This book is an uncompromising argument for freedom in the realm of banking. It is an incisive analysis on two important levels: it explains essential facts about the banking system and it integrates them with broader principles of eco- nomics, politics and philosophy.
“The fundamental difference between free banking and central banking,” the author declares, . is the difference between private planning based on eco- nomic profit and bureaucratic planning based on political expediency. The money and banking system is too important to our freedom and our economic prosperity to be left to political manipulation. The system should be placed on an objective foundation of free-market principles and removed from the subjective quick- sands of political manipulation.” Salsman shows how systemic problems in banking are the result of government intervention. He examines a number of historical events, such as the “wild- cat bank” failures of the 19th Century, and convincingly refutes the claims that they were the products of free banking.
Salsman defines attributes for measuring the health of the banking system (such as capital adequacy, asset quality and profitability). He then explains why central banking must affect these elements negatively while free banking necessarily Improves them—and then provides the historical facts that confirm this view.
What Ayn Rand said about altruism is seen to apply also to politics and economics; ‘When a theory achieves nothing but the opposite of its alleged goals, yet Its advocates remain undeterred, you may be certain that it IS not a conviction or an ‘ideal,’ but a rationalization.” The hidden motive of the central banking rationalization is the desire for unlimited government.
In presenting the historical development of the banking system, Salsman documents how controls invariably breed more controls. Even the freest period (1838-1862) had government regulations, such as restrictions on branch locations.
The next stage of intervention saw the U.S. treasury manipulate its deposits to influence banking policy. In 1913 the era of U.S. central banking began, when all banking reserves were centralized into the new Federal Reserve, making the government the lender of last resort. In 1934 Federal Reserve Notes became fiat money and deposit insurance was introduced, The present period of central banking, started in 1969, has seen the removal of the last connection between U.S. currency and gold, increases in deposit insurance, direct government bailouts of weak banks, and the on-site presence of government regulators in the largest banks.
The author’s thesis is particularly relevant to today’s headlines concerning the insolvency of so many savings and loan institutions. Salsman proves that this increased instability is not due to any “deregulation” but is inherent in central banking. He shows that free banking once worked and gives a detailed transition plan to attain a free banking system again. Don’t let the academic tone and scholarly citations discourage you from reading this book. The ideas of Breaking the Banks are clear, persuasive—and crucial. They are essential to getting the public to question the collectivist premises that support the evil of central banking.