Isn free banking inherently unstable?
The claim that free banks are inherently unstable lacks a theoretical or empirical foundation. From a theoretical point of view, free banks have an incentive to be stable to keep customers and investors. Unstable banks are less likely to attract depositors and investors. Their more stable rivals will take their business away from them, all other things being equal. In the rare event that all banks are less stable, people would switch to the money standard. (There are no historical examples of all banks failing or being unstable under free banking.) The historical record is quite clear: free banks are more stable than regulated and central banks. When bad banks are allowed to fail, good banks remain and both customers and investors become aware of signals on how to separate quality from its lack in banking. Under such a regime, both customers and investors have a strong incentive as well to pay attention to such signals to insure quality. (See the works of Dowd, Selgin, and White listed
The claim that free banks are inherently unstable lacks a theoretical or empirical foundation. From a theoretical point of view, free banks have an incentive to be stable to keep customers and investors. Unstable banks are less likely to attract depositors and investors. Their more stable rivals will take their business away from them, all other things being equal. In the rare event that all banks are less stable, people would switch to the money standard. (There are no historical examples of all banks failing or being unstable under free banking.) The historical record is quite clear: free banks are more stable than regulated and central banks. When bad banks are allowed to fail, good banks remain and both customers and investors become aware of signals on how to separate quality from its lack in banking. Under such a regime, both customers and investors have a strong incentive as well to pay attention to such signals to insure quality. (See the works of Dowd, Selgin, and White listed
