the labour market.

   This was recognised by Individualist Anarchists like Benjamin Tucker,
   who argued that mutual banking would "give an unheard of impetus to
   business, and consequently create an unprecedented demand for labour,
   -- a demand which would always be in excess of the supply, directly
   contrary of the present condition of the labour market." [The Anarchist
   Reader, pp. 149-150] In other words, full employment would end
   capitalist exploitation, drive non-labour income to zero and ensure the
   worker the full value of her labour -- in other words, end capitalism.
   Thus, for most (if not all) anarchists the exploitation of labour is
   only possible when unemployment exists and the supply of labour exceeds
   the demand for it. Any move towards unemployment will result in a
   profits squeeze and either the end of capitalism or an economic slump.

   Indeed, as we argued in the [17]last section, the extended periods of
   (approximately) full employment until the 1960s had the advantage that
   any profit squeeze could (in the short run anyway) be passed onto
   working class people in the shape of inflation. As prices rise, labour
   is made cheaper and profits margins supported. This option is
   restricted under a "pure" capitalism (for reasons we discussed in the
   [18]last section) and so "pure" capitalism will be affected by full
   employment faster than "impure" capitalism.

   As an economy approaches full employment, "hiring new workers suddenly
   becomes much more difficult. They are harder to find, cost more, and
   are less experiences. Such shortages are extremely costly for a firm."
   [Schor, Op. Cit., p. 75] This encourages a firm to pass on these rises
   to society in the form of price rises, so creating inflation. Workers,
   in turn, try to maintain their standard of living. "Every general
   increase in labour costs in recent years," note J. Brecher and J.
   Costello in the late 1970s, "has followed, rather than preceded, an
   increase in consumer prices. Wage increases have been the result of
   workers' efforts to catch up after their incomes have already been
   eroded by inflation. Nor could it easily be otherwise. All a
   businessman has to do to raise a price . . . [is to] make an
   announcement. . . Wage rates . . . are primarily determined by
   contracts" and so cannot be easily adjusted in the short term. [Common
   Sense for Bad Times, p, 120]

   These full employment pressures will still exist with "pure" capitalism
   (and due to the nature of the banking system will not have the safety
   value of inflation). This means that periodic profit squeezes will
   occur, due to the nature of a tight labour market and the increased
   power of workers this generates. This in turn means that a "pure"
   capitalism will be subject to periods of unemployment (as we argued in
   section [19]C.9) and so still have a business cycle. This is usually
   acknowledged by right-libertarians in passing, although they seem to
   think that this is purely a "short-term" problem (it seems a strange
   "short-term" problem that continually occurs).

   But such an analysis is denied by right-libertarians. For them
   government action, combined with the habit of many labour unions to
   obtain higher than market wage rates for their members, creates and
   exacerbates mass unemployment. This flows from the deductive logic of
   much capitalist economics. The basic assumption of capitalism is that
   markets clear. So if unemployment exists then it can only be because
   the price of labour (wages) is too high (Austrian Economist W. Duncan
   Reekie argues that unemployment will "disappear provided real wages are
   not artificially high" [Markets, Entrepreneurs and Liberty, p. 72]).

   Thus the assumption provokes the conclusion -- unemployment is caused
   by an unclearing market as markets always clear. And the cause for this
   is either the state or unions. But what if the labour market cannot
   clear without seriously damaging the power and profits of capitalists?
   What if unemployment is required to maximise profits by weakening
   labours' bargaining position on the market and so maximising the
   capitalists power? In that case unemployment is caused by capitalism,
   not by forces external to it.

   However, let us assume that the right-libertarian theory is correct.
   Let us assume that unemployment is all the fault of the selfish unions
   and that a job-seeker "who does not want to wait will always get a job
   in the unhampered market economy." [von Mises, Human Action, p. 595]

   Would crushing the unions reduce unemployment? Let us assume that the
   unions have been crushed and government has been abolished (or, at the
   very least, become a minimum state). The aim of the capitalist class is
   to maximise their profits and to do this they invest in labour saving
   machinery and otherwise attempt to increase productivity. But
   increasing productivity means that the prices of goods fall and falling
   prices mean increasing real wages. It is high real wages that,
   according to right-libertarians, that cause unemployment. So as a
   reward for increasing productivity, workers will have to have their
   money wages cut in order to stop unemployment occurring! For this
   reason some employers might refrain from cutting wages in order to
   avoid damage to morale - potentially an important concern.

   Moreover, wage contracts involve time -- a contract will usually agree
   a certain wage for a certain period. This builds in rigidity into the
   market, wages cannot be adjusted as quickly as other commodity prices.
   Of course, it could be argued that reducing the period of the contract
   and/or allowing the wage to be adjusted could overcome this problem.
   However, if we reduce the period of the contract then workers are at a
   suffer disadvantage as they will not know if they have a job tomorrow
   and so they will not be able to easily plan their future (an evil
   situation for anyone to be in). Moreover, even without formal
   contracts, wage renegotiation can be expensive. After all, it takes
   time to bargain (and time is money under capitalism) and wage cutting
   can involve the risk of the loss of mutual good will between employer
   and employee. And would you give your boss the power to "adjust" your
   wages as he/she thought was necessary? To do so would imply an
   altruistic trust in others not to abuse their power.

   Thus a "pure" capitalism would be constantly seeing employment increase
   and decrease as productivity levels change. There exist important
   reasons why the labour market need not clear which revolve around the
   avoidance/delaying of wage cuts by the actions of capitalists
   themselves. Thus, given a choice between cutting wages for all workers
   and laying off some workers without cutting the wages of the remaining
   employees, it is unsurprising that capitalists usually go for the
   later. After all, the sack is an important disciplining device and
   firing workers can make the remaining employees more inclined to work
   harder and be more obedient.

   And, of course, many employers are not inclined to hire over-qualified
   workers. This is because, once the economy picks up again, their worker
   has a tendency to move elsewhere and so it can cost them time and money
   finding a replacement and training them. This means that involuntary
   unemployment can easily occur, so reducing tendencies towards full
   employment even more. In addition, one of the assumptions of the
   standard marginalist economic model is one of decreasing returns to
   scale. This means that as employment increases, costs rise and so
   prices also rise (and so real wages fall). But in reality many
   industries have increasing returns to scale, which means that as
   production increases unit costs fall, prices fall and so real wages
   rise. Thus in such an economy unemployment would increase simply
   because of the nature of the production process!

   Moreover, as we argued in-depth in section [20]C.9, a cut in money
   wages is not a neutral act. A cut in money wages means a reduction in
   demand for certain industries, which may have to reduce the wages of
   its employees (or fire them) to make ends meet. This could produce a
   accumulative effect and actually increase unemployment rather than
   reduce it.

   In addition, there are no "self-correcting" forces at work in the
   labour market which will quickly bring employment back to full levels.
   This is for a few reasons. Firstly, the supply of labour cannot be
   reduced by cutting back production as in other markets. All we can do
   is move to other areas and hope to find work there. Secondly, the
   supply of labour can sometimes adjust to wage decreases in the wrong
   direction. Low wages might drive workers to offer a greater amount of
   labour (i.e. longer hours) to make up for any short fall (or to keep
   their job). This is usually termed the "efficiency wage" effect.
   Similarly, another family member may seek employment in order to
   maintain a given standard of living. Falling wages may cause the number
   of workers seeking employment to increase, causing a full further fall
   in wages and so on (and this is ignoring the effects of lowering wages
   on demand discussed in section [21]C.9).

   The paradox of piece work is an important example of this effect. As
   Schor argues, "piece-rate workers were caught in a viscous downward
   spiral of poverty and overwork. . . When rates were low, they found
   themselves compelled to make up in extra output what they were losing
   on each piece. But the extra output produced glutted the market and
   drove rates down further." [Juliet C. Schor, The Overworked American,
   p, 58]

   Thus, in the face of reducing wages, the labour market may see an
   accumulative move away from (rather than towards) full employment, The
   right-libertarian argument is that unemployment is caused by real wages
   being too high which in turn flows from the assumption that markets
   clear. If there is unemployment, then the price of the commodity labour
   is too high -- otherwise supply and demand would meet and the market
   clear. But if, as we argued above, unemployment is essential to
   discipline workers then the labour market cannot clear except for short
   periods. If the labour market clears, profits are squeezed. Thus the
   claim that unemployment is caused by "too high" real wages is false
   (and as we argue in section [22]C.9, cutting these wages will result in
   deepening any slump and making recovery longer to come about).

   In other words, the assumption that the labour market must clear is
   false, as is any assumption that reducing wages will tend to push the
   economy quickly back to full employment. The nature of wage labour and
   the "commodity" being sold (i.e. human labour/time/liberty) ensure that
   it can never be the same as others. This has important implications for
   economic theory and the claims of right-libertarians, implications that
   they fail to see due to their vision of labour as a commodity like any
   other.

   The question arises, of course, of whether, during periods of full
   employment, workers could not take advantage of their market power and
   gain increased workers' control, create co-operatives and so reform
   away capitalism. This was the argument of the Mutualist and
   Individualist anarchists and it does have its merits. However, it is
   clear (see section [23]J.5.12) that bosses hate to have their authority
   reduced and so combat workers' control whenever they can. The logic is
   simple, if workers increase their control within the workplace the
   manager and bosses may soon be out of a job and (more importantly) they
   may start to control the allocation of profits. Any increase in working
   class militancy may provoke capitalists to stop/reduce investment and
   credit and so create the economic environment (i.e. increasing
   unemployment) necessary to undercut working class power.

   In other words, a period of full unemployment is not sufficient to
   reform capitalism away. Full employment (nevermind any struggle over
   workers' control) will reduce profits and if profits are reduced then
   firms find it hard to repay debts, fund investment and provide profits
   for shareholders. This profits squeeze would be enough to force
   capitalism into a slump and any attempts at gaining workers'
   self-management in periods of high employment will help push it over
   the edge (after all, workers' control without control over the
   allocation of any surplus is distinctly phoney). Moreover, even if we
   ignore the effects of full employment may not last due to problems
   associated with over-investment (see section [24]C.7.2), credit and
   interest rate problems (see section [25]10.1) and realisation/aggregate
   demand disjoints. Full employment adds to the problems associated with
   the capitalist business cycle and so, if class struggle and workers
   power did not exist or cost problem, capitalism would still not be
   stable.

   If equilibrium is a myth, then so is full employment. It seems somewhat
   ironic that "anarcho"-capitalists and other right-libertarians maintain
   that there will be equilibrium (full employment) in the one market
   within capitalism it can never actually exist in! This is usually
   quietly acknowledged by most right-libertarians, who mention in passing
   that some "temporary" unemployment will exist in their system -- but
   "temporary" unemployment is not full employment. Of course, you could
   maintain that all unemployment is "voluntary" and get round the problem
   by denying it, but that will not get us very far.

   So it is all fine and well saying that "libertarian" capitalism would
   be based upon the maxim "From each as they choose, to each as they are
   chosen." [Robert Nozick, Anarchy, State, and Utopia, p. 160] But if the
   labour market is such that workers have little option about what they
   "choose" to give and fear that they will not be chosen, then they are
   at a disadvantage when compared to their bosses and so "consent" to
   being treated as a resource from the capitalist can make a profit from.
   And so this will result in any "free" contract on the labour market
   favouring one party at the expense of the other -- as can be seen from
   "actually existing capitalism".

   Thus any "free exchange" on the labour market will usually not reflect
   the true desires of working people (and who will make all the
   "adjusting" and end up wanting what they get). Only when the economy is
   approaching full employment will the labour market start to reflect the
   true desires of working people and their wage start to approach its
   full product. And when this happens, profits are squeezed and
   capitalism goes into slump and the resulting unemployment disciplines
   the working class and restores profit margins. Thus full employment
   will be the exception rather than the rule within capitalism (and that
   is a conclusion which the historical record indicates).

   In other words, in a normally working capitalist economy any labour
   contracts will not create relationships based upon freedom due to the
   inequalities in power between workers and capitalists. Instead, any
   contracts will be based upon domination, not freedom. Which prompts the
   question, how is libertarian capitalism libertarian if it erodes the
   liberty of a large class of people?

10.3 Was laissez-faire capitalism stable?

   Firstly, we must state that a pure laissez-faire capitalist system has
   not existed. This means that any evidence we present in this section
   can be dismissed by right-libertarians for precisely this fact -- it
   was not "pure" enough. Of course, if they were consistent, you would
   expect them to shun all historical and current examples of capitalism
   or activity within capitalism, but this they do not. The logic is
   simple -- if X is good, then it is permissible to use it. If X is bad,
   the system is not pure enough.

   However, as right-libertarians do use historical examples so shall we.
   According to Murray Rothbard, there was "quasi-laissez-faire
   industrialisation [in] the nineteenth century" [The Ethics of Liberty,
   p. 264] and so we will use the example of nineteenth century America --
   as this is usually taken as being the closest to pure laissez-faire --
   in order to see if laissez-faire is stable or not.

   Yes, we are well aware that 19th century USA was far from laissez-faire
   -- there was a state, protectionism, government economic activity and
   so on -- but as this example has been often used by right-Libertarians'
   themselves (for example, Ayn Rand) we think that we can gain a lot from
   looking at this imperfect approximation of "pure" capitalism (and as we
   argued in section [26]8, it is the "quasi" aspects of the system that
   counted in industrialisation, not the laissez-faire ones).

   So, was 19th century America stable? No, it most definitely was not.

   Firstly, throughout that century there were a continual economic booms
   and slumps. The last third of the 19th century (often considered as a
   heyday of private enterprise) was a period of profound instability and
   anxiety. Between 1867 and 1900 there were 8 complete business cycles.
   Over these 396 months, the economy expanded during 199 months and
   contracted during 197. Hardly a sign of great stability (since the end
   of world war II, only about a fifth of the time has spent in periods of
   recession or depression, by way of comparison). Overall, the economy
   went into a slump, panic or crisis in 1807, 1817, 1828, 1834, 1837,
   1854, 1857, 1873, 1882, and 1893 (in addition, 1903 and 1907 were also
   crisis years).

   Part of this instability came from the eras banking system. "Lack of a
   central banking system," writes Richard Du Boff, "until the Federal
   Reserve act of 1913 made financial panics worse and business cycle
   swings more severe" [Accumulation and Power, p. 177] It was in response
   to this instability that the Federal Reserve system was created; and as
   Doug Henwood notes "the campaign for a more rational system of money
   and credit was not a movement of Wall Street vs. industry or regional
   finance, but a broad movement of elite bankers and the managers of the
   new corporations as well as academics and business journalists. The
   emergence of the Fed was the culmination of attempts to define a
   standard of value that began in the 1890s with the emergence of the
   modern professionally managed corporation owned not by its managers but
   dispersed public shareholders." [Wall Street, p. 93] Indeed, the Bank
   of England was often forced to act as lender of last resort to the US,
   which had no central bank.

   In the decentralised banking system of the 19th century, during panics
   thousands of banks would hoard resources, so starving the system for
   liquidity precisely at the moment it was most badly needed. The
   creation of trusts was one way in which capitalists tried to manage the
   system's instabilities (at the expense of consumers) and the
   corporation was a response to the outlawing of trusts. "By
   internalising lots of the competitive system's gaps -- by bring more
   transactions within the same institutional walls -- corporations
   greatly stabilised the economy." [Henwood, Op. Cit., p. 94]

   All during the hey-day of laissez faire we also find popular protests
   against the money system used, namely specie (in particular gold),
   which was considered as a hindrance to economic activity and expansion
   (as well as being a tool for the rich). The Individualist Anarchists,
   for example, considered the money monopoly (which included the use of
   specie as money) as the means by which capitalists ensured that "the
   labourers . . . [are] kept in the condition of wage labourers," and
   reduced "to the conditions of servants; and subject to all such
   extortions as their employers . . . may choose to practice upon them",
   indeed they became the "mere tools and machines in the hands of their
   employers". With the end of this monopoly, "[t]he amount of money,
   capable of being furnished . . . [would assure that all would] be under
   no necessity to act as a servant, or sell his or her labour to others."
   [Lysander Spooner, A Letter to Grover Cleveland, p. 47, p. 39, p. 50,
   p. 41] In other words, a specie based system (as desired by many
   "anarcho"-capitalists) was considered a key way of maintaining wage
   labour and exploitation.

   Interestingly, since the end of the era of the Gold Standard (and so
   commodity money) popular debate, protest and concern about money has
   disappeared. The debate and protest was in response to the effects of
   commodity money on the economy -- with many people correctly viewing
   the seriously restrictive monetary regime of the time responsible for
   economic problems and crisis as well as increasing inequalities.
   Instead radicals across the political spectrum urged a more flexible
   regime, one that did not cause wage slavery and crisis by reducing the
   amount of money in circulation when it could be used to expand
   production and reduce the impact of slumps. Needless to say, the
   Federal Reserve system in the USA was far from the institution these
   populists wanted (after all, it is run by and for the elite interests
   who desired its creation).

   That the laissez-faire system was so volatile and panic-ridden suggests
   that "anarcho"-capitalist dreams of privatising everything, including
   banking, and everything will be fine are very optimistic at best (and,
   ironically, it was members of the capitalist class who lead the
   movement towards state-managed capitalism in the name of "sound
   money").

References

   1. file://localhost/home/mauro/baku/debianize/maint/anarchy/append1310.html#secf103
   2. file://localhost/home/mauro/baku/debianize/maint/anarchy/append1310.html#secf101
   3. file://localhost/home/mauro/baku/debianize/maint/anarchy/append1310.html#secf102
   4. file://localhost/home/mauro/baku/debianize/maint/anarchy/secC7.html
   5. file://localhost/home/mauro/baku/debianize/maint/anarchy/secC8.html
   6. file://localhost/home/mauro/baku/debianize/maint/anarchy/secC9.html
   7. file://localhost/home/mauro/baku/debianize/maint/anarchy/secC7.html
   8. file://localhost/home/mauro/baku/debianize/maint/anarchy/secC8.html
   9. file://localhost/home/mauro/baku/debianize/maint/anarchy/append1310.html#secf102
  10. file://localhost/home/mauro/baku/debianize/maint/anarchy/secC5.html#secc51
  11. file://localhost/home/mauro/baku/debianize/maint/anarchy/append1310.html#secf101
  12. file://localhost/home/mauro/baku/debianize/maint/anarchy/append133.html#secf31
  13. file://localhost/home/mauro/baku/debianize/maint/anarchy/secC5.html#secc51
  14. file://localhost/home/mauro/baku/debianize/maint/anarchy/append1310.html#secf103
  15. file://localhost/home/mauro/baku/debianize/maint/anarchy/secB4.html#secb44
  16. file://localhost/home/mauro/baku/debianize/maint/anarchy/secC7.html
  17. file://localhost/home/mauro/baku/debianize/maint/anarchy/append1310.html#secf101
  18. file://localhost/home/mauro/baku/debianize/maint/anarchy/append1310.html#secf101
  19. file://localhost/home/mauro/baku/debianize/maint/anarchy/secC9.html
  20. file://localhost/home/mauro/baku/debianize/maint/anarchy/secC9.html
  21. file://localhost/home/mauro/baku/debianize/maint/anarchy/secC9.html
  22. file://localhost/home/mauro/baku/debianize/maint/anarchy/secC9.html
  23. file://localhost/home/mauro/baku/debianize/maint/anarchy/secJ5.html#secj512
  24. file://localhost/home/mauro/baku/debianize/maint/anarchy/secC7.html#secc72
  25. file://localhost/home/mauro/baku/debianize/maint/anarchy/append1310.html#secf101
  26. file://localhost/home/mauro/baku/debianize/maint/anarchy/append138.html
