This is often claimed, but its not actually the case. In general these systems were very stable.

The reason governments these systems abolish these system is actually not really failure but control and making money.

The US in particular has a horrifying history of banking, more so then pretty much any country. The US never had Free Banking as described in my post.

The US has state banks that were allowed to issue notes (the regulation deepened on the states). Most state banks had to hold state bonds. During the Civil War the US created Federal banks and those had to, not surprisingly, buy federal bonds to back all notes. Then a tax was created to make state bank note issue unprofitable and soon only federal banks issued notes.

This was catastrophic because after Civil War the federal government tried to eliminate national debt, and that basically made banks unwilling to issue more currency.

In the US the Great Depression lead to a massive wave of bank failures. The US had a horrible banking system with literally 10000+ mostly tiny banks, this was mostly because the US had banned branching. These banks were also not allow to issue notes as I described above. Literally 1000s of these failed. All these banks were small not very diversified in their assets.

The Canadian economy had a allowed branching and had asset-back note issue I described. In Canada you had a low number of highly diversified banks that controlled their own note issue. Despite the Real GDP of Canada dropping, as US Nr.1 trading partner this was inevitable, non of these banks failed. So while the US had literally 1000s of failing banks, Canada had non.

The Central bank in Canada was really introduced a few years later because modern countries just had to have one. There was no instability.

The other well studied system, Scottish system also didn't collapse in bank runs. In fact bank runs were very uncommon, and usually triggered early because of the clearing system I explained. Bank runs happen usually when banks actually were going insolvent. In such a case, note holders had priory and in most cases got their money back. At that point the stock holders actually were partially liable (something we could reintroduce),

What happened in the Scottish system is that they never actually made note issue illegal. Rather they made it illegal for new banks to issue notes. So basically you had a number of banks that could do it, but nobody else. Over the next 100 years or the numbers would slowly drop as banks merge and so on. Eventually the Scottish system basically absorbed by the English one.

There are other cases we could go threw. The worst ever systematic banking failure of such a system was in Australia. This however was case where Australia was highly depended on English system and the failures started there and spread threw-out the empire.

> The "Great Moderation" is the triumph of forced central banking. They've tamed the business cycle.

You mean the 'Great Moderation' that resulted in the 2008 largest recession since 1930s?

And the Great Moderation is way shorter then the stability of the free systems.

> Fixed inflation rates have stabilized the economy by protecting decaying firms and suppressing startups.

I do not think this is correct. Inflation targeting was better then what they did before, but it has horrible problems. Now they move to a flexible avg inflation target. That is much better.

However, targeting inflation is the wrong demand variable. The right one would be NGDP, because if you do that, you can automatically distinguish between supply and demand shocks rather then having to do it adhoc.

As long as NGDP is predictable, you are gone do pretty well. A free banking system would (depending on the nature of the reserve currency) create exactly that kind of long run predictable NGDP.

> From stability came structural stasis, came a decline.

I disagree. These things have far more to do with other aspects of government regulation and also cultural reason.

> The Austrians are always right. We need free banking, we need a business cycle, but it's bitter medicine.

The Austrians, first of all are not unified on this issue. Some of them support free banking, others think its was created by the devil.

If you have prolonged allocations then yes, some amount of asset deflation is necessary. However, there is ABSOLUTELY NO REASON why you should have a collapsing nominal demand while doing so.

Consider cases like 1987 stock crash. Stocks crashed, but the real GDP was not much impacted.

It is terrible idea to say 'we mis-allocated capital' now lets crash nominal demand so that we throw the complete economy into the trash. This is NEVER the correct thing to do.