This article completely ignores history and many facts.

Firstly central banking was instituted because private banks discovered that they could create money by recognising receipts for deposits of real species as equivalent to the species. The private banks could not resist the temptation to lend out the receipts knowing that they would get them back again when those who borrowed them spent them and that if a particular bank did not get it’s own receipt back it would get one loaned by another bank which was equivalent.

Reserve deposit accounts and loans and government securities deposits allowed the central bank to guarantee the individual banks and thus avoid the serious disruption caused by individual bank collapses. This system allowed the citizens through their government and the central bank to apply some restriction to the wanton creation of money.

Foolishly governments listened to bank pleas that the reserve deposits were the bank’s money and were not earning an adequate return. The move to using capital adequacy ratios to replace RDA and LGS to “guarantee” against bank failures has been a disaster on that score and on the score of limiting inflation, particularly asset inflation.

The author does not appear to know that for about the last fifteen years the private banks in this country have been increasing the money supply by at least 12% per annum compound by charging excess fees and devising ways to borrow even the fictitious savings of the USA to add to their capital adequacy. Being the currency of most international trade has allowed the USA to run massive deficits buying oil and other goods without sufficient discipline. This increased the funds slopping around the world as described by Thomas Friedman as the funds of the Thundering Herd.

The housing and share bubbles have been the consequence made possible by the behaviour of the Australian financial houses and the Howard Government’s pressure on wage earners (but not on the overpaid professionals and executives).

"Justin Jefferson is a pamphleteer with a double life," we're told.

If this is an example of his pamphleteering skills, I think I'll look elsewhere. I can get better free market propaganda from the work experience students at the IPA.

"the fact that government has a monopoly control of the money supply"

Not since Woodrow Wilson signed it over to the Fed in 1913. Kennedy tried to regain control once elected and look where he ended up.

This is one of the weakest apologies for a failed system going around.

Could have saved some cyber space by just quoting Dubya verbatim:

"I've abandoned free-market principles to save the free-market system, to make sure the economy doesn't collapse"

All the problems Foyle cites are only possible because of governmental intervention in the money supply.

Yes, private banks have a positive incentive – to make profit – by lending out money substitutes not backed up by reserves in specie. But in an unhampered market, they face a countervailing negative incentive – to avoid losses and bankruptcy – not to lend money substitutes unless backed up with reserves in specie.

What enables them to endlessly inflate the money supply is government. Government actively encourages them in inflating the money supply, by protecting them in return for a cut of the profits.

In the absence of such governmental intervention, you could either deposit your savings in a bank that backed it up with 100% reserves in specie, or a bank that backed it up with a fraction of a 100% reserve. The full backing would have a lower risk and a lower return. Those who lost their money in a run on the banks would be those who have knowingly undertaken the higher risk for a higher return. There would be no reason for the government to bail them out. Not only that, but competition between banks offering hundred percent reserves and those offering fractional reserves would lead the market to settle on relatively stable prudential levels for those offering only fractional reserve, say five percent or whatever, as customary.

But government has only a positive incentive to inflate. It is immune to the risks of loss and bankruptcy until it has disrupted or bankrupted the whole economy, as is happening in the USA and even then, those who profit are still able to force others to carry the can. The effect of governmental control of money is to make fractional reserve banking compulsory for the whole population, whether you want it or not. Everyone is forced to bear the risk and to pay for the moral hazard of the bailouts. The inflation, instead of being small and constrained within the tight prudential limits imposed by loss and bankruptcy, is never-ending and spreads economic disorder on a grand scale

Why am I not surprised that Mr Jefferson writes an article 4 pages long when the average is 2? Unfocused, rambling, scatter-brained - these are all appropriate adjectives. And this is coming from someone partial to the arguments (though I have yet to learn more about the Austrian school).

Diocletian, every time I go to defend markets and individualism, you have beaten me to the punch. Keep up the good work.