``Injections of new currency can cause the money-multiplier process, but guess what is the only thing that can create new currency in a system with a monopoly central bank? You got it: the central bank... [by contrast] if free banks create more liabilities when the demand to hold those liabilities has increased, the results will not be inflationary, rather this warranted increase in the total money supply will prevent a deflationary excess demand for money from setting in. '' -- In other words, in a free banking system (as we had from the 1860s till 1913), even with fractional reserves, monetary expansion will tend to "balance out" rather than become a run-away process.

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