Abstract
The history of banking is one of the most researched subjects in economics. Many so-called free banking periods have been identified. One source reports that about 60 free banking periods have existed.1 However, none of them have been completely free banking periods.2 Significant government interference has existed in all the “free banking” episodes, most notably restrictions on note issue and entry into the industry, government banks and central banks that influenced the banking industry and were typically used to finance government spending, the government not collecting taxes in specie or bank money backed 100 percent by specie, and a lack of legal recognition of the right of depositors to require bankers to pay specie on demand when bankers were contractually obligated to do so.
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Notes
Kurt Schuler, “The World History of Free Banking: An Overview” in Kevin Dowd, ed., The Experience of Free Banking (London: Routledge, 1992), pp. 7–47. See in particular pp. 9 and 40–45.
Richard M. Salsman, Gold and Liberty (Great Barrington, MA: American Institute for Economic Research, 1995), p. 23.
See Sydney G. Checkland, Scottish Banking: A History, 1695–1973 (Glasgow, Scotland: Collins, 1975), pp. 454–456, 458, and 715 for a description of these acts.
See Lawrence H. White, “Banking without a Central Bank: Scotland before 1844 as a ‘Free Banking’ System” in Forrest Capie and Geoffrey E. Wood, eds., Unregulated Banking: Chaos or Order? (New York: St. Martin’s Press, 1991), pp. 37–62. See especially pp. 44–45.
Murray N. Rothbard, “The Myth of Free Banking in Scotland,” The Review of Austrian Economics vol. 2, no. 1 (1988), pp. 229–245. See p. 231.
Ibid., pp. 74–75, 193–194, 432, and 437–438. Also see, Larry J. Sechrest, “White’s Free-Banking Thesis: A Case of Mistaken Identity,” The Review of Austrian Economics vol. 2, no. 1 (1988), pp. 247–257. See pp. 252–253.
For White’s view on Checkland, see Lawrence H. White, Free Banking in Britain: Theory, Experience, and Debate, 1800–1845 (Cambridge: Cambridge University Press, 1984), p. 33. Also see Sechrest, “White’s Free-Banking Thesis,” p. 248.
Larry J. Sechrest, Free Banking: Theory, History, and a Laissez-Faire Model (Auburn, AL: The Ludwig von Mises Institute, 2008), pp. 89–90 and Checkland, Scottish Banking, p. 184.
Tyler Cowen and Randall Kroszner, “Scottish Banking before 1845: A Model for Laissez-Faire?” Journal of Money, Credit, and Banking vol. 21, no. 2 (May 1989), pp. 221–231. See p. 226.
Frank Whitson Fetter, Development of British Monetary Orthodoxy, 1797–1875 (Cambridge, MA: Harvard University Press, 1965), p. 122.
Andrew William Kerr, History of Banking in Scotland, 4th ed. (London: A. & C. Black, Ltd., 1926), pp. 126–127.
Mark Skousen, Economics of a Pure Gold Standard, 3rd ed. (Irvington-on-Hudson, NY: The Foundation for Economic Education, Inc., 1996), pp. 22–24.
This section is based to some extent on Brian P. Simpson, Trade Cycle Theory: A Market Process Perspective (Ann Arbor, MI: Bell & Howell Information and Learning Company, 2000), pp. 106–110.
Murray N. Rothbard, “Salutary Neglect”: The American Colonies in the First Half of the Eighteenth Century, vol. 2 of Conceived in Liberty (Auburn, AL: The Ludwig von Mises Institute, 1999), pp. 127–129, 131, 133, and 137.
See Jeremy Atack and Peter Passell, A New Economic View of American History, 2nd ed. (New York: W. W. Norton & Company, 1994), pp. 90–94
and Peter Temin, The Jacksonian Economy (New York: W. W. Norton & Company, Inc., 1969), pp. 53–55.
Richard M. Salsman, Breaking the Banks: Central Banking Problems and Free Banking Solutions (Great Barrington, MA: American Institute for Economic Research, 1990), pp. 91–95.
See Chapters 5, 6, 8, and 9 of Brian P. Simpson, Money, Banking, and the Business Cycle, Volume 1: Integrating Theory and Practice (New York: Palgrave Macmillan, 2014) for some of these monetary statistics.
See Kurt Schuler, “Free Banking in Canada” in Dowd, The Experience of Free Banking, pp. 79–92. See in particular pp. 80, 82, and 87. See B. E. Walker, A History of Banking in Canada (Toronto, Canada: [n. p.], 1909), pp. 41–42 for a brief comparison of banking in Canada versus New York State in the mid-nineteenth century.
Frank Whitson Fetter, Monetary Inflation in Chile (Princeton: Princeton University Press, 1931), pp. 6–7.
Ibid., pp. 7–8 and Murray N. Rothbard, “The Other Side of the Coin: Free Banking in Chile,” Austrian Economics Newsletter vol. 10, no. 2 (1989), pp. 1–4. See in particular p. 2.
George Selgin, “Short-Changed in Chile: The Truth about the Free-Banking Episode,” Austrian Economics Newsletter vol. 11, no. 1 (1990), pp. 5–7. See p. 5.
Edward H. Strobel, “Cheap Money in Chile,” Sound Currency vol. 3, no. 16 (July 15, 1896), pp. 547–570. See p. 550 for the quotation.
George Selgin, Bank Deregulation and Monetary Order (London: Routledge, 1996), pp. 271–272.
Charles R. Hickson and John D. Turner, “Free Banking Gone Awry: The Australian Banking Crisis of 1893,” Financial History Review vol. 9 (2002), pp. 147–167. See p. 147.
D. T. Merrett, “Australian Banking Practice and the Crisis of 1893,” Australian Economic History Review vol. 29, no. 1 (March 1989), pp. 60–85. See pp. 64 and 84.
See Jonathan R. Macey and Geoffrey P. Miller, “Double Liability of Bank Shareholders: History and Implications,” Wake Forest Law Review vol. 27 (1992), pp. 31–62. See in particular pp. 59–60.
For example, see Chay Fisher and Christopher Kent, “Two Depressions, One Banking Collapse,” Reserve Bank of Australia, Research Discussion Paper, Research Discussion Paper 1999–06 (June 1999), pp. 1–54. See pp. 27 and 35.
Also see Kris James Mitchener and Marc D. Weidenmier, “The Baring Crisis and the Great Latin American Meltdown of the 1890s,” The Journal of Economic History vol. 68, no. 2 (June 2008), pp. 462–500. See pp. 465–467.
In addition, see Barry Eichengreen, “The Baring Crisis in a Mexican Mirror,” International Political Science Review vol. 20, no. 3 (July 1999), pp. 249–270. See pp. 250 and 253–254. Finally, see Hickson and Turner, “Free Banking Gone Awry,” p. 150.
Ibid., pp. 250 and 262 and J. Bradford Delong, Richard N. Cooper, and Benjamin M. Friedman, “Financial Crises in the 1890s and the 1990s: Must History Repeat?” Brookings Papers on Economic Activity vol. 1999, no. 2 (1999), pp. 253–294. See p. 263.
H. S. Ferns, “The Barings Crisis Revisited,” Journal of Latin American Studies vol. 24, no. 2 (May 1992), pp. 241–273. See pp. 250 and 257.
Albert C. Stevens, “Analysis of the Phenomena of the Panic in the United States in 1893,” The Quarterly Journal of Economics vol. 8, no. 2 (January 1894), pp. 117–148. See p. 121.
For some examples, see Elgin Groseclose, Money and Man: A Survey of Monetary Experience (New York: Frederick Ungar Publishing Co., 1961), pp. 216–218
and J. Van Fenstermaker, John E. Filer, and Robert Stanley Herren, “Money Statistics of New England, 1785–1837,” The Journal of Economic History vol. 44, no. 2 (June 1984), pp. 441–453. See in particular pp. 452–453 of the latter reference. In addition, see Salsman, Breaking the Banks, p. 46.
For an example, see Davis Rich Dewey, Financial History of the United States, 10th ed. (New York: Longmans, Green and Co., 1928), p. 260.
On this last point, see Yaron Brook and Don Watkins, Free Market Revolution: How Ayn Rand’s Ideas Can End Big Government (New York: Palgrave Macmillan, 2012), pp. 52–56.
Also see Steven Horwitz and Peter Boettke, “The House That Uncle Sam Built: The Untold Story of the Great Recession of 2008” (October 8, 2010), http://c457332.r32.cf2.rackcdn.com/wp-content/uploads/2009/12/HouseUncleSamBuiltBooklet.pdf, pp. 11–14, 17, and 18, accessed February 22, 2013.
Here are the citations: Milton Friedman and Anna Jacobson Schwartz, A Monetary History of the United States, 1867–1960 (Princeton: Princeton University Press, 1963). I used demand deposits of commercial banks from Table A-1 and bank reserves from Table A-2, both in Appendix A. For checking deposits after 1960, see the Federal Reserve Bank of St. Louis, FRED database, series ID TCDNS (“Total Checkable Deposits, Not Seasonally Adjusted” from the H6 “Money Stock Measures” release). For reserves after 1960, see the Federal Reserve Bank of St. Louis, FRED database, series ID TOTRESNS (“Board of Governors Total Reserves, Not Adjusted for Changes in Reserve Requirements, Not Seasonally Adjusted” from the H3 “Aggregate Reserves of Depository Institutions and the Monetary Base” release). Online data obtained June 6, 2012.
See Jesús Huerta de Soto, Money, Bank Credit, and Economic Cycles, translated by Melinda A. Stroup (Auburn, AL: Ludwig von Mises Institute, 2006), p. 50 for a suspension granted by Grecian authorities. He says it is the first historically documented privilege for banks.
For how such a system would work, see Ayn Rand, The Virtue of Selfishness (New York: Signet, 1964), pp. 135–140
and Brian P. Simpson, Markets Don’t Fail! (Lanham, MD: Lexington Books, 2005), p. 208.
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Simpson, B.P. (2014). The Significance of Some of the Historically Freer Banking Periods. In: Money, Banking, and the Business Cycle. Palgrave Macmillan, New York. https://doi.org/10.1057/9781137336569_7
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DOI: https://doi.org/10.1057/9781137336569_7
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