Once this mighty rollback of government intervention in banking is accomplished, each fractional-reserve bank would be rigidly constrained by public confidence when issuing money substitutes.
However, banks, unlike securities firms, must be chartered and abide by numerous regulatory restraints in exchange for the privilege of using their deposits as money substitutes.
And yet, almost overnight the special good will that gave its deposits the quality of money substitutes vanished as panic-stricken depositors rushed to withdraw their funds.
One false step -- one questionable loan, one imprudent emission of unbacked notes and deposits -- would cause instant brand extinction of its money substitutes, a bank run, and insolvency.
