Preface

The debate over free banking is one of the most important in economics today. It is perhaps the penultimate debate between those who advocate free markets and those who embrace (at least partial) central planning. Macroeconomic monetary policy conducted by a central bank is the last bastion of both methodological holism and the “constructivist rationalism” such holism often spawns. To advocate free banking is to mount an assault upon that citadel.

The seminal work in the modern theory of free banking is, of course, that of the late Friedrich A. Hayek. The second stage of development comprises the elaborations and modifications of that Hayekian foundation, which have been offered by Lawrence White, George Selgin, and Kevin Dowd, among others.

This book is an attempt to further the evolution of free-banking theory by (1) presenting a formal model of the White-Selgin analysis, (2) exploring the connection between free banking and Say’s Law, and (3) explaining why rational monetary policy is impossible in a central banking regime. In addition, the history of free banking in Scotland and the United States is discussed in some detail. Finally, there are reviews of alternative approaches to, as well as common criticisms of, free banking. I would hope that both the professional economist and the interested layperson would find something of value herein.

The present work is a significantly revised version of my doctoral dissertation at the University of Texas at Arlington. I would like, therefore, to express my thanks to the members of my dissertation committee: Thomas Holland, Eirik Furubotn, Dan Himarios, Larry Ziegler, Peggy Swanson, and Allan Saxe.

To Kevin Dowd I owe a special debt of gratitude. He was kind enough to write the foreword to this book. Moreover, I have benefited enormously from his many insightful comments and suggestions. He has been a friend. I am also very grateful to Lawrence H. White for first exciting my interest in this topic with his Free Banking in Britain.

For offering me their comments and/or copies of their papers, I want to thank the following (in addition to Dowd and White): Milton Friedman, Robert Higgs, George Selgin, Leland B. Yeager, Donald R. Wells, Catherine England, Steven Horwitz, Thomas M. Humphrey, and Sheila Dow.

For their financial assistance, I extend my heartfelt thanks to both the Ludwig von Mises Institute and the Institute for Humane Studies. The fellowships they granted me were instrumental in the timely completion of my Ph.D. studies.

It should, of course, be understood that the views expressed herein are not necessarily the views of any of the individuals or institutes mentioned above.

Last, but certainly not least, I want to thank my wife Donna for her unflagging and essential support.