Money, Bank Credit, and Economic Cycles - The Ludwig von Mises ...

Central and Free Banking Theory 705Moreover the fact that various historical studies appear toindicate that fewer bank runs and crises arose in free-bankingsystems than in central-banking systems does not mean theformer were completely free of such episodes. Selgin himselfmentions at least three instances in which acute bank crisesdevastated free-banking systems: Scotland in 1797, Canada in1837, and Australia in 1893. 152 If Rothbard is correct, and inthe rest of the cases institutional restrictions played the role ofcentral bank to at least some extent, then the number of bankcrises might have been much larger in the absence of theserestrictions. 153 At any rate we must not consider the eliminationof bank crises to be the definitive criterion for determiningwhich banking system is the best. If this were the case,even the most radical fractional-reserve free-banking theoristswould be obliged to admit that the best banking system is thatwhich requires the maintenance of a 100 percent reserve, sinceby definition this is the only system which in all circumstancesprevents bank crises and runs. 154In short, historical experience does not appear to supportthe thesis of modern fractional-reserve free-banking theorists.Bank credit expansion gave rise to cycles of boom and depressionin even the least controlled free-banking systems, whichwere not free from bank runs and failures. The recognition ofthis fact has led certain neo-banking authors, such as StephenHorwitz, to insist that though historical evidence against theirviews is of some significance, it does not serve to refute thetheory that fractional-reserve free banking produces only152 Selgin, “Are Banking Crises a Free-Market Phenomenon?” Table 1(b),p. 27.153 Raymond Bogaert appears to confirm Rothbard’s thesis. Accordingto Bogaert, we have documented proof that of 163 banks created inVenice starting at the end of the Middle Ages, at least 93 failed. RaymondBogaert, Banques et banquiers dans les cités grecques, p. 392 footnote513.154 Thus Selgin himself recognizes: “A 100-percent reserve banking crisisis an impossibility.” See George A. Selgin, “Are Banking Crises aFree-Market Phenomenon?” p. 2.