The Experience of Free Banking

Much of what economists tell each other and the public about the nature and necessity of central banking lacks historical grounding. The Experience of Free Banking, just issued in a free, enlarged second edition by the Institute of Economic Affairs in London, discusses the extensive historical experience of monetary systems with competitive provision of currency. Such systems spanned more than 60 countries and hundreds of years up until the mid 20th century. Most were stable and showed no inherent tendency toward or need for establishing a central bank.

The first edition of the book was issued in 1992 by an academic publisher, and was priced accordingly. This expanded edition, in which I have three chapters, will be available in hard copy for those who prefer physical books, and is free in PDF here.

No free banking systems exist today, but the experience of free banking is relevant to today’s debates about privately provided cryptocurrencies, central bank digital currencies, and financial regulation. It presents a challenge both to economic theory and to the way economists and historians have continued to write financial history. They have generally ignored rather than addressed the ideas and facts that research in free banking has raised over the last generation. A notable exception is CFS Advisory Board member Charles Goodhart, whose 1988 book The Evolution of Central Banks remains the most serious and comprehensive answer on the pro-central banking side.

Readers who find want to know more about free banking can start with the bibliography by Elizabeth Qiao, here. The introduction contains a short list of suggested readings. At the time she compiled the bibliography, Qiao was a student of CFS Special Counselor Steve Hanke.