In short, the marketplace monitors the soundness of the individual banks.
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The banks must earn the respect of the populace. Free banking requires diligence by depositors. But, it is not. If the banks did not have the assurances written, tacit or otherwise that the governments would bail them out, would they not be more careful with their lending policies? And, would depositors not ask a few questions before depositing with just any bank?
We do not expect the government to guarantee our car insurance or life insurance companies, but we expect the government to guarantee our bank deposits. This notion comes from s legislation many times modified that was supposed to offer stability to our financial system. Advocates of free banking assert that it has only been tried once: in Scotland, to Rothbard includes an appendix, The Myth of Free Banking in Scotland , which reveals that Scotland during that time had a highly developed monetary, credit, and banking system.
Further, there was no governmental monetary policy, no central bank, and virtually no political regulation of the banking industry.
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During those nearly one hundred twenty years, Scotland enjoyed remarkable macroeconomic stability. But, free banking , in its pure form was not practiced in Scotland to Several times, when the banks issued too much paper, the government permitted them to suspend redemption in specie coin money. As long as the government stands ready to abrogate the redemption right of receipt holders, free banking is not practiced.
Still, Scotland enjoyed great prosperity and with a stable monetary system while many of the features of free banking were practiced. The Mystery of Banking is an excellent read for gold and silver investors.
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It will add further to their understanding of banking and inflation, which will enable them to better understand their investments in precious metals. With his characteristic clarity and incisiveness, Rothbard explains the origins of money. Rothbard next shows how banking got started. He shows the difference between loan banking and deposit banking. Fractional reserve banking allowed credit expansion, but so long as there was no central bank, inflation of the money supply was limited.
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Rothbard was not only an outstanding contributor to Austrian monetary theory but a great economic historian as well. He offers a detailed account of how central banking developed in England and Scotland. Central banking made massive inflation possible. In even greater detail, he discusses the banking history of the United States in the nineteenth and twentieth centuries.
Readers who absorb his account will learn how the Federal Reserve System promotes monetary instability and the business cycle. Cart items.
The Mystery of Banking
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The Mystery of Banking Murray N. Rothbard, Douglas E. French Preface , Joseph T. Salerno Foreword.
Ludwig von Mises Institute, Rothbard; Douglas E. French [Preface]; Joseph T. Salerno [Foreword];.
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