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The Free Market LUDWIG VON MISES INSTITUTE VOLUME 8, NUMBER 2 FEBRUARY 1990 he banking dilemma seems Bring eternal, like the monetary dilemma, the tax dilemma, Back the and the marital dilemma. TThe essence of the banking Bank dilemma, however, is that the depositors' money is not in thtr l Run vault awaiting the depositors, BY JAMES GRANT decision to withdraw it. Instead it is out on loan or invested in the money market or in mortgage­ backed securities. Some of the money is in the vault or on deposit with the Federal Reserve-these funds are called bank reserves-but only a few cents of every dollar. Depending on the specific man­ agement, depositors, and finan­ cial markets, the average bank may be prepared to accommodate Institute economist and liber­ banking dilemma are new, nota­ a sudden demand for repayment tarian philosopher, has a forcible bly the socialization of credit risk by a sizable minority ofits depos­ view on the institutions of frac­ during the Reagan years. It was itors. Almost no bank in modern tional-reserve banking: It is "a decided that no money-center times, however, has been able to giant Ponzi scheme in which a bank would be allowed to fail and accommodate a sudden demand few people can redeem their that no depositor, even a sophisti­ for repayment by a majority ofits deposits only because most depos­ cated one, would be allowed to depositors. itors do not follow suit." lose his money in a failure, if it Murray N. Rothbard, Mises Some features of the 1989 CONTINUED ON PAGE FIVE he recent astonishing devel­ Will Turn to Butter." Said one are not actually cuts from the pre­ Time lor an opments in the Soviet investment strategist, "we were sent level of spending but cuts in Union and Eastern Europe all joyous at the scenes of people the Pentagon's desired spending American suggest that after more than climbing on the Wall, but the increases over the next five years. T40 years, the Cold War may problem is, how do you make At present military spending is Perestroika be about to end or at least to enter money on this?" Is it gauche to about $300 billion per year. So BY ROBERT HIGGS a less menacing phase. But not suggest that superfluous military the U. S. military economy is everyone is rejoicing at the turn of firms try to make money by pro­ roughly the same size as the events. Many people have a ducing goods consumers are will­ entire economy of East Ger­ strong vested interest in the con­ ing to buy? many. And like that economy, it tinuation of a high level of mili­ Of course, one should not is centrally planned. Long ago tary spending. The prospect of a expect to collect the peace divi­ Ludwig von Mises showed that more reliable peace scares them dend. The widely discussed the authorities in a planned econ­ to death. "cuts" of $180 billion in military omy cannot calculate to achieve The·reaction is described as spending, which Defense Secre­ an economically rational alloca­ "panic" as headlines proclaim tary Dick Cheney recently asked tion of resources. Without prices ''Arms Companies Fear Guns the armed services to consider, CONTINUED ON PAGE SIX n the loony leftist town Mexico City today or Americans for example, degraded rapidly, Government where I live, we're ordered 100 years ago. Gone, for exam­ tons of ink would leach into the to separate our trash into ple, are the 1,200 lbs. of coal ash groundwater. And we should bel Garbage seven neatly packaged piles: each American home used to glad that plastic doesn't bio­ newspapers, tin cans (flat- generate, and our modem pack­ degrade. Being inert, it doesn't tened with labels removed), aged foods mean less rubbish, introduce toxic chemicals into aluminum cans (flattened), not more. the environment. glass bottles (with labels But most landfills will be full We're told we have a moral removed), plastic soda pop in ten years or less, we're told, obligation to recycle, and most of From the bottles, lawn sweepings, and that's true. But most landfills us say we do so, but empirical and regular rubbish. And to pay are designed to last ten years. The studies show it isn't so. In sur­ President high taxes to have it all taken problem is notthat they are filling veys, 78% ofthe respondents say away. up, but that we're not allowed to they separate their garbage, but Because ofmy aversion to gov­ create new ones, thanks to the only 26% said they thought their ernment orders, my distrust of environmental movement. neighbors separate theirs. To test government justifications, and Texas, for example, handed out that, for seven years the Garbage my dislike of ecomania, I have 250 landfill pennits a year in the Project examined 9,000 loads of always mixed all my trash mid-1970s, but fewer than 50 in refuse in Tucson, Arizona, from together. If recycling made eco­ 1988. a variety of neighborhoods. The nomic sense-and this is an eco­ The environmentalists claim results: most people do what they nomic question, not a dogma of that disposable diapers and fast­ say their neighbors do: they don't BY LLEWELLYN H. the mythical earth goddess food containers are the worst separate. No matter how high or ROCKWELL, JR. Gaia-we would be paid to do it. problems. To me, this has always low the income, or how liberal For the same reason, I love to use plastic fast-food containers ecause of Illy aversion to and non-returnable bottles. The whole recycling commotion, like governIllent orders, Illy the broader environmental move­ distrust of governIllent e ment, has always seemed to have "\"llnters a large malarkey component. Sol justifications, and Illy VV J have never felt guilty-just the dislike of ecoIllania, I IN THIS ISSUE opposite-nor have I yet been James Grant, a media fellow arrested by the garbage gen­ have alwrays Illixed Illy of the Ludwig von Mises dannes. But I was glad to get Institute, publishes Grants some scientific support for my trash together. Interest Rate Observer in New York City. position in the December 1989 Robert Higgs, an adjunct issue of The Atlantic Monthly. revealed the anti-family and pro­ the neighborhood, or how much scholar of the Ludwig von Professor William L. Rathje, elite biases common in any left­ the respondents said they cared Mises Institute, is Thomas F. an urban archaeologist at the wing movement. But the left, as about the environment, only Gleed Professor in the Albers University of Arizona and head usual, has the facts wrong as well. 26% actually separated their Business School at Seattle of its Garbage Project, has been In two years of digging in trash. University and editor of Arms, studying rubbish for almost 20 seven landfills all across America, The only reliable predictor of Politics, and the Economy (Holmes &Meier, 1990). years, and what he's discovered in which they sorted and when people separate and when Lawrence W. Reed is contradicts almost everything weighed every item in 16,000 they don't is exactly the one an president of the Mackinac we're told. pounds of garbage, Rathje dis­ economist would predict: the Center for Public Policy in When seen in perspective, our covered that fast-food containers price paid for the trash. When Midland, Michigan, and an garbage problems are no worse take up less than 1110th of one per­ the prices ofold newspaper rose, adjunct scholar of the Ludwig than they have always been. The cent ofthe space; less than 1% was people carefully separated their von Mises Institute. only difference is that today we disposable diapers. All plastics newspapers. When the price of Llewellyn H. Rockwell, Jr., is have safe methods to deal with totalled less than 5%. The real newspapers fell, people threw founder and president of the them, if the environmentalists culprit is paper-especially tele­ them out with the other garbage. Ludwig von Mises Institute. will let us. phone books and newspapers. We're all told to save our news­ Murray N. Rothbard is The environmentalists warn of And there is little biodegrada­ papers for recycling, and the idea academic vice president of the a country covered by garbage tion. He found 1952 newspapers seems to make sense. Old news­ Ludwig von Mises Institute and S.J. Hall distinguished because the average American still fresh and readable. papers can be made into boxes, professor of economics at the generates 8lbs. a day. In fact, we Rather than biodegrade, most wallboard, and insulation, but University of Nevada, Las create less than 3lbs. each, which garbage mummifies. And this the market is flooded with news- Vegas. is a good deal less than people in may be a blessing. Ifnewspapers, CONTINUED ON PAGE EIGHT FreeMarket FEB R U ARY 1 9 9 0 2 rom its inception Amer­ Unfortunately, too productive as allegiance to America there is an Welcoming ica was largely the land fishermen for some oftheir ineffi­ implication that they are untrust­ of the free, but there cient Anglo competitors. In the worthy." the were a few exceptions. early 1980s, Texas shrimpers In the best tradition of Marie One was the blatant attempted, by use of violence, to Antoinette's "let them eat cake," Vietnamese subsidies to the politi­ put Vietnamese-American com­ the government replies that the cally powerful maritime petitors out of business. Vietnamese are free to work on industry, trying to pro­ The latest outrage against boats under five tons which tect what has long been Vietnamese-American fishermen would be fishing closer to shore.
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