d63edbdf_brary_of_Economics_and_Liberty__ast_Highlights_HIDE_HIGHLIGHTS
[Time] 34:17
Is ideal a decentralized both banking system and money supply? In such a world, what would business cycles or inflation look like? Two things at stake. One, what sort of banks do we want to have? Need a system where banks can fail and customers take losses, because if you don't do that there will be a strong tendency to have only lousy banks. Macroeconomic question: how will money supply behave and will there be fewer or more business cycles? Reason for talking about free banking isn't just because of "freedom" or being libertarian. Want theory of free banking. No country with perfect free trade, but we have an understanding of what tariffs do comes from theorizing about free trade. Most monetary economists don't have a conception of what a free banking system looks like. You can only say what a Central Bank is doing if you have an underlying notion of what the system looks like before the Central Bank gets created. No alternative in most people's minds to the Central Bank regulating the money supply. Milton Friedman, fixed growth rate in high powered money. Until about 6 months ago, most people would have said we've got the hang of this Central Bank thing, 25 years of more or less steady growth, two small recessions. Current mess, not clear it indicts that viewpoint. Counterpoint to Central Banks being necessary. Statement presumes some knowledge of what Central Banks would do. Performance of Central Banks at best was not great. Inflation rates were generally above 2%; there were cycles. To pick on a 10-year interval and ignore the many decades in which Central Banks have screwed things up is biased. But we had to figure things out! Current crisis proves that wrong. Central Bank played an important role in pumping up the housing bubble. What looked like a period of stability really wasn't, just setting the stage for a cycle.
Selgin on Free Banking | EconTalk | Library of Economics and Liberty