Unlike Most Economists, Murray Rothbard Views Bank Runs Favorably because Bank Failures Are a Healthy Weapon by which the Market Keeps Bank Credit Inflation in Check

The bank run plays a special role according to Rothbard. Unlike the overwhelming majority of economists, he views bank runs favorably. They function as a constraint on inflationary monetary expansion under free banking. They also "instruct the public in the essential fraudulence of fractional reserve banking." Rothbard seems literally to believe that if one observes a period during which there occur very few bank failures, then this is sure to be a time of inflationary monetary expansion. A case in point is that of Scottish free banking (1765-1845). In discussing Lawrence White's work on Scotland, Rothbard contends that a low rate of bank failure "might indeed mean that the banks are doing better, but at the expense of society and the economy faring worse. Bank failures are a healthy weapon by which the market keeps bank credit inflation in check . . . a lower rate of bank failure can scarcely be accepted as any sort of evidence for the superiority of a banking system."

--Larry J. Sechrest, introduction to Free Banking: Theory, History, and a Laissez-Faire Model (Auburn, AL: Ludwig von Mises Institute, 2008), 145-146