Today, governments are far more heavily involved in the business of supplying and regulating money than most were in Herbert Spencer’s day. Here and there, to be sure, banks enjoy certain freedoms denied them in the past. In the United States, for instance, banks can now have nationwide branches, whereas before the 1990s, many were limited to a single location only. But in many other respects, both here and elsewhere, banks are more heavily regulated than ever. Here in the United States, federally chartered (“national”) banks are regulated by the Federal Reserve, the Comptroller of the Currency, and the Federal Deposit Insurance Corporation (FDIC), while most state‐chartered banks are regulated by the Fed and the FDIC as well as by state regulatory authorities. U.S. banks are also indirectly subject to international regulations, including those promulgated by the Basel Committee—the global prudential regulatory authority housed within the Bank of International Settlements.
While most forms of bank regulation limit what banks can do, ostensibly to prevent them from behaving imprudently, others actually tend to encourage imprudent behavior. Deposit insurance, which was relatively unknown before the 1930s and which has since been adopted by most nations, falls into this category: by protecting depositors from losses, it encourages them to overlook the risks certain banks take and even to patronize risky banks that pay higher rates on their deposits (see Anginer and Demirgüç‐Kunt 2018).
Although the explicit coverage offered by government deposit insurance schemes is usually limited—in the United States today, individual bank accounts are covered up to a (very generous) limit of $250,000—creditors at very large or otherwise important financial institutions enjoy the equivalent of unlimited coverage, thanks to the now‐prevalent view among government officials that such institutions are “too big to fail.” Provided he or she keeps it at one of these institutions, a creditor with a balance well in excess of $250,000 has good reason to assume that, should the institution get into trouble, the government will rescue both it and its depositors.
Perhaps most importantly, precious‐metal monetary standards have given way to fiat‐money systems, in which the standard money unit is represented by nothing more substantial than an irredeemable slip of paper issued by some national central bank. Commercial banks have also stopped issuing paper money of any sort, except in three places: Scotland, Ireland, and Hong Kong. And even in those exceptional cases, note issue is very strictly regulated. All other commercial banks are limited to receiving and managing digital credit balances known, somewhat inaccurately, as “deposits,” denominated and redeemable in official fiat money units.
The much‐enlarged role of government in modern monetary systems makes it especially difficult to “inquire what would result” were the government to cease playing any role. Some might be tempted to suppose that ending the government’s involvement now would necessarily lead to the spontaneous revival of market‐based monetary arrangements of the past, including a gold (or silver) standard. But the temptation ought to be resisted. To suppose that, were they given free reign today, market forces would restore the gold standard, or cause commercial banks to start issuing their own redeemable banknotes, just because these were features of less regulated monetary systems of the past, makes about as much sense as supposing that privatizing Amtrak would bring back steam locomotives. Instead, a modern “laissez‐faire” monetary system of the future might well have even less in common with a circa 1851 laissez‐faire system than with today’s heavily regulated arrangements.
But just how great those differences will be, and what precise forms they take, will depend on precisely how we go about “abolishing” the “control exercised by lawgivers” over today’s system. It’s easy enough to agree that doing so means doing away with both explicit and implicit deposit insurance, so that all bank creditors have a reason to consider the safety of the banks they do business with. Taking that step in turn paves the way for repealing all bank regulations designed to do something other than enforce voluntary contracts between commercial banks and the persons and institutions that deal with them, including usury laws and minimum reserve, capital, and “liquidity” requirements, among other regulations.
It’s also easy enough to imagine a reform that privatizes the present, Fed‐operated payments and settlement system, by converting today’s Federal Reserve banks into so many private clearinghouses, owned and governed by their member banks, by making commercial banks’ participation in the newly privatized Fed system voluntary, and by allowing banks and other financial firms to either take part in that newly privatized system or to create or join alternative private arrangements.
A privatized U.S. mint that’s forced to compete with rivals in supplying banks with small change, consisting of “token” metallic coins, as well as full‐bodied gold and silver “bullion” coins, for those who’d rather deal in those metals, is also pretty easy to ponder, as are other private mints that compete directly with it. Finally, the advent of bitcoin and other cryptocurrencies makes it easier than ever to imagine a competitive market, not just in bank‐supplied digital dollars, but in blockchain‐based alternatives to dollar‐denominated monies.