George Selgin on Free Banking

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4.7 • 4.4K Ratings

🗓️ 17 November 2008

⏱️ 73 minutes

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Summary

George Selgin of West Virginia University talks with EconTalk host Russ Roberts about free banking, where government treats banks as no different from other firms in the economy. Rather than rely on government guarantees to protect depositors (coupled with regulation), banks would compete with each other in offering security and return on deposits. Selgin draws on historical episodes of free banking, particularly in Scotland, to show that such a world need not be unduly hazardous or filled with bank runs. He also talks about Gresham's Law and an episode in British history when banks successfully issued their own currency.

Transcript

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0:00.0	Welcome to Econ Talk, part of the Library of Economics and Liberty. I'm your host Russ Roberts
0:13.9	of George Mason University and Stanford University's Hoover Institution. Our website is econtalk.org
0:21.2	where you can subscribe, find other episodes, comment on this podcast, and find links to
0:26.5	another information related to today's conversation. Our email address is mailadicontalk.org. We'd
0:33.6	love to hear from you. My guest today is George Selgin, the BB&T chair and free market
0:41.0	thought and professor of economics at West Virginia University. George, welcome to Econ Talk.
0:45.8	Thanks for having me, Russ. It's exciting to be on your list of esteemed speakers. Well,
0:52.3	I'm glad to have you. I want to start by talking about the concept of free banking, which I think
1:00.4	there are a lot of preconceptions and misconceptions about. So tell us what you mean by free banking.
1:06.7	Well, free banking means a banking without any special regulations that is banking conducted as it
1:16.0	might be if governments treated banks the way they treat old companies that make shoes or
1:23.9	widgets or anything that's a real good. The banking system has long been particularly heavily
1:33.5	regulated industry in countries that are otherwise relatively capitalistic and free market.
1:43.2	Free banking theory considers what the consequences would be if banking was not subject to so many
1:51.2	special regulation. So what role would there be for government and free banking? Any at all?
1:56.3	Well, there might not be any special role apart from, of course, the usual enforcement of
2:03.8	contracts is necessary for business generally to be successfully conducted. But if you had a
2:12.6	commodity monetary base, as was the case historically like a gold standard or perhaps a silver standard,
2:19.9	in principle, there'd need not be any particular role for the government in the monetary system,
2:26.1	the banks can do everything that the government does now except contribute to crises,
2:33.6	which is something that government agencies are particularly good at doing.
2:39.4	Well, I think a lot of people's reaction to the idea of free banking is the idea is the reaction
	...

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