Free Banking and Gold
The type of free banking espoused by Ron Paul and Larry White has bank money convertible into gold. In other words, gold is the base money. Chris Colvin (a future colleague and reader of this blog) emailed me to ask whether a gold standard is essential for free banking. Chris, like many other economic historians, has problems with the costs of the classical gold standard, particularly in the inter-war period. The classical gold standard is often criticised for driving the business cycle and generating real income instability. The economic decline suffered by economies after they came back unto gold after periods of conflict was particularly severe.