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Financial Stability without Central Banks

Financial Stability without Central Banks

George Selgin | Kevin Dowd | Mathieu Bédard

(2018)

Abstract

George Selgin is one of the world's foremost monetary historians. In this book, based on the 2016 Hayek Memorial Lecture, he shows how a system of private banks without a central bank can bring about financial stability through self-regulation. If one bank stretches credit too far, it will be reined in by the others before the system as a whole gets out of control. The banks have a strong incentive to ensure an orderly resolution if a particular bank is facing insolvency or illiquidity. Selgin draws on evidence from the era of 'free banking' in Scotland and Canada. These arrangements enjoyed greater financial stability, with fewer banking crises, than the English system with its central bank and the US model with its faulty government regulation. The creation of the Federal Reserve appears to have increased the frequency of financial crises. The book also includes commentaries by Kevin Dowd and Mathieu Bédard. Dowd asks whether free-banking systems should be underpinned by a gold standard, which he regards as a tried-and-tested institution at the heart of their success. Bédard challenges the assumption that the banking sector is inherently unstable and therefore requires state intervention. He argues that increases in government control have made the banking system more prone to crisis.

Table of Contents

Section Title Page Action Price
_Hlk488832294 1
__DdeLink__3072_333543986 57
Figure 1\tSpending equilibrium: free banking 6
Figure 2\tQuarterly value of Fedwire transactions and nominal GDP (1992 = 100) 8
Figure 3\tUS CPI (average 1982–84 = 100), US nominal GDP (million of dollars) 22
The authors viii
Foreword x
Acknowledgement xiv
Summary xv
Figures xviii
1\tPrice stability and financial stability without central banks: lessons from the past for the future 1
George Selgin 1
Financial stability without central banks 2
Walter Bagehot and the role of central banks 12
The cause of financial instability in the pre-Federal-Reserve US 14
Price stability 19
Concluding remarks 24
2\tQuestions and discussion 27
3\tSelginian free banking 37
A commentary on George Selgin's lecture 37
Kevin Dowd 37
Free banking and the gold standard: is there an alternative? 38
Inferior alternatives to the gold standard 41
References 47
4\tOn chain gangs in financial stability 49
A commentary on George Selgin’s lecture 49
Mathieu Bédard 49
Systemic risk as a chain-gang effect 50
Chain gangs in asset markets 52
Chain gangs and bank runs 54
A reinterpretation 58
Conclusion 60
References 61
About the IEA 66