BANK SELF-REGULATION: COMMENT ONBORDO AND SCHWARrZGeorge SelginCan banking systems regulate themselves? Hardly anyone thoughtso adecade ago. Since then numerous writings (see Selgin andWhite1994) have defended the opposite view. Critical responses to thesewritings serve an importantpurpose, by spellingout theprecise natureof supposed market failures in money and banking—failures that areoften simply taken for granted.The Bordo-Schwartz critique ofbank self-regulation focuseson threepropositions offered in support of monetary laissez faire. These are:1. That interbank clearings are capable of preventing the overissu-ance ofbank money (notes or deposits) both by individual banksand by the banking system as a whole;2. That competing, private issuers of paper currency will deliber-ately aim to stabilize thepurchasing power of their monies; and3. That the quantity of money will automatically be limited ifbanksrestrict themselves to discounting “real bills.”Bordo and Schwartz argue that all three propositions are false, andthat the possibility of bank self-regulation is therefore “doubtful.”Visions of Monetary Laissez FaireIt is important to recognize that each of the three propositionslisted above is linked to a distinct theory or “vision” of monetary self-regulation. The propositions are thus independent from if not at oddswith one another. Proposition (1), concerningthe clearing mechanism,is appealed to by proponents, including White (1984) and ...