Commonwealth Bank of Australia Ltd (CBA) has announced a $5.66 billion annual profit for 09-10 and the usual suspects are demonising "free markets" and "capitalism" as the cause.

The problem with this critique is that free markets don't exist in the banking system. The reason the Commonwealth Bank makes these massive profits is that government provides them with powers that they would not have in a free market.

The first and most obvious is the access they have to the most horrific government agency of them all, the Reserve Bank of Australia. The Reserve Bank creates its own deposits out of thin air. It is able to do this because the government has allowed it to. It then lends out these deposits at an interest rate determined by a group of disturbingly secretive government bureaucrats.

Then there is government-ordained fractional reserve banking, the government-ordained currency monopoly and more.

The point is, don't be fooled by the zealots. Banks make their big profits because of government, not the market.

This is a lecture to a clas

The story you are about to read is true. The names have not been changed to protect the innocent.

I rise to speak on the concept of competing currencies. Currency, or money, is what allows civilization to flourish. In the absence of money, barter is the name of the game; if the farmer needs shoes, he must trade his eggs and milk to the cobbler and hope that the cobbler needs eggs and milk. Money makes the transaction process far easier. Rather than having to search for someone with reciprocal wants, the farmer can exchange his milk and eggs for an agreed-upon medium of exchange with which he can then purchase shoes.

This medium of exchange should satisfy certain properties: it should be durable, that is to say, it does not wear out easily; it should be portable, that is, easily carried; it should be divisible into units usable for everyday transactions; it should be recognizable and uniform, so that one unit of money has the same properties as every other unit; it should be scarce, in the economic sense, so that the extant supply does not satisfy the wants of everyone demanding it; it should be stable, so that the value of its purchasing power does not fluctuate wildly; and it should be reproducible, so that enough units of money can be created to satisfy the needs of exchange.