Tuesday, April 27, 2010

The History of Free Banking and Alternative Currencies

The academic study of the history of free banking and the contemporary practice of alternative currencies are strongly related. It seems clear to me that the contemporary monetary reform movement should be based upon lessons of monetary history, but such a connection rarely seems to take place. Perhaps because monetary history is so obscure, and monetary theory so confusing?

A wonderful interview was recently published by the Daily Bell (http://www.thedailybell.com/975/George-Selgin-Austrian-Finance-Central-Banks-Free-Banking.html), with an academic expert on the history of free banking, George Selgin.

One important takeaway: Dr. Selgin drives another nail in the coffin of the "100% non-fractional gold reserve" argument. He appears to conclusively demonstrate through the historical record that free market conditions will not result in a 100% gold standard. As I have argued before, we have moved onward, never to return to a gold standard, because our monetary theory has simply advanced to far. The idea of non-fractional gold as the only legitimate form of money is excessively retrograde, IMHO.

Another important takeaway is the limitations of viewing pre-Civil War America as a true example of free banking. In that era, bank charters often contained onerous provisions related to capital requirements. As I have detailed elsewhere, any asset can be monetized, which is to say, used as collateral to create a money supply. In the Wildcat Banking Era (as in most eras), land and government debt were the primary collateral monetized by regional banks.

In Dr. Selgin's view, as I interpret it, it was the instability of land speculation in that boom-bust pioneer era which caused the instability of those banks, not anything inherent in the institution of free banking itself. In effect, our most popular idea of why Free Banks were a failure, is simply wrong.

A third important takeaway is the history of free banking in early modern Scotland. Monetary reform advocates have over a century of history to plumb in their search for workable alternative monetary solutions. I look forward to researching more into this era myself, particularly with an eye towards how the Scottish Free Banking system was related to the real bills system and the gold standard system of the same era.

1 comment:

Jim Baxter said...

"What is human?" GOD's answer...

Keven J. Hasson, President of the Becket Fund, recently stated, "...the American and Soviet systems...offered differing visions of freedom and human nature." The missing element in every human 'solution' is an accurate definition of the creature.

In the Bible, God's Word has accurately defined the human being as 'the earth creature endowed with the ability to choose.' His natural Rights, therefore, are merely an extension and application of natural human endowments, which all humans - everywhere in the world - possess. Even as goldfish, canaries, and puppy dogs require an environment based on their natural features, so humans require external freedom to fulfill their natural internal abilities of choice, selection, election, and consent. Uniquely, America was founded on this definitive paradigm in human nature. All nations should reject foundational human opinion that teaches otherwise.

Further, God's gift of criteria for choosing between alternatives supplies us with superior standards for successful visionary choice-making. Humans cannot invent (or replace) criteria greater than self, ACLU to the contrary.

Defining 'human' accurately is the first step in establishing accurate and successful environments, institutions, and creative relationships for earth's Choicemaker. Middle East governments, and all leaders, would do well to pay attention: nature and nature's Creator speak with an authoritative voice. Psalms 25:12 119:30, 173 Joel 3:14 Selah

No one is smarter than their criteria.

Jim Baxter Sgt. USMC WWII & Korean War semper fidelis http://www.choicemaker.net/