Professor George Selgin shows why central banks, far from being bulwarks of financial stability, are inherently destabilizing. The record of past “free banking” systems, in which paper currency consisted of competitively supplied banknotes, contradicts the widespread belief that central banks play an essential part in promoting financial stability. Instead, both that record and theoretical inquiries concerning how free banking arrangements regulate the money supply suggest that central banks, far from being bulwarks of financial stability, are inherently destabilizing. In particular, a free banking reform might have proven far more effective than the Federal Reserve Act in preventing U.S. financial crises.
- What is inflation?
- What is the solution to inflation?
- Does capitalism cause depressions?
- How did the government cause the 2008 housing crisis and recession?
- How do banks operate under capitalism without a central bank?
- How do government central banks create financial instability?
- How does central banking promote booms and busts, moral hazard and financial instability?