(Monetary) bureaucracy - '..our organizations are .. hostages to an ideology that is, in a real sense, inhuman.'
Posted by ProjectC
'..Over the past century, much of [management science] innovation was focused on getting people to be as reliable as machines, a challenge that required a new and systematic approach to the problem of control. The name for that approach: bureaucracy.
'[Bureaucracy] is, from a purely technical point of view, capable of attaining the highest degree of efficiency and is in this sense formally the most rational known means of carrying out imperative control over human beings. It is superior to any form in precision, in stability, in the stringency of its discipline, and in its reliability. It thus makes possible a particularly high degree of calculability of results for the heads of the organization and those acting in relation to it.
- Max Weber
In this single, concise paragraph, Weber lays bare the ideology of management—controlism; and a hundred years later, it remains the philosophical cornerstone of virtually every large-scale human organization .. How is it, then, that our organizations are less adaptable, less creative, and less inspiring than we are? Because they are hostages to an ideology that is, in a real sense, inhuman.'
- Dr. Gary Hamel, What Matters Now (2012), page(s) 184 & 185
'..the fact remains: nearly 80% of employees around the world are less than highly engaged in their work. They show up on the job each day, but leave most of their humanity at home.'
'Weber may have composed an anthem for bureaucracy, but he was also mindful of its dehumanizing effects. In a speech he gave in 1909, he warned of its dark side:
'[In a bureaucracy] the performance of each individual is mathematically measured, each man becomes a little cog in the machine and, aware of this, his one preoccupation is whether he can become a bigger cog....
[T]he great question is therefore not how we can promote and hasten [bureaucracy], but what can we oppose to this machinery in order to keep a portion of mankind free from this parceling out of the soul.
- Max Weber
Weber understood that in routinizing work, we risked routinizing human beings. Indeed, this was inevitable, since the goal of bureaucracy was (and is) to excise the human factor, to turn people into machines mad of flesh and blood .. the fact remains: nearly 80% of employees around the world are less than highly engaged in their work. They show up on the job each day, but leave most of their humanity at home.'
- Dr. Gary Hamel, What Matters Now (2012), page 186
'..Add the standard problems of bureaucracy — waste, corruption, slack, and other forms of inefficiency well known to students of public administration — and it becomes increasingly difficult to justify control of the monetary system by a single bureaucracy.'
'I specialize in the economic theory of organizations — their nature, emergence, boundaries, internal structure, and governance — a field that is increasingly important in economics and was recognized with the 2009 Nobel Prize awarded to Oliver Williamson and Elinor Ostrom. (Ronald Coase, founder of the field, is also a Nobel laureate.)..
..
In the remarks below I evaluate the Federal Reserve System — and the institution of central banking more generally — from the perspective of an organizational economist. While I strongly disagree with many of the key policies of the Federal Reserve Board both before and after the financial crisis and Great Recession, my argument does not focus on particular actions taken by this or that chair and board. The problem is not that the Fed has made some mistakes — perhaps addressed by restating its statutory mandate, scrutinizing its behavior more carefully, and so on — but that the very institution of a central monetary authority is inherently destabilizing and harmful to entrepreneurship and economic growth.
..
And yet everything we know about organizations with that kind of authority without oversight or any external check or balance tells us that they cannot possibly work well. Just as economy-wide central planners lack the incentives and information to direct the allocation of productive resources, monetary planners lack the incentives and information to make efficient decisions about open-market operations, the discount rate, and reserve requirements. The Fed simply does not know the "optimal" supply of money or the "optimal" intervention in the banking system; no one does. Add the standard problems of bureaucracy — waste, corruption, slack, and other forms of inefficiency well known to students of public administration — and it becomes increasingly difficult to justify control of the monetary system by a single bureaucracy.
..
Keynes was wrong. Cheap credit does not help bring an economy out of recession (particularly when it was cheap credit that caused the recession in the first place). More generally, a monetary system controlled by an all-powerful central bank is inherently destabilizing and harmful to economic growth. The mistakes made by the Fed before and after 2008 are not isolated incidents, mistakes that can be corrected by making minor changes to the Fed's charter, structure, or independence; they are the predictable result of giving control of the monetary and financial system to a government agency. The best option is to replace the central bank and let the market be in charge of money.
The position advocated here is often dismissed as radical or extreme, a kind of "market fundamentalism" (to use a derogatory term). But it is a reasonable, pragmatic, realistic view. Economics and management scholarship teach that monopoly providers are inefficient and ineffective, and a government monopoly on money is no different. Markets are not perfect, but neither are Fed chairs. It's time to make the supply of money independent of political interference.
- Peter G. Klein, The Ultimate Disorganizing Organization (Testimony before US House Committee on Financial Services Domestic Monetary Policy and Technology Subcommittee), May 09, 2012
'The major problems with fractional-reserve banking are its harmful effects on the overall economy caused by the related phenomena of inflation and business cycles.'
'Rothbard's point about the extreme fragility of public confidence in issuers of fractionally-backed money substitutes is well illustrated by the stunning collapse of Washington Mutual (WaMu) in September 2008, the largest bank failure in United States history. WaMu had been in existence for 119 years and was the sixth-largest bank in the United States with assets of $307 billion. It had branches throughout the country and billed itself as the Walmart of banking. It was one of the top performers on Wall Street until shortly before its failure. Its depositors clearly had enormous confidence in its solidity, especially given that its deposits were insured by the federal government reinforced by the existence of the Fed's "too-big-to-fail" policy. And yet, almost overnight the special good will that gave its deposits the quality of money substitutes vanished as panic-stricken depositors rushed to withdraw their funds. The unlikely event that triggered the sudden loss of confidence and subsequent brand extinction was the failure of Lehman Brothers, a venerable investment house. A week after Lehman failed, mighty WaMu was no more.
The highly publicized Lehman Brothers failure had shaken public confidence in the solvency not only of WaMu but of the entire banking system. Had the Fed and Treasury not acted aggressively to bail out the largest banks in the fall of 2008, there is no doubt that the entire system would have collapsed in short order. Indeed on a single day in December, the combined emergency lending by the Fed and the US Treasury had risen to a peak of $1.2 trillion. The recipients of these billions included some of the most trusted and reputable brand names in banking: Citibank, Bank of America, Morgan Stanley, as well as European banks like the Royal Bank of Scotland and UBS AG. Without this unprecedented bailout, these discredited brand names would have been relegated to the dustbin of business history
The ever-present threat of insolvency is a relatively minor problem with fractional-reserve banks, however. Its effects are restricted to the bank's stockholders, creditors, and depositors who voluntarily assume the peculiar risks involved in this business.
The major problems with fractional-reserve banking are its harmful effects on the overall economy caused by the related phenomena of inflation and business cycles.'
- Joseph Salerno, Let Unsound Money Wither Away, July 13, 2012
'..The monetary inflation and credit expansion of our elastic currency system would be eliminated and with it the booms and busts that have plagued our history.'
''Banks, too, should be put under the general laws of commerce including those relating to warehousing money by holding a 100 percent reserve of money against their money substitutes. Banks would earn profit by producing the amounts and types of money substitutes that satisfied people's demands. To earn profit, they would keep their costs down and invest and innovate when people's demands made it profitable. The operation of 100 percent reserve banking is described in Jesús Huerta de Soto's book, Money, Banking, and Economic Cycles. As he documents, money-warehouse banks thrived in Amsterdam for over 100 years in the 17th and 18th centuries.
Conclusion
No one can describe today the configuration of commodity money and money certificates that entrepreneurs would bring about if permitted to operate private enterprises in their production any more than one could have predicted in 1900 the development of the 21st-century automobile industry or predicted in 1950 the 21st-century consumer-electronics industry. What we do know is that their production would be regulated by profit and loss and therefore would result in the satisfaction of people's preferences. The monetary inflation and credit expansion of our elastic currency system would be eliminated and with it the booms and busts that have plagued our history.'
- Jeffrey Herbener, Leave Money Production to the Market, May 14, 2012
'However, Rothbard, Salerno, Herbener, Huerta de Soto, Block, and Reisman among others favor 100 percent reserves: a clear separation of deposit banking from loan banking, on the basis of reform proposals made by Mises..'
'These trends make a return to sound money, which "involves abolishing central banking and paper fiat money and restoring a commodity money chosen by and totally subject to the market" (Salerno 2010 [1998], p. 474), imperative. There is, however, controversy over the means. Does sound money require 100 percent reserve banking or does it allow banking freedom? Mises (1998, p. 440) opined, "Only free banking would have rendered the market economy secure against crises and depression. [And] there is no reason whatever to abandon the principle of free enterprise in the field of banking."
However, Rothbard, Salerno, Herbener, Huerta de Soto, Block, and Reisman among others favor 100 percent reserves: a clear separation of deposit banking from loan banking, on the basis of reform proposals made by Mises (1971, pp. 448–57, and 1978, pp. 17–21 and 44–47.) In these proposals, Mises argued for 100 percent backing of any newly issued notes or checkable deposits. For reform of a monetary system on the verge of collapse or as a proposal for how we move from our current system toward a sound money system, such a step may be essential. After reform though, it is also essential that "the question of banking freedom must then be discussed again and again, on basic principles" (Mises 1978, p. 45).
- John P. Cochran, Fractional Reserves and Economic Instability, July 12, 2012
'..we may realistically expect further suffering in the world due to damaging economic recessions which will inevitably and perpetually reappear until central banks lose their power to issue paper money with legal tender and bankers lose their government-granted privilege of operating with a fractional reserve.'
'Until specialists and society in general fully grasp the essential theoretical and legal principles associated with money, bank credit, and economic cycles, we may realistically expect further suffering in the world due to damaging economic recessions which will inevitably and perpetually reappear until central banks lose their power to issue paper money with legal tender and bankers lose their government-granted privilege of operating with a fractional reserve. We now wrap up the book as we began it, with this opinion: Now that we have seen the historic fall of socialism, both in theory and in practice, the main challenge to face both professional economists and lovers of freedom in this new century will be to use all of their intellectual might to oppose the institution of the central bank and the privilege private bankers now enjoy.'
- Jesús Huerta de Soto, Money, Bank Credit, and Economic Cycles (Third edition, 2012), page 812
Context '..acts of choice.'
The Mundane Economics of the Austrians
'..the Volcker rule..' - 'The operation of 100 percent reserve banking .. Amsterdam..'
'Since central bankers cannot and will not admit the truth..'
'Why ECB Bond-Buying Plans Undermine Democracy' - '..Credit expansion is fundamentally really a problem of civil rights..'
'..from radical to virtual rogue central banking..'
'Well, panic the Fed did..' September 13, 2012
(Electric Universe) - '..History speaks only to those people who know how to interpret it on the ground of correct theories.' - Mises
Banking Reform - Ethics
Affective Introspection
Haptopraxeologie/Haptopraxeology III - '..capital theory .. production..' '..In an Electric Universe..' '..thymotactiele..'
Source: Money, Bank Credit, and Economic Cycles (Fourth edition, 2020), page 388
'[Bureaucracy] is, from a purely technical point of view, capable of attaining the highest degree of efficiency and is in this sense formally the most rational known means of carrying out imperative control over human beings. It is superior to any form in precision, in stability, in the stringency of its discipline, and in its reliability. It thus makes possible a particularly high degree of calculability of results for the heads of the organization and those acting in relation to it.
- Max Weber
In this single, concise paragraph, Weber lays bare the ideology of management—controlism; and a hundred years later, it remains the philosophical cornerstone of virtually every large-scale human organization .. How is it, then, that our organizations are less adaptable, less creative, and less inspiring than we are? Because they are hostages to an ideology that is, in a real sense, inhuman.'
- Dr. Gary Hamel, What Matters Now (2012), page(s) 184 & 185
'..the fact remains: nearly 80% of employees around the world are less than highly engaged in their work. They show up on the job each day, but leave most of their humanity at home.'
'Weber may have composed an anthem for bureaucracy, but he was also mindful of its dehumanizing effects. In a speech he gave in 1909, he warned of its dark side:
'[In a bureaucracy] the performance of each individual is mathematically measured, each man becomes a little cog in the machine and, aware of this, his one preoccupation is whether he can become a bigger cog....
[T]he great question is therefore not how we can promote and hasten [bureaucracy], but what can we oppose to this machinery in order to keep a portion of mankind free from this parceling out of the soul.
- Max Weber
Weber understood that in routinizing work, we risked routinizing human beings. Indeed, this was inevitable, since the goal of bureaucracy was (and is) to excise the human factor, to turn people into machines mad of flesh and blood .. the fact remains: nearly 80% of employees around the world are less than highly engaged in their work. They show up on the job each day, but leave most of their humanity at home.'
- Dr. Gary Hamel, What Matters Now (2012), page 186
'..Add the standard problems of bureaucracy — waste, corruption, slack, and other forms of inefficiency well known to students of public administration — and it becomes increasingly difficult to justify control of the monetary system by a single bureaucracy.'
'I specialize in the economic theory of organizations — their nature, emergence, boundaries, internal structure, and governance — a field that is increasingly important in economics and was recognized with the 2009 Nobel Prize awarded to Oliver Williamson and Elinor Ostrom. (Ronald Coase, founder of the field, is also a Nobel laureate.)..
..
In the remarks below I evaluate the Federal Reserve System — and the institution of central banking more generally — from the perspective of an organizational economist. While I strongly disagree with many of the key policies of the Federal Reserve Board both before and after the financial crisis and Great Recession, my argument does not focus on particular actions taken by this or that chair and board. The problem is not that the Fed has made some mistakes — perhaps addressed by restating its statutory mandate, scrutinizing its behavior more carefully, and so on — but that the very institution of a central monetary authority is inherently destabilizing and harmful to entrepreneurship and economic growth.
..
And yet everything we know about organizations with that kind of authority without oversight or any external check or balance tells us that they cannot possibly work well. Just as economy-wide central planners lack the incentives and information to direct the allocation of productive resources, monetary planners lack the incentives and information to make efficient decisions about open-market operations, the discount rate, and reserve requirements. The Fed simply does not know the "optimal" supply of money or the "optimal" intervention in the banking system; no one does. Add the standard problems of bureaucracy — waste, corruption, slack, and other forms of inefficiency well known to students of public administration — and it becomes increasingly difficult to justify control of the monetary system by a single bureaucracy.
..
Keynes was wrong. Cheap credit does not help bring an economy out of recession (particularly when it was cheap credit that caused the recession in the first place). More generally, a monetary system controlled by an all-powerful central bank is inherently destabilizing and harmful to economic growth. The mistakes made by the Fed before and after 2008 are not isolated incidents, mistakes that can be corrected by making minor changes to the Fed's charter, structure, or independence; they are the predictable result of giving control of the monetary and financial system to a government agency. The best option is to replace the central bank and let the market be in charge of money.
The position advocated here is often dismissed as radical or extreme, a kind of "market fundamentalism" (to use a derogatory term). But it is a reasonable, pragmatic, realistic view. Economics and management scholarship teach that monopoly providers are inefficient and ineffective, and a government monopoly on money is no different. Markets are not perfect, but neither are Fed chairs. It's time to make the supply of money independent of political interference.
- Peter G. Klein, The Ultimate Disorganizing Organization (Testimony before US House Committee on Financial Services Domestic Monetary Policy and Technology Subcommittee), May 09, 2012
'The major problems with fractional-reserve banking are its harmful effects on the overall economy caused by the related phenomena of inflation and business cycles.'
'Rothbard's point about the extreme fragility of public confidence in issuers of fractionally-backed money substitutes is well illustrated by the stunning collapse of Washington Mutual (WaMu) in September 2008, the largest bank failure in United States history. WaMu had been in existence for 119 years and was the sixth-largest bank in the United States with assets of $307 billion. It had branches throughout the country and billed itself as the Walmart of banking. It was one of the top performers on Wall Street until shortly before its failure. Its depositors clearly had enormous confidence in its solidity, especially given that its deposits were insured by the federal government reinforced by the existence of the Fed's "too-big-to-fail" policy. And yet, almost overnight the special good will that gave its deposits the quality of money substitutes vanished as panic-stricken depositors rushed to withdraw their funds. The unlikely event that triggered the sudden loss of confidence and subsequent brand extinction was the failure of Lehman Brothers, a venerable investment house. A week after Lehman failed, mighty WaMu was no more.
The highly publicized Lehman Brothers failure had shaken public confidence in the solvency not only of WaMu but of the entire banking system. Had the Fed and Treasury not acted aggressively to bail out the largest banks in the fall of 2008, there is no doubt that the entire system would have collapsed in short order. Indeed on a single day in December, the combined emergency lending by the Fed and the US Treasury had risen to a peak of $1.2 trillion. The recipients of these billions included some of the most trusted and reputable brand names in banking: Citibank, Bank of America, Morgan Stanley, as well as European banks like the Royal Bank of Scotland and UBS AG. Without this unprecedented bailout, these discredited brand names would have been relegated to the dustbin of business history
The ever-present threat of insolvency is a relatively minor problem with fractional-reserve banks, however. Its effects are restricted to the bank's stockholders, creditors, and depositors who voluntarily assume the peculiar risks involved in this business.
The major problems with fractional-reserve banking are its harmful effects on the overall economy caused by the related phenomena of inflation and business cycles.'
- Joseph Salerno, Let Unsound Money Wither Away, July 13, 2012
'..The monetary inflation and credit expansion of our elastic currency system would be eliminated and with it the booms and busts that have plagued our history.'
''Banks, too, should be put under the general laws of commerce including those relating to warehousing money by holding a 100 percent reserve of money against their money substitutes. Banks would earn profit by producing the amounts and types of money substitutes that satisfied people's demands. To earn profit, they would keep their costs down and invest and innovate when people's demands made it profitable. The operation of 100 percent reserve banking is described in Jesús Huerta de Soto's book, Money, Banking, and Economic Cycles. As he documents, money-warehouse banks thrived in Amsterdam for over 100 years in the 17th and 18th centuries.
Conclusion
No one can describe today the configuration of commodity money and money certificates that entrepreneurs would bring about if permitted to operate private enterprises in their production any more than one could have predicted in 1900 the development of the 21st-century automobile industry or predicted in 1950 the 21st-century consumer-electronics industry. What we do know is that their production would be regulated by profit and loss and therefore would result in the satisfaction of people's preferences. The monetary inflation and credit expansion of our elastic currency system would be eliminated and with it the booms and busts that have plagued our history.'
- Jeffrey Herbener, Leave Money Production to the Market, May 14, 2012
'However, Rothbard, Salerno, Herbener, Huerta de Soto, Block, and Reisman among others favor 100 percent reserves: a clear separation of deposit banking from loan banking, on the basis of reform proposals made by Mises..'
'These trends make a return to sound money, which "involves abolishing central banking and paper fiat money and restoring a commodity money chosen by and totally subject to the market" (Salerno 2010 [1998], p. 474), imperative. There is, however, controversy over the means. Does sound money require 100 percent reserve banking or does it allow banking freedom? Mises (1998, p. 440) opined, "Only free banking would have rendered the market economy secure against crises and depression. [And] there is no reason whatever to abandon the principle of free enterprise in the field of banking."
However, Rothbard, Salerno, Herbener, Huerta de Soto, Block, and Reisman among others favor 100 percent reserves: a clear separation of deposit banking from loan banking, on the basis of reform proposals made by Mises (1971, pp. 448–57, and 1978, pp. 17–21 and 44–47.) In these proposals, Mises argued for 100 percent backing of any newly issued notes or checkable deposits. For reform of a monetary system on the verge of collapse or as a proposal for how we move from our current system toward a sound money system, such a step may be essential. After reform though, it is also essential that "the question of banking freedom must then be discussed again and again, on basic principles" (Mises 1978, p. 45).
- John P. Cochran, Fractional Reserves and Economic Instability, July 12, 2012
'..we may realistically expect further suffering in the world due to damaging economic recessions which will inevitably and perpetually reappear until central banks lose their power to issue paper money with legal tender and bankers lose their government-granted privilege of operating with a fractional reserve.'
'Until specialists and society in general fully grasp the essential theoretical and legal principles associated with money, bank credit, and economic cycles, we may realistically expect further suffering in the world due to damaging economic recessions which will inevitably and perpetually reappear until central banks lose their power to issue paper money with legal tender and bankers lose their government-granted privilege of operating with a fractional reserve. We now wrap up the book as we began it, with this opinion: Now that we have seen the historic fall of socialism, both in theory and in practice, the main challenge to face both professional economists and lovers of freedom in this new century will be to use all of their intellectual might to oppose the institution of the central bank and the privilege private bankers now enjoy.'
- Jesús Huerta de Soto, Money, Bank Credit, and Economic Cycles (Third edition, 2012), page 812
Context '..acts of choice.'
The Mundane Economics of the Austrians
'..the Volcker rule..' - 'The operation of 100 percent reserve banking .. Amsterdam..'
'Since central bankers cannot and will not admit the truth..'
'Why ECB Bond-Buying Plans Undermine Democracy' - '..Credit expansion is fundamentally really a problem of civil rights..'
'..from radical to virtual rogue central banking..'
'Well, panic the Fed did..' September 13, 2012
(Electric Universe) - '..History speaks only to those people who know how to interpret it on the ground of correct theories.' - Mises
Banking Reform - Ethics
Affective Introspection
Haptopraxeologie/Haptopraxeology III - '..capital theory .. production..' '..In an Electric Universe..' '..thymotactiele..'
Source: Money, Bank Credit, and Economic Cycles (Fourth edition, 2020), page 388