Banking historians have shown that the second and third points are false, as the experiences have…

Competitive note issuing banks typically issued paper money in exchange for gold deposits. When banks invested poorly, because of…

Banking historians have shown that the second and third points are false, as the experiences have varied considerably across countries (U.S. is the worst (at least 20 minor crises and 10 major crisis since 1825), Canada’s the best (no crises since confederation in 1867). Scotland and Canada had competitive note issuing or “free banking” systems that worked well, while the U.S. and Australian systems generally didn’t work well, for other reasons (e.g., government bond collateral requirements, geographic restrictions, etc.). The bullets could be amended to:

• Competitive note issuing banks typically issued paper money in exchange for gold deposits. When banks invested poorly, because of government imposed geographic restrictions that resulted in their being poorly diversified, a bank run might ensue.

• But government authorities recognized the potential for seigniorage revenue. By giving monopoly rights on note issuance to a single bank, the government could then collect the so-called inflation tax. Central banking was invented. Central banks would be lenders of last resort. Central banking didn’t prevent runs on banks.