The Theory of Free Banking: Money Supply under Competitive Note Issue

This is a defense of the theory and practice of free banking, i.e. the competitive issue of money by private banks as opposed to the centralised and monopolised issuance of currency under a system of central banking.

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Citation

The Theory of Free Banking: Money Supply under Competitive Note Issue (Lanham, MD.: Rowman & Littlefield, 1988).

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Lawrence H. White (Author)

White is an American economics professor, widely recognized as a leading authority on the history and theory of free banking. Alongside George Selgin and Kevin Dowd, he played a pivotal role in shaping the Modern Free Banking School, which explores the possibilities of competitive, privately issued money.
Friedrich August von Hayek (Author)

Hayek was a Nobel Prize–winning economist and philosopher closely associated with the Austrian School. His groundbreaking work Denationalisation of Money laid the intellectual foundation for modern free banking theory. Hayek’s arguments for competitive private currencies continue to shape debates on monetary freedom and the limits of government control over money.
Ludwig von Mises (Author)

Mises was a central figure in the Austrian School of economics and a leading advocate of laissez-faire and free-market principles. While not focused solely on free banking, his seminal work The Theory of Money and Credit offered foundational insights into monetary theory from a market-based perspective, shaping the ideas of later free banking scholars.

Critical Responses

Journal Article

Unanswered Quibbles with Fractional Reserve Free Banking

Phillip Bagus and David Howden

This critique is foundational for contemporary debates opposing Selgin’s arguments—making it essential reading for those exploring contrasting views within free banking scholarship.

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Journal Article

Free Banking and the Free Bankers

Jörg Guido Hülsmann

Hülsmann offers a broader critique by arguing that certain defenders of free banking—including Selgin, White, and others—have inadvertently weakened the case for truly “authentic” free banking. He suggests that some defenders inadvertently adopt flawed arguments or obscure key theoretical issues,…

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Connected Readings

Liberty Matters

Mises was Lukewarm on Free Banking

George Selgin

This reflective essay by Selgin explores Ludwig von Mises’s nuanced stance on free banking, offering a deeper intellectual context and revealing potential tensions within Austrian monetary thought.

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Podcast

George Selgin on Free Banking

EconTalk with Russ Roberts

In this radio-style interview, Selgin discusses the theoretical underpinnings of free banking—including how competition in note issuance can lead to monetary stability—in a conversational, accessible format.

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Journal Article

The Case for Free Banking: Then and Now

George Selgin

A predecessor to Selgin’s book, this policy paper outlines the historical case for free banking and frames its relevance to contemporary monetary debates. It complements the later, more formal academic treatment in his book.

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Journal Article

How Would the Invisible Hand Handle Money?

George Selgin and Lawrence White

This influential essay co-authored by Selgin and White evaluates how free-market mechanisms might manage monetary systems—providing theoretical substance behind the free-banking model.

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What to read next.

Bank Deregulation and Monetary Order

George Selgin

Selgin examines how deregulation can facilitate a more ordered monetary system—offering a longer-term policy and theoretical extension of themes first explored in The Theory of Free Banking.

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