Ruritania

Money in Ruritania emerges naturally. Coins used are chosen according to their saleability. Again, the model for emergence of money that Kenger proposes is completely applicable. Money is simply the generally accepted means of exchange that the traders in Ruritania agree on. Since there is no governmental intervention, coins production is not monopolized but private. Consequently, a private market for coin production leads to competition among different brands.

Banks evolve naturally out of people's demand for goods and their repetitive exchanges.

A free banking system would be quite unpredictable as to it success due to the scarcity of free banking periods in our history. In the past there have been few episodes of successful working free banking system that has reached its full potential. This makes it very difficult to theorize how effective the free banking system would be in the future. The imaginary society of Ruritania would act as our best form of theory, based on particular instances of past free banking periods, to display its effectiveness. Their are four cruicial stages for Ruritania to acheived:

1. The warehousing or bailment of idle commodity money 2. the transition of money custodians from bailees to investors of deposited funds (and the corresponding change in the function of banks from bailment to intermediation) 3. The development of assignable and negotiable instruments of credit (inside money) 4. The development of arrangements for the routine exchange (clearing) of inside monies of rival banks. (Dowd, 17)