Are Banking Systems Inherently Unstable?
This is an online-only webinar held on Zoom hosted by the LSE Hayek Program
Event description
Because of my early research on the workings of “free” banking systems, like those of Scotland before 1845 and Canada before 1935, I’m sometimes described as an “advocate” of free banking, as if I thought we could and should try to establish very similar arrangements today. But that isn’t my belief. Instead of being aimed at hatching chimerical plans for turning clocks back, the real purpose of research on free banking, as I see it, is twofold. First, such research seeks a better understanding of unregulated and decentralized currency systems’ capacity for self-regulation—an understanding that’s lacking thanks to economist’s tendency to take currency monopolies for granted. Second, it seeks to more carefully distinguish causes of banking instability inherent to fractional reserve banking from ones stemming from misguided state intervention in banking. So far this research suggests that, far from being inherently unstable or crisis prone, banking and currency systems have been rendered artificially so by misguided regulations, including the limitation of currency issuing to a single, privileged bank.
I will discuss these findings, and will conclude by arguing that, although creating a new free banking system resembling those of the past may not be possible, the findings point to other, less radical but nevertheless unorthodox approaches to rendering modern banking systems more safe and stable.
The LSE Hayek Program is a research initiative based at STICERD, LSE Economics.
About the speaker
George Selgin is director emeritus of the Cato Institute’s Center for Monetary and Financial Alternatives and Professor Emeritus of Economics at the University of Georgia. His is the author of many popular and academic essays and articles mostly on monetary and banking topics, and of roughly a dozen books including The Theory of Free Banking (Rowman & Littlefield, 1988), Good Money: Birmingham Button Makers, the Royal Mint, and the Beginnings of Modern Coinage (University of Michigan Press, 2008), Money: Free and Unfree (Cato Institute, 2015), Less Than Zero: The Case for a Falling Price Level in a Growing Economy (The Cato Institute, 2018), Floored! How a Misguided Fed Experiment Deepened and Prolonged the Great Recession (The Cato Institute, 2018), and The Menace of Fiscal QE (The Cato Institute, 2019), and False Dawn: The New Deal and the Promise of Recovery, 1933-1947 (University of Chicago Press, 2025). Selgin holds a B.A. in economics and zoology from Drew University, and a Ph.D. in economics from New York University. He lives in Granada, Spain.
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