Over at Econlog, I have a new post discussing the Fed's opposition to narrow banking, and specifically, John Cochrane's excellent post criticizing the Fed's position. I'll eventually get to narrow banking in this post, but first I'd like to consider some basic questions about the monetary base which are rarely asked.
Before 1913, the US had no Fed and the monetary base was 100% composed of currency (and coins). There were no bank deposits at the Fed. It's perfectly possible to run the world's largest economy on that basis. Yes, there were occasional financial crises,