Wednesday, November 26, 2008

Whether Free Banking Have life?

Professor Deepak Lal writes in BS “many classical liberals have favoured free banking. Banks combining the payment and investment functions and issuing their own notes would be monitored by their depositors, who would stand to lose if their banks undertook imprudent lending. But with the near universality of deposits as a means of payment, there is little likelihood of this monitoring function being effectively exercised. Whilst Demos precludes any government being able to resist pressures to bail out imprudent banks to protect their depositors. This makes deposit insurance inevitable. 

The near universal calls for greater regulation and state intervention is astounding. Public agents, not private ones— who reacted rationally to the implicit or explicit 'rules of the game' promoted— are to blame for the crisis. It would be foolish to blame the puppets for the failings of the puppeteer”.

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