With regard to the long-running debate between Rothbardians and modern free bankers, most prominently Lawrence White and George Selgin, the question is less a matter of technical disagreements than one regarding fundamentally divergent conceptions of money, law, and the nature of banking itself. At stake is not merely the historical interpretation of Scottish or British banking, but the deeper question of whether fractional-reserve banking can ever be reconciled with a genuinely free and non-fraudulent market order.

From the Rothbardian perspective, the appeal to historical episodes such as "free banking" in Scotland or Britain is deeply problematic. As Rothbard illustrated in his comprehensive review of White's book at the time, the narrative advanced by White rests on two claims that can be shown to be false: first, that Scottish banking operated as a genuinely free system, independent of central banking influence; and second, that this system exhibited superior stability and performance. Both propositions collapse under closer scrutiny.

Indeed, damningly drawing on the source material White himself used in his study, Rothbard shows the Scottish system was neither free nor particularly stable. Scottish banks did not operate as isolated institutions "on their own bottom," but rather depended heavily on London, and ultimately on the Bank of England, for liquidity support. This dependence alone is sufficient to undermine the claim of institutional independence. More telling still is the behavior of Scottish banks during periods of crisis. Far from demonstrating the discipline expected of free institutions, they repeatedly suspended specie payments and did so with tacit or explicit government support. Such suspensions represent not merely technical deviations, but outright defaults on contractual obligations.

Even outside formal suspension periods, convertibility was more myth than reality. Depositors seeking specie redemption were often discouraged, delayed, or effectively denied, with banks substituting London drafts or partial payments instead. In practice, this amounted to a system of continuous partial suspension, sustained not by market discipline but by social pressure, legal laxity, and political backing. The low rate of bank failures, frequently cited as evidence of systemic success, should thus be seen in a very different light. Rather than signaling stability, it may just as well have instead reflected the suppression of corrective market forces, allowing inflationary credit expansion to proceed unchecked.

This critique strikes at the heart of the free banking argument as articulated by White and Selgin. Their claim that competitive note issuance and clearing mechanisms would impose sufficient discipline to prevent overexpansion presumes that banks are constrained by the threat of redemption. Yet the historical record, as Rothbard emphasizes, shows that such constraints were routinely weakened or evaded. If redemption is socially discouraged, legally undermined, or politically suspended, then the supposed self-regulating properties of free banking lose their force.

This historical dispute feeds directly into the more theoretical disagreement between Selgin and Robert Murphy regarding reserve ratios under a free banking regime. Selgin contends that competitive pressures would tend toward relatively low reserve ratios, as banks economize on idle reserves and rely on clearing mechanisms to manage liquidity. Critically, in defending this claim in debate with Murphy he pointed to the example of "free banking" in Great Britain, where there were low reserve ratios as evidence that low reserve ratios were compatible if not likely under such a system. Murphy, by contrast, pointing to Rothbard, correctly argued that the example of Great Britain showed no such thing; further, that in a genuinely free system, one stripped of legal privilege, lender-of-last-resort support, and implicit guarantees, it seems equally plausible if not more so that banks would be driven toward much higher reserve ratios, potentially approaching full reserve levels.