Free banking

This article is about an economic system. "Free banking" also refers to the provision of indirectly-funded transactional accounts, which often rely on bank charges.
Public finance
Detail from the mural "Government" by Elihu Vedder in the Library of Congress
Policies
Fiscal policy
Monetary policy
Trade policy
Optimum
Reform

Free banking is a monetary arrangement where banks are free to issue their own paper currency (banknotes) while also being subject to no special regulations beyond those applicable to most enterprises.

In a free banking system, market forces control the total quantity of banknotes and deposits that can be supported by any given stock of cash reserves, where such reserves consist either of a scarce commodity (such as gold) or of an artificially limited stock of fiat money issued by a central bank.

In the strictest versions of free banking, however, there is either no role at all for a central bank, or the supply of central bank money is supposed to be permanently "frozen". There is, therefore, no government agency acting as a monopoly "lender of last resort", leaving that to the private sector as happened in the US in the panic of 1907. Nor is there any government insurance for banknotes or bank deposit accounts.[1]

Notable supporters include Milton Friedman,[2] Fred Foldvary,[3] David D. Friedman,[4] Friedrich Hayek,[5] George Selgin,[6] Steven Horwitz,[7] and Richard Timberlake.[8]

  1. ^ Selgin, George A.; White, Lawrence H. (1994). "How Would the Invisible Hand Handle Money?". Journal of Economic Literature. 32 (4): 1718–1749. JSTOR 2728792.
  2. ^ Friedman, Milton (1987). "Has Government Any Role In Money?" (PDF).
  3. ^ Foldvary, Fred E. (November 2008). "Free Banking Explained". The Progress Report. Archived from the original on 2009-08-11. Retrieved 2010-01-24.
  4. ^ Friedman, David D. (1982-09-23). "Gold, Paper, Or...Is There a Better Money?". Policy Analysis No. 17. Cato Institute. Retrieved 2012-03-08.
  5. ^ Hayek, Friedrich (1976). The Denationalisation of Money. Coronet Books. ISBN 978-0-255-36239-9.
  6. ^ "Interview: George Selgin". Region Focus. Federal Reserve Bank of Richmond. Winter 2009. Archived from the original on 2012-02-22. Retrieved 2012-03-08.
  7. ^ Horwitz, Steven (1992). Monetary Evolution, Free Banking, and Economic Order. Westview Press. ISBN 978-0-8133-8514-3.
  8. ^ Timberlake, Richard; Dowd, Kevin (1998). Money and the Nation State. Transaction Publishers. ISBN 9781412828956.