Before the Fed, the BUS, a sort of regional private central bank called the Suffolk system, bank clearinghouses, the Treasury, and even individual investors served as lenders of last resort during America’s financial panics. Generally, emergency lenders followed a rule established by Alexander Hamilton now called Bagehot’s Rule. They lent freely, at a penalty rate, to all who could provide sufficient collateral.

The Hamilton-Bagehot rule was superior to the modern Fed practice of flooding the markets with cheap money because it allowed insolvent firms to go bankrupt while supplying emergency loans to troubled but solvent companies. It thus stopped panic and financial contagion and also limited the reward-seeking, moral hazard behavior that occurs when individuals and organizations know that someone else will bear the downside risk of their gambles. The inducement for private parties is to earn a penalty rate on a loan likely to go bad only in a state of the world so ugly the loss will not matter, as Warren Buffett did during the 2008-9 crisis.

A specie standard works best when all or most major economies adopt it, which they may do once they realize that lenders of last resort can be private entities and that giving central bankers monetary policy discretion is too close to central planning to be relied upon for long-term price stability. The United States was essentially the last country to abandon the last vestige of the gold standard when President Nixon stopped converting dollars into gold for foreign central banks in the early 1970s, a move vociferously opposed by a financial journalist named Wilma Soss but by too few other Americans at the time. Due to its still dominant economic position, though, America remains the nation best positioned to lead the world back to a saner and safer monetary system.