George Selgin is a US economist who has written several books and articles on banking.
In a couple of recent Financial Times articles, Martin Wolf referred to what he called “libertarian fantasists”. (Article titles: “Time to embrace central bank digital currencies is now” and “The libertarian fantasies of cryptocurrencies”.)
The fantasy that Wolf refers to is the idea that Selgin has advocated for decades, namely that we would benefit from a system where government plays almost no role in the production of and organisation of money. As Wolf rightly says, “Money is a public good par excellence. That is why dispensing with the role of governments in money is a fantasy.
Selgin recently objected on social media to Wolf's “libertarian fantasy” remark.
Selgin advocates so called “free banking” which is a set up where banks can do anything they like as long as they obey to laws that other corporations have to obey, like the law of contract.
The latter idea is indeed fantasy. The first problem with it is thus. The brute reality is that banks throughout history have failed left right and centre. So what happens, you might ask, when a bank under free banking does a Northern Rock, i.e. c*cks it up and depositors flee? Well according to Selgin, all they have to do is quit the particular “Northern Rock” concerned and take their savings elsewhere.
Well the blindingly obvious flaw in that is that the FIRST PEOPLE who suspect there is something wrong at the failing bank manage to escape. But well before they've all escaped, the bank closes its doors: the remaining depositors (the less financially astute) get shafted!
Selgin's views on banking are also EXTREMELY US-centric: that is, he concentrates almost exclusively on banking in the US over the last two hundred years, while totally ignorning what banks were doing in other countries or more than two hundred years.
And indeed in the US between roughly a hundred and two hundred years ago there were hundreds of bank failures. But Selgin blames that on government: in particular the refusal of the US government to allow so called “branch banking”. Branch banking is where a bank sets up branches all over the US or at least over a relatively wide area, rather than being confined to just one state. And the problem with being confined to just one state is that a bank's fortunes are tied very much to the fortunes of that state, which necessarily means greater fluctuations in the fortunes of the bank's customers. For example, the fortunes of a bank in an agricultural state are very much tied to the fortunes of agriculture. So Selgin blames the above hundreds of bank failures on banks' inability to spread more widely over the entire country.
Well there's a simple flaw in that argument, which is that any competent banker ought to be able to gauge the risks his bank faces. For example, if the fortunes of a state are very much tied to the fortunes of just one industry, bankers in that state ought to be able to take precautionary measures, like having a relatively high capital ratio. But they failed to do that, which indicates (as Martin Wolf suggests) that if banks are left entirely to their own devices, they tend to end up being run by incompetent cowboys.
Indeed, there are enough cowboys even in a relatively well run bank system, like the UK right now. For example there were the cowboys running Northern Rock and then there's Fred Goodwin who messed things up at the Royal Bank of Scotland.
Scotland and Canada.
By way of trying to bolster the case for free banking Selgin, time and again, refers to a relatively short period (about seventy years) where free banking or something very like it did appear to work in two or three countries, Scotland and Canada being two.
That of course is an entirely specious argument: it ignores the other hundred or so countries in the World and second, it ignores periods in Scottish and Canadian history other than the period Selgin chooses to boost his arguments. Moreover, every Tom, Dick and Harry is well aware that DECADES can go by without there being any big problems in a country's bank industry, then all of a sudden, disaster strikes. The absence of any bank failures in the UK between WWII and the failure of Norther Rock is an example. Thus Selgin's seventy year period proves nothing.
Selgin's “seventy year period” argument is much the same as me arguing that because I have not had a car accident for forty years that therefore I am a 100% safe driver, and thus that there is no chance of me being responsible for a car accident in the next ten years.
George Selgin, as Martin Wolf suggests, is indeed a fantasist.