In an excellent interview with the Richmond Fed, George Selgin writes:
Secondly, the tendency for banking systems to suffer failures, especially big clusters of failures, depends on the regulatory environment. Had we had nationwide branch banking all along in the United States, that alone would have allowed us to avoid many of the bank failures and problems we’ve experienced. So, the question that has to be asked is not whether heavily regulated and structurally weak banking systems in the past could have benefited from a lender of last resort. Perhaps they could have. It’s whether the first-best solution is to get rid of the regulations that rendered these systems so artificially fragile in the first place. I don’t think that laissez-faire or free banking systems, or the closest approximations we have been able to study, have demonstrated the sort of fragility that suggests the need for a lender of last resort at all. In my opinion, a lender of last resort is a second-best solution to problems caused by misguided regulation of banking systems.
Freedom to issue notes is important too. When banks can’t issue their own notes, well, they need a lender of last resort to supply them with notes. If we told companies that manufacture shoes that henceforth they could only make shoes for left feet, lo and behold, there would be a need for an “emergency” source of shoes for right feet, which could be created by establishing a new government agency for the purpose. Eventually people would say, “Thank goodness for the Government Shoe Agency. How would anyone be able to walk otherwise?”
The history of money and banking is littered with similar examples. But so too is just about any argument made in defense of most government programs – people simply cannot imagine a world without the government doing what it does. For example, when health insurance companies cannot issue policies across states, or offer policies tailored to the needs and interests of individual customers, and when hospitals are forced to treat all comers, lo and behold, there would be a need for an “emergency” source of health insurance for all manner of people, which could be created by establishing a new government program/agency for that purpose. People would eventually say, as they have all over the social-democratic world, “Thank goodness for the Government Health Agency. How is it possible that anyone be able to get health coverage otherwise.”
And so you will see it with green technology, manufacturing jobs, the new financial sector, and just about every other area of your lives.