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The first paragraph is a glorified “but who will build the roads?” argument, which can be disproved by many examples of private infrastructure projects. Secondly, it is not the market which emerges from government, but it is government that emerges from markets and economic prosperity. There was simply no government before there was civilization, which is brought about by division of labor and private property.

Second paragraph: again a big “who will build the lampposts?” argument. He’s just spouting the religious dogma of statism. The statement “there is no way such [public services] would be provided” is contradicted by cities such as Wenzhou in China.

http://reason.com/archives/2011/11/15/chinas-black-market-city

Third paragraph is a non sequitur. What does the history of the economics profession have to do with actual economic history? That said, markets are NOT perfect. They can “fail”, depending on how you define failure. Any numerical measurements based on mathematical models that may try to expose this “failure” are flawed because of the subjective theory of value. We can’t measure subjective value, but we KNOW that voluntary trades are the ONLY trades where both parties gain in value.

Fourth paragraph, Tom Woods has debunked the idea that deregulation caused the financial crisis. The rest of the paragraph is incomprehensible. The last sentence is a doozy. First, Rothbard has shown that the financial crisis leading up to the Great Depression was caused by credit expansion and gool ole’ ABCT.

Next, what does that have to do with WW2? The “principal factor” of WW2 was the fact that the Treaty of Versailles included -massive- reparations. The reparations were needed because Britain and France still had large amounts of -war debt- owed to JP Morgan. This drove Germany into hyperinflation which caused the economic problems that allowed Hitler to be voted in. I’m sure the historians here know much for of this than I.

The very notion that free market forces are to blame for World War II is utterly farcical (he didn’t say it, but I bet he thinks Black Tuesday was caused by the “free market” as well). At the head of every war or mass murdering dictatorship there is a government, and probably a banker.

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If we had sound money the government would not be able to embark on extremely costly wars in the Middle East, thus wasting tremendous amounts of fuel and resources to begin with. This is again not a definite proof that gas prices would still be low relative to wages, but it is a strong suggestion.

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I don’t know if a video game or simulation can ever be a valid way to study economics at least in the Austrian tradition. You just can’t simulate human action and subjective value. Any insights gained from a video game experiment would only be applicable to that video game world.

Having said that, there was this experiment:
http://www.minecraftforum.net/topic/1212125-closed-map-experiment/

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I believe the description of banking put forth in Mystery of Banking and indeed most economics literature, that which leads to the existence of a “money multiplier” based on reserve ratio, is severely outdated.

One should look into the topic of “Endogeneous Money” to get a more accurate picture of the banking system. (http://en.wikipedia.org/wiki/Endogenous_money). Also “Understanding The Modern Monetary System” at http://pragcap.com/understanding-modern-monetary-system.

In short, banks are never constrained by reserves. Banks are always capital constrained. Banks do not need reserves to make loans. Indeed, banks periodically seek reserves *after* the loans are made. So, it is irrelevant if you deposit $100 in the bank. If the bank finds a worthy borrower in demand of a loan then the bank will make the loan, and then seek the reserves afterward, purely for liquidity and regulatory reasons.

The ONLY constraints are capital constraints, and on that topic I post here an excerpt from a discussion I had with someone with experience in the banking industry:

“So, the TLDR; is that banks are technically constrained by their base “Capital” — that is they are only allowed to make a grand total amount of loans that is LESS than what the expected risk of default will be — so if a bank estimates that the “risk” of it’s portfolio or loans defaulting — going totally bad and left unpaid — is say 10%, then with base capital of say $100 million, that bank will not lend more than $1 billion in total (and indeed will stay far SHY of that total). “

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Here’s the way I understand it, I’m sure others can correct me if needed:

To the extent that the labor in third world countries are acquired voluntarily, then those workers are choosing to work in factories because it is their best option. Whatever they receive in compensation, they perceive it to be worth more than their labor.

Now, to the extent that the country imposes legal tender laws, central banking, or a currency peg (for example, China, Philippines), those wages the workers earn are devalued as fast as the US can print. This is why we’ve been able to export so much inflation, which keeps some third-world countries poor despite having produced so much for us. If these countries had free economies, the dollar would become worthless in those countries because there would be excess dollars relative to real goods, and the price of labor (in dollars) would go up which would collapse the trade deficit.

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So far in this course I’ve learned that fractional reserve banking and fiduciary media are not considered part of the unhampered market economy.

What about Free Banking where fractional reserves are allowed but are market regulated? Rothbard wrote that competition among banks would lead to a high reserve ratio, but banks might still take on some risk with their customer’s deposits. Are there cases, for example the Suffolk Bank, where fractional lending could exist peacefully in an unhampered market economy? From the wikipedia page on Suffolk Bank:

In his History of Money and Banking in the United States, Murray Rothbard credits the Suffolk Bank with exercising “a stabilizing influence on the New England economy.”[5] John Jay Knox, a former Comptroller of the United States Treasury, stated that the success of the Suffolk Bank demonstrated that,

“the fact is established that private enterprise could be entrusted with the work of redeeming the circulating notes of the banks, and it could thus be done as safely and much more economically than the same service can be performed by the Government.”[6]

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