The outcome is that instead of implementing monetary policy via the capital market, we do so via the banks, a more expensive and less efficient method. Why must we act in this tortuous way? To find the answer to this question we may have to go back to the traditional work methods of the pre-State era.
Throughout the free banking era the effectiveness of this competition for reputation imparted an increased type of market discipline, perhaps because technological change--the telegraph and the railroad--made monitoring of banks more effective and reduced the time required to send a note home for redemption.