In order to understand why our current banking system and the individual statutes and practices that form it are in place it is first important to understand their origins. An understanding of history also provides explanation as to why we find alternatives difficult to imagine while showing that such alternatives exist, and are feasible. One of the problems of existing in the present is believing that the current way is the only way things could be, or that the past was other than it was, be it better or worse. Because all modern systems are, at least, indirectly influenced by their previous iterations, it’s important to understand the problems, genesis, and benefits of these in light of our current system.
What stands out about the genesis of the modern banking system is that its reactionary character: what has become accepted as kosher and necessary is essentially a hackish band-aid for a hundred years of of failed policies.
Of the semester’s readings, I found particularly interesting Selgin’s “The Case for Free Banking: Then and Now.” Its detailed recounting and analysis of alternatives to the Fed showed how historical banking and monetary systems of the United States functioned entirely differently from imagined in the common mind. It was anything but chaos, but instead a complex, and corrupt system of highly regulated organizations.
Prior to 1913, when modern central banking practices were created, many regulations and detrimental practices existed and nothing resembling a free market in money or banking was politically expedient or possible. My notion of monetary policy prior to the Fed was entirely incorrect. The fantasy of laissez faire monetary policy before contemporary monetary practices became orthodox never was. Despite the multitude of ineffective, and corrupt statutes prior to 1913, US monetary policy was just as much a mess then as it is now. Instead of addressing why policy makers completely misunderstood the problems and created the modern central banking system.