However, this article is very odd.

First of all the comment about "suspension of cash payments" - unless that is agreed by contract (always read the small print) then "suspension of cash payments" is CONTRACT BREAKING, and should not be allowed. Not for 30 days - not for one day.

Still it is the article itself that bothers me.

There were many regulations that were wrong (such as the National Banking Acts which concentrated banking in New York City), but what is this talk of banks being compelled to have government bonds to "back their currency".

I AGREE that banks should not have been compelled to have government bonds - but what is this "their own currency" stuff?

Banks claimed to be lending out DOLLARS (from real savings) NOT "their own currency".

If the banks had said they were lending out (for example) "Pongos" freshly printed in their back office - then I would have no problem.

People could choose whether to accept "the Pongo" as money (i.e. as a medium of exchange and store of value - to use to buy goods and services and to make savings in) or not.

Someone could say "no I do not want to be paid in bank Pongos I want to be paid in Dollars" - or say that there were happy to be paid in Pongos (printed at some bank).

But, I repeat, the banks claimed to be lending out DOLLARS.

The banks either had these Dollars they clamied they had - or they were committing FRAUD.

At least "fraud" as an ordinary person would understand the word (i.e. people pretending to have, indeed to lend out, stuff they did NOT have).

The problem with government regulations was not that they "restricted" this - it was that they ENCOURAGED it (as long as banks played the "government bonds" game).

Either a money lender is honest (i.e. lending their own or their clients REAL SAVINGS) or they are crooks - lending out "money" they DO NOT REALLY HAVE (i.e. DOES NOT REALLY EXIST).

Basic economics - if there is credit-money expansion (i.e. the lending out of money that DOES NOT REALLY EXIST) there there will be a phony "boom" and then a BUST.

I am astonished at the lack of understanding there is of this basic point.

"But Paul libertarians believe in private currencies".

This was NOT a matter of private currencies.

The banks (I repeat) did not claim to be lending out "Pongos" (or whatever) they claimed to be lending out DOLLARS (not a private currency).

Of course there was a bust every few years - because if you have credit money expansion (a "boom") there must be a bust.

Borrowing (either from investment or for consumption) either comes from REAL SAVINGS or it comes from credit money expansion - and if it comes from credit money expansion you will have a "boom" and then a BUST.

This is a really basic point - but it keeps being overlooked.

At the beginning of a section on the Interstate Commerce Commission, he writes:

In the late 1880s the battle between antimonopolists, who sought to control and regulate the railroads, and railroad managers, who sought to lessen killing competition, resulted in a fragile truce whose fruit was the Interstate Commerce Commission (p. 355).

As John Steele Gordon says, "This is an exciting story and well told." Highly rec'd.

Upon further review, the statement “In the 1930s, after the mother of all banking panics…” yields the following:

(1) Krugman labels a particular episode as the biggest and worst,

(2) Krugman, in his zeal to make a notional point by rewriting history, inadvertently points out government failure of the biggest and worst,

(3) Krugman, by selectively reconstructing history to fit his notional argument, exposes massive government regulatory failure [Friedman and Schwartz, The Great Contraction 1929-1933].

Krugman merely advocates government failure to fix government failure . -Or- “Government is the only enterprise on earth that when it fails, it merely does the same thing over again, just bigger” - Don Luskin, TrendMacro

Krugman will never read this blog post.

He'll never have his hilariously incorrect understanding of the history of banking this country corrected.

Comments are closed on his blog post (which is mildly frustrating considering it was posted yesterday), so there's not even the opportunity to correct his false narrative for his readers.

It's a shame that somebody who so confidently and, from the point of the amateurs who read him, expertly spreads falsehoods has such a privileged position in the media establishment. There are a great many people who get ALL their economic analysis from Krugman and ONLY Krugman and just never bother to question or read into things on their own.

This is such basic stuff. A casual reading of banking history in the United States would show you that government has been involved in banking here since there was a United States. There never was a time that government was not involved in banking. And yet Krugman tells himself (I supposed) and everybody who takes his word as holy writ that the 19th century was free market banking and it failed so now we need regulation, and that's it. Nobody tries, nobody bothers, and the body politic is made worse off for the failure.

I quote him

" Why, exactly, are banks special? Because history tells us that banking is and always has been subject to occasional destructive “panics,” which can wreak havoc with the economy as a whole. Current right-wing mythology has it that bad banking is always the result of government intervention, whether from the Federal Reserve or meddling liberals in Congress. In fact, however, Gilded Age America — a land with minimal government and no Fed — was subject to panics roughly once every six years. And some of these panics inflicted major economic losses."

You must do something !!