Free Banking and Lost Ideals at the Mont Pelerin Society

Reckoning from the Mont Pelerin Society Meeting in Prague…

This is the last day of the Mont Pelerin Society meeting in Prague, and I am writing from inside Prague Castle, where we have been the guests of the Czech Republic President Vaclav Klaus.

All during the meeting I have found myself drawn to those who have been involved in practical politics. Having spent a quarter of a century as a lobbyist, the importance of separating out the urgent from the less important is an essential part of the job of anyone involved in politics.

In the question period after his presentation Klaus was asked about “free banking“, one of the primary issues pressed by many of the Austrian persuasion. The idea of free banking is to root out the role of the state in money supply and control by letting any bank that chooses to print its own money do so. The idea, I suppose, is to get rid of the state monopoly on money creation. Klaus gave the idea short shrift.

        ‘This is not a relevant, realistic idea.’

In a world that is drowning in centralising ideas of state control, free banking ought to be so far off the agenda that it would never be raised by anyone. Instead, it is a constant thread from amongst those who see themselves speaking on behalf of the free market.

What Klaus did speak on he titled, “We Are Not on the Winning Side”. It is a genuinely worrying and in my eyes quite accurate summary of the state of play at the present time.

I had a brief conversation with him and told him about going into a bookshop in central Prague where the fellow behind the counter was wearing a Ho Chi Minh tee shirt.

If certain ideas are not beyond the pale in Prague where then are they out of bounds? They are, in fact, evident everywhere you go.

Klaus’s paper is readable from end to end. Six pages single spaced, so it is short but every sentence tells. He had always understood, even when behind the Iron Curtain before the Wall fell in 1989, that the West was overrun by many who did not fully appreciate the nature of the problem of socialism and collectivist thinking.

Since then, he has learned to his astonishment, that it was always worse than he had thought. What’s worse, he now finds matters have deteriorated further since then. I will quote only a single paragraph because it is the most directly related to economic issues, but this is only one part of a paper of supreme excellence.

‘I did not expect such a weak defence of the ideas of capitalism, free markets and the minimal state. I did not imagine that capitalism and the market would become inappropriate, politically incorrect words that a ‘decent’ contemporary politician should better avoid. I had thought that something like that was only some kind of compulsory coloratura of the Marxist or communist doctrine. Only now do I see the real depth of hatred towards wealth and productive work, only now do I realise the role of human envy and of a completely primitive thought that other person’s wealth is solely and purely at my expense.’

Just how true this is becomes all too clear to anyone who must negotiate in a political environment on behalf of the private sector. Market forces, in many circles, is a near equivalent to highway robbery. It is no longer seen as the source of our prosperity and a necessary ingredient in giving us our personal freedom. These are ideas which are weakening and giving way to others of a more sinister kind.


Dr. Steven Kates
for Markets and Money

From the Archives…

The ECB’s Outright Monetary Madness
07-09-2012 – Greg Canavan

Who Knows What’s Going on in China’s Centrally Planned Economy?
06-09-2012 – Greg Canavan

The Australian Dollar is Not the Euro
05-09-2012 – Dan Denning

Australia’s Unbalanced Boom
04-09-2012 – Dan Denning

Why a Monarchy Beats Modern Democracy
03-09-2012 – Bill Bonner

Dr. Steven Kates

Dr. Steven Kates

Dr. Steve Kates is a Senior Lecturer at the School of Economics, Finance and Marketing, RMIT University. Dr. Kates spent a quarter century as the Chief Economist for the Australian Chamber of Commerce and Industry. Most of his research has been into macroeconomic policy, industrial relations and the history of economic thought. His most extensive area of expertise is in the classical propositions surrounding Say’s Law, on which he has written many papers as well as two books: Say’s Law and the Keynesian Revolution (1998) and Two Hundred Years of Say’s Law (2003) and, with John Cunningham Wood as the general editor, put together a five volume set, Critical Readings on Jean-Baptiste Say. The lead article in the March 2009 issue of Quadrant dealt with “The Dangerous Return of Keynesian Economics” which looks at the importance of Say’s Law in the development of coherent macroeconomic policies.
Dr. Steven Kates

Latest posts by Dr. Steven Kates (see all)

Leave a Reply

Be the First to Comment!

Notify of
Letters will be edited for clarity, punctuation, spelling and length. Abusive or off-topic comments will not be posted. We will not post all comments.
If you would prefer to email the editor, you can do so by sending an email to