Thanks for reading this far! I know that Chapter 6 was a downer – a dismal litany of things gone wrong. I know it includes strong opinions. I’ve done my best to weed out the unsupported suppositions. Please let me know where I failed and I’ll make corrections. But, when we know where we are, and know where we want to go, we can move toward our goals.

In a world governed by the pressure of organised interests, the important truth to keep in mind is that we cannot count on intelligence or understanding but only on sheer self-interest to give us the institutions we need.

The Denationalisation of Money: The Argument Refined by F.A. Hayek (1990)1

The source and root of all monetary evil [is] the government monopoly on the issue and control of money.

— F. A. Hayek, Economist (1899–1992)2

While we think about what kind of money system would serve us best, let’s consider some short-term measures that we could take – step backwards, apply bandages to multiple wounds, or take bridge steps.


We could free banking from the rules, standards and protections that constitute banking law. This would be a step backwards. But, it’s a popular idea. Some Libertarians advocate a return to a Wild West of banking. Twentieth Century economist F.A. Hayek’s first quote is a concise statement of an idea that has governed our economics, our government and our money system for the past 100 years: decisions made in the private marketplace, based on self-interest, are the best decisions. Again, there’s no evidence for this axiom. The opposite seems to be true as explained in Chapter 6. Hayek’s quote number two shows that he misunderstood who creates money, or is referring to a time so far in the distant past as to be irrelevant.

But, if you believe sheer self-interest leads to best outcomes, it makes sense for money to be created, not by the will of the people through government, but by the will of selfish players in the marketplace. And, a money creation system free of the political will of the people has been successfully sold as an asset to our nation. Economists, people at the Fed and in government speak proudly of the fact that our Federal Reserve money creation system, and it’s private member-owner banks operates independently – without interference from our duly and democratically elected government. If you’re a believer, this is desirable.

Some believers in free market doctrine go a step further and want money creation to be like any other business, with only very basic – if any – rules and regulations. Their free banks would face no additional regulation and oversight particular to banks or to money creation. In free banking there is no central bank providing services or acting as a lender (and money creator) of last resort, unless it is created by private banking monopolies. There is no government insurance of bank deposits or of the bankers’ proprietary IOUs. The market decides which banks survive and prosper, through the same trial and error every business faces.

Free banking would allow anyone to become a bank and provide both banking and money creation services in a free and unregulated marketplace. Some banks might operate as 100% gold commodity money banks. Others might use a fractional reserve money creation system, with a gold reserve or simply based on the strength of their wealth and prestige. Others might create a virtual currency (like Bitcoin). Private businesses would service the need to exchange one of these many currencies for another. In an unregulated market, none of them would need to tell you how they operate. User beware – and keep in mind the popular idea it’s OK to sacrifice a few customers to make bigger profits. If it’s OK to kill, it’s surely OK to rob you blind.

Free banking advocates usually ground their views in faux-free market theory that says when businesses are free to do business in any way they see fit, they will make rational decisions in their business’s best interest. When every business is operating in its best interest there will be a balancing tension that benefits everyone. As rational, decision-making consumers make their buying and selling decisions, they will pick the banking businesses that do right by their customers and the nation. Only the righteous businesses will survive. The collapse of poorly run banking businesses will harm many people, but that is the law of the free-and-not-responsible-enterprise jungle. In theory, smart people don’t pick loser banks. If someone picks a loser bank and loses their money, that’s just the way of the world.

There’s no evidence pure free market banking and money creation ever worked. Unregulated private enterprise chooses the path to selfish profits nearly every time. It often chooses making a fast buck over the safety of the customers, communities involved, and even its own long-term interests. But, the value of selfishness is an easy sell. Our inner child welcomes a rationalization for, “I am the center of the universe, and it is all about me and what I want.”

Historical evidence shows an effective government is necessary to protect individuals and the community from selfish predators. Applying our intelligence, understanding other points of view, looking out for the interests of as many people as possible, and protecting the commons, is the best recipe for prosperity. So free banking is a poor choice.

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