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THE THEORY OF FREE BANKING:
MONEY SUPPLY UNDER COMPETITIVE NOTE ISSUE

George A. Selgin

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Rowman & Littlefield and Cato Institute, 1988, 180 pgs., extensive bibliography, notes, graphs - It is available by free Internet down load from the Liberty Fund {short description of image} And the link to the PDF is adjacent.

 
 

Reviewer Comments:

The book is a development of the author's PhD dissertation. It is indeed 'theory'. In this he attempts to defend the theory and practice of free banking. That is a banking system formed by private banks that are all able to compete in issuing money certificates (bank notes). This is perhaps the opposite of a system controlled by a centralized monopoly (central bank) that alone can issue currency. This discussion is one of many that propose different concepts of what 'money' actually is, who creates it, what are its uses, and what form a banking system should take. In many general histories of the development (evolution) of 'money' throughout history one reads that when it comes to modern times the content changes into more of a discussion of banking. Dr. Selgin is a prolific writer advocating the libertarian view on all sorts of economic issues, especially money and banking in a highly polemic style.
The book was published in 1988, and since then there have been significant monetary events and changes to banking regulation - indeed to the financial industry itself. There is no universally accepted theory of what actually is 'money'. And there is contention over many aspects of banking - especially the role of Central Banks. Recently the development of massive computer power and effective transmission of data (Internet) has enabled the creation of a new form of 'money' called cryptocurrency with such examples as 'Bitcoin' and 'Ethereum'. All of this is evidence of the general dissatisfaction of many with the current banking system.

"Free banking' is a theory and proposal generaly advocated by libertarians - thus it is held as a support for political policy and action. The theory supports the advocacy for very limited government.

See its relation to the broad subject - History of Money - for instance as described in the Wikipedia entry. {short description of image}and at {short description of image}

 
 

Preface:

The author contends that the general economic theory about 'money' is that it 'will not manage itself'. Here he sets out to show that this is not so. The central issue evolves around the question about the creation of 'money'; whether this would be better controlled exclusively by a government central bank (that means in the name of government itself) or would it be better if created by a 'free banking' system of private, competing banks (in other words by private individuals denying greater role for governments). He contends and here sets out to show that a 'free banking' system would be superior for many reasons.

 
 

Forward: by Professor Lawrence H. White

 
 

PART ONE: Setting the Stage
1: Overview

 
 

2: Evolution of Free Banking

 
 

PART TWO: Free Banking and Monetary Equilibrium
3: Credit Expansion with Constant Money Demand

 
 

4: Monetary Equilibrium

 
 

5: Changes with Demand for Inside Money

 
 

6: Economic Reserve Requirements

 
 

PART THREE: Free Banking Versus Central Banking
7: The Dilemma of Central Banking

 
 

8: The Supply of Currency

 
 

9: Stability and Efficiency

 
 

10: Miscellaneous Criticisms of Free Banking

 
 

11: Free Banking and Money Reform

 
 

Conclusion

 
 

Some References

 
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Salerno, Joseph - Fractional Reserves and the Fed

 
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Polleit, Thorsten - Central Banks Are Messing with Your Head

 
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Shostak, Frank - Why the Boom-Bust Cycle Keeps Repeating

 
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Calomiris, Charles & Stephen Haber - Fragile by Design

 
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Rothbard, Murray The Mystery of Banking

 
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Selgin, George - "The Myth Of The Myth Of Barter "

 
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Selgin,

 
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Admati, Anat & Martin Hellwig - The Bankers' New Clothes

 

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