A few months after my April 2018 Soho debate with him concerning whether fractional reserve banking is damaging to an economy’s health, Bob Murphy gave a lecture on “Rothbardians vs. ‘Free Bankers’ on Fractional Reserve Banking.”
Bob devotes a substantial chunk of that lecture to elaborating upon what he considers shortcomings of my particular arguments in favor of free banking. Though he is generous enough to allow that my theoretical arguments are not quite a cinch to refute, he thinks rather less of the empirical evidence I offer in support of those arguments. In particular, he calls the evidence supporting my claim that the Scottish and the Canadian free banking systems were quite stable “very weak.”
So far as the Scottish episode is concerned, Bob’s claim rests mainly on the fact that, between 1797 and 1821, Scottish banks followed the Bank of England’s example, though without the statutory permission Parliament had granted it, of temporarily “restricting” specie payments. So far as he’s concerned, their having done so is ipso-facto proof of their having run roughshod over their creditors’ rights and reduced their welfare. In truth the story of the Scottish bank restriction, and the correct lessons to be drawn from it, are far less straightforward than Bob supposes. Having already devoted three longish posts to explaining what happened (here, here, and here), I leave it to my readers to decide whether the evidence I assemble in those posts suffices to exonerate the Scottish bankers, as I believe to be the case. I also continue to look forward to Bob’s own response to that evidence.