“I have always advocated at minimum a return to ‘free banking’ where individual banks can print their own money backed by gold. My real position is more radical: they should print money backed by whatever they want. The market will sort it out very quickly.”
Read James Grant’s book on banking, I believe it’s called Money of the Mind. Prior to 1913 banks printed their own currency (a boon to counterfeiters). The currencies of various banks were valued differently in the market and traded like foreign currencies.
Of course this was known as “bank money” or “credit money” during the gold standard era. Banks by their very nature engage in fractional reserves, there never was a gold dollar backing every bill that they printed.
Not true. ONLY National banks could print money after 1863, and then only by purchasing US government bonds as a backing kept by the comptroller, but convertible into gold.
True “free banking” disappeared with the National Bank and Currency Acts of 1863-64.
Absolutely untrue that the currencies were counterfeited a lot. In fact, of all my studies of antebellum banks and reading dozens of ledgers, bank books, diaries of bankers, NOT ONE ever complained about his bank’s money being counterfeited.
True that there was never a gold dollar backing every paper dollar. So what? There didn’t need to be. There only needed to be convertability, which there was. Solid banks only had to keep a very, very low ratio of gold on hand (6%), while banks with worse reputations had to keep upwards of 10 even 20%. You might want to look at my studies: “Banking in the American South from the Age of Jackson to Reconstruction,” “Banking in the American West from the Gold Rush to Deregulation,” and THE best book on bank failures out there, Charles Calomiris, “Fragile by Design”