Free Banking vs Banking Panics

October 16, 2012 06:03

[T]he banking industry of the 19th century was destabilized by destructive government interventions, which were forcing and/or encouraging the bankers to act irrationally. The introduction of the Federal Reserve is, therefore, an example of the principle that controls breed controls.



By   at Capitalism Magazine


It’s true that America suffered from “panics” in the 19th century. But why? Because various government regulations made it difficult for bankers to act as rational businessmen. …. The “panics” were, in other words, caused by regulations. Indeed, it’s been estimated that 80% of the bank failures were caused by such destabilizing regulations.


In the absence of the Federal Reserve, functioning as the “lender of last resort”, banks will be less willing to make risky and irresponsible loans, since there will be no Alan Greenspan or Ben Bernanke around to bail them out.


Thus, if we want to avoid panics in the future, then the lesson is that we should liberate the bankers; we should leave the bankers free to act rationally. What we should embrace is, in other words, real free banking: laissez-faire banking.



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