The Rationale of Central Banking and the Free Banking Alternative

By Vera C. Smith

Vera Smith’s
The Rationale of Central Banking invites us to reassess our monetary institutions and give reform proposals due consideration. The decades since it first appeared in 1936 have restored its themes to relevance. Government-dominated monetary systems have continued to perform poorly. Other experience, as well as the work of James Buchanan and the Public Choice School, has heightened skepticism about government generally. People are now willing to discuss what Vera Smith set out to examine: “the relative merits of a centralized monopolistic banking system and a system of competitive banks all possessing equal rights to trade” (p. 3)…. [From the Preface, by Leland B. Yeager]

Book Cover

First Pub. Date

1936

Publisher

Indianapolis, IN: Liberty Fund, Inc. Liberty Press

Pub. Date

1990

Copyright

The text of this edition is under copyright.

Foreword

[to the Original Edition]

This essay is a study of the historical and analytical bases of the development of Central Banking, the reasons why the note issue was made the exception to the general application of
laissez-faire principles, and why Central Banking was adopted in preference to “Free Banking” with Competition in the note issue.

It has been submitted and approved as a thesis for the Degree of Doctor of Philosophy in the University of London.

My grateful thanks are due to Professor F. A. von Hayek, who first suggested the topic as a subject worthy of research and gave me valuable advice on many occasions. I should like also to acknowledge the assistance given me by the British Library of Political and Economic Science in obtaining some of the less easily accessible material.

Vera C. Smith

London

October 1935

Biographical and bibliographical facts come mainly from articles assembled by Ente per gli Studi Monetari, Bancari e Finanziari “Luigi Einaudi,” 1984, especially those by Rosaria Giuliani Gusman and Gottfried Haberler; from Verena Veit-Bachmann’s article on Friedrich Lutz; and from a letter and enclosure dated 26 June 1989 written by Mrs. Brenda K. Fowler, the sister of Vera Smith Lutz. l am grateful to Mrs. Fowler for going to the trouble of preparing her valuable information.

See Anna J. Schwartz (1987), under the reference listing that follows, for a discussion of different schools. Subsequent in-text citations are to references in this listing.