d63edbdf_brary_of_Economics_and_Liberty__ast_Highlights_HIDE_HIGHLIGHTS
[Time] 0:36
Intro. What is free banking? Banking without any special regulations, conducted as it might be if government treated banks as they treated shoes or widgets or anything that is a real good. Government has regulated banks heavily in all countries. What role for government in free bank? No special role other than enforcement of contracts. If you had a commodity monetary base such as gold or silver, there might not be any need for special regulation. Most people's reaction is: Banking is too important to be left to the private sector. Lots of things are really important: trade, food, agriculture; hard to think of any sector of the economy that is not important. Does government involvement make it work better or not? Pre-1913, before the Federal Reserve, though not free banking, relatively free. Fraught with bank runs that we thought the Fed has learned to smooth (though rethinking lately). Several instances approximated the ideal of free banking. Most important thing is that creation of the Federal Reserve did not mark the beginning of government interference with money and banks. In the United States, government has wielded a very heavy hand. Before the establishment of the Fed, lack of branch banking--which remained true for many decades after the establishment of the Fed; and banks were restricted in their ability to issue currency. Those two regulations created all kinds of trouble with the pre-Fed monetary system.
Selgin on Free Banking | EconTalk | Library of Economics and Liberty