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The most sophisticated monetary and banking policy advice available in the decades after 1776 was found in Adam Smith's Wealth of Nations. Smith recommended free competition among nationwide banks of issue with minimal legal restrictions and no legal privileges. Yet neither Alexander Hamilton nor Thomas Jefferson accepted Smith's recommendation, despite their familiarity with his arguments, and despite Scotland's positive experience while following it. We spell out Hamilton's and Jefferson's theoretical disagreements, and explain how Smith's advice did not serve either founder's political agenda. For Hamilton, competitive banking without a single privileged national bank would not do enough to strengthen the federal government. For Jefferson, any federal chartering of banks would strengthen the federal government too much at the expense of the states. [ABSTRACT FROM AUTHOR]

In the second half of the nineteenth century, the Chilean free banking system worked similarly to how Adam Smith describes the eighteenth-century free banking system in Scotland. The characteristics of free banking that Smith identifies as conductive of successful outcomes—free entry, unlimited liability, and convertibility on demand—are present in both Scotland and Chile. And the Chilean system failed for similar reasons to the worries Smith had about the Scottish system: inconvertibility, legal tender, involvement with government borrowing, and lobbying. The Chilean experience of free banking appears to follow Smith's account of free banking. [ABSTRACT FROM AUTHOR]

Achieving financial inclusion in shorter timeframes is a grand societal challenge that can be addressed by digital technology. Nonetheless, how an innovative digital technology gets generalized is understudied in the literature. We present the generalization of a cloud-based core banking system to drive financial inclusion in the Philippines. We draw our material from the case of cloud-based core banking system adoption in the Philippines. Our results show that market formation is essential to the generalization, and this can be accomplished through a mix of laissez-faire and dirigisme mechanisms. Pure laissez-faire mechanisms alone, with minimal intervention from the central bank, may drive the generalization of digital innovations. Nonetheless, for the generalization of cloud digital technology to happen at an accelerated pace, the central bank must intervene more proactively, especially in establishing an industry-wide digital financial ecosystem. Furthermore, for the generalization of cloud digital technology to truly contribute to the societal mission of financial inclusion, the central bank ought to take the lead as a meta-governor directing the various elements of the digital finance ecosystem. Our study provides a nuanced understanding of the interplay between laissez-faire and dirigisme in the genesis of markets for digital innovations in pursuit of financial inclusion. [ABSTRACT FROM AUTHOR]

Abstract The free-banking history of Switzerland is subdivided into periods with unfettered competition (1826–1881), and strict banknote regulation (1881–1907). This paper suggests that the Federal Banknote Act of 1881 was introduced to remedy the fragmentation of the unfettered-competition period, during which private note-issuing banks were unable to issue standardised paper money. Although the corresponding minimum-reserve and mutual-acceptance rules led to a standardisation, they created new problems. For example, these regulatory interventions reduced the flexibility (or “elasticity”) of the paper-money supply. It turned out that a central note-issuing bank is needed to supply adequate amounts of standardised banknotes.

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This article re-examines Illinois free banking from a new perspective: ownership structure. The claim that ownership influenced banking activity and noteholder losses is analyzed, and it is shown that ownership did not have a major impact on asset allocation and losses. Only Chicago residents who owned banks elsewhere appear to have used the banks for their interests. They neither issued loans to borrowers other than themselves or accepted deposits. Private bankers used free banks as a source of banknotes. A large proportion of the free banks had overlapping ownership, resulting in specie minimization. Private bankers, whether local or from Chicago, and local owners were more likely to operate as traditional banks. All free banks were impacted by the 1853 change in the tax code, leading to fewer loans, more loans to stockholders, and more deposits in other banks. Free banks owned by Chicago private bankers generally closed without noteholders suffering losses. For closed banks owned by other ownership groups noteholder losses depended on the nature of the bonds held by the bank.

The free-banking history of Switzerland is subdivided into periods with unfettered competition (1826–1881), and strict banknote regulation (1881–1907). This paper suggests that the Federal Banknote Act of 1881 was introduced to remedy the fragmentation of the unfettered-competition period, during which private note-issuing banks were unable to issue standardised paper money. Although the corresponding minimum-reserve and mutual-acceptance rules led to a standardisation, they created new problems. For example, these regulatory interventions reduced the flexibility (or "elasticity") of the paper-money supply. It turned out that a central note-issuing bank is needed to supply adequate amounts of standardised banknotes. [ABSTRACT FROM AUTHOR]

Before the middle of the nineteenth century most laws enacted in the United States were special bills that granted favors to specific individuals, groups, or localities. This fundamentally inegalitarian system provided political elites with important tools that they could use to reward supporters, and as a result, they were only willing to modify it under very special circumstances. However, in the early 1840s a major fiscal crisis forced a number of states to default on their bonded debt, unleashing a political earthquake that swept this system away. Starting with Indiana in 1851, states revised their constitutions to ban the most common types of special legislation and, at the same time, mandate that all laws be general in their application. These provisions dramatically changed the way government and the economy worked and interacted, giving rise to the modern regulatory state, interest-group politics, and a more dynamic form of capitalism. [ABSTRACT FROM AUTHOR]

The article describes the political path through which the U.S. former President Andrew Jackson and his allies destroyed the Bank and the impact of that destruction on the course of the U.S. financial history. It mentions how Jackson objected to using the government's temporary balances for the benefit of shareholders, and viewed the Bank as excessive private control over monetary affairs; and also mentions role of free banking movement in expansion of banking industry in the U.S.

This paper examines the debate between the so-called fractionalists and the reservists within the Austrian School of Economics (1994 – 2005), emphasizing the maturity mismatch problem (2009 – 2019). It focuses on the fundamental arguments: the ontological view on currencies as banks’ products (IOUs) and money, the purchasing power of money, and the maturity mismatch problem. Banking activity is seen as a vital evolutionary superstructure humans use to determine the marginal utilization of existing capital resources, effectively discovering the coincidence of money interest towards natural interest levels and time preferences within society. The thesis advocates the superiority of fractional and free banking over the reservist alternative. It shows that fractional free banking is not based on property rights violations, and does not cause systematic economic cycles beyond those related to natural business errors.

This article re-examines Illinois free banking from a new perspective: ownership structure. The claim that ownership influenced banking activity and noteholder losses is analyzed, and it is shown that ownership did not have a major impact on asset allocation and losses. Only Chicago residents who owned banks elsewhere appear to have used the banks for their interests. They neither issued loans to borrowers other than themselves or accepted deposits. Private bankers used free banks as a source of banknotes. A large proportion of the free banks had overlapping ownership, resulting in specie minimization. Private bankers, whether local or from Chicago, and local owners were more likely to operate as traditional banks. All free banks were impacted by the 1853 change in the tax code, leading to fewer loans, more loans to stockholders, and more deposits in other banks. Free banks owned by Chicago private bankers generally closed without noteholders suffering losses. For closed banks owned by other ownership groups noteholder losses depended on the nature of the bonds held by the bank. [ABSTRACT FROM AUTHOR]

Abstract This paper studies money demand in Switzerland under free banking before the establishment of the Swiss National Bank. We find that, in addition to income, the banks’ balance-sheet-to-GDP ratio and the number of banks were important determinants of long-run money demand. The former variable also played an important role in the monetary adjustment process. We also detect a strong positive long-run impact of real income on the bank’s balance-sheet-total-to-GDP ratio and a strong long-run influence of real income and the interest rate spread on the number of banks.

This paper applies Kirzner's theory of entrepreneurial alertness to central banking. As opposed to entrepreneurs operating within the market, central banks can operate outside the market by defining its structure and regulations. We label as "super-alertness" the particular type of Kirznerian alertness that central banks are required to have to successfully achieve stable monetary equilibrium. [ABSTRACT FROM AUTHOR]

A traditional argument against free banking is that it will collapse because of information externalities; it is impossible for depositors to tell whether a high deposit rate offered by a bank is due to its high efficiency or risky lending strategy. This paper shows that in a separating equilibrium a higher-quality bank offers a lower deposit rate and holds a smaller proportion of risky loans than a lower-quality bank to signal its underlying quality. Hence, free banking is not inherently unstable. The empirical results for the Hong Kong banking system during 1964-65 are consistent with the hypothesis of a separating equilibrium. [ABSTRACT FROM AUTHOR]

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The problem of financial stability is political and institutional, rather than narrowly economic. To achieve a more resilient financial system, we need to pay attention to the incentives of actors who have the power to act discretionarily, and to the knowledge limitations of such actors in the face of substantial complexity and uncertainty. The literature on polycentric governance and institutional resilience provides key insights that the literature on financial stability has thus far neglected. We offer an analysis based on the "design principles" for robust governance institutions proposed by Nobel laureate Elinor Ostrom. We apply these principles to banking systems and explore under what conditions a banking system can be expected to discover rules that align private incentives with broader financial stability, and generate the necessary knowledge to govern such a complex system. This perspective challenges both "microprudential" and "macroprudential" approaches, which assume a monocentric financial and banking regulator. [ABSTRACT FROM AUTHOR]

Copyright of Journal of Financial Politic & Economic Reviews / Finans Politik & Ekonomik Yorumlar is the property of Journal of Financial Politic & Economic Reviews / Finans Politik & Ekomomik Yorumlar and its content may not be copied or emailed to multiple sites or posted to a listserv without the copyright holder's express written permission. However, users may print, download, or email articles for individual use. This abstract may be abridged. No warranty is given about the accuracy of the copy. Users should refer to the original published version of the material for the full abstract. (Copyright applies to all Abstracts.)

The discussions of the Bullionist Controversy were closely related to the effects of inconvertibility on prices and exchange rates. However, during their discussions, economists had a need to address other important questions such as the convenience of free banking. In this paper, we will study the perspective of the different schools involved in the debate on this issue: we will show that their positions were wholly coherent with their underlying assumptions on the nature of monetary assets. The economists who viewed gold and banknotes as perfect substitutes, such as the radical bullionists, tended to favor a ban on free banking. On the contrary, the economists who viewed banknotes and gold as imperfect substitutes, such as the moderate bullionists and antibullionists, were inclined to favor free banking. [ABSTRACT FROM AUTHOR]

Purpose Analysis of the trade-off between competition and financial stability has been at the center of academic and policy debate for over two decades and especially since the 2007-2008 global financial crises. This study aims to provide particular attention to the Islamic banking system which principally involves with the riba-free instruments as compared to the conventional interest-based system. The results show that an increase in the concentration in the conventional banking sector can lead to the deterioration of stability through the increased prices. For Islamic banks, an increase of the market power can positively affect the banking stability.Design/methodology/approach Two complementary approaches, namely, one-step generalized method of moment (GMM) system analysis and panel vector autoregressive (PVAR) framework, were applied.Findings The results show the same effect of Islamic and conventional banks' market power on banking soundness; yet, a different effect is displayed with non-performing loans (NPLs). In particular, the "competition–fragility" assumption for both banking industries is supported when considering z-score as the dependent variable. Including NPLs, this postulation is still approved for conventional banks; however, the "competition–stability" postulation is supported for Islamic banks.Originality/value The existent literature was scarcely interested in exploring the concept of competitivity in the context of Islamic banking sector as compared to the conventional one by applying two complementary approaches, namely, GMM and PVAR. This later allows to test the effect and the feedback effect of the competition and stability concepts. [ABSTRACT FROM AUTHOR]

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The article focuses on monetary economics, the views of Henry Meulen, and banking history in Scotland and Great Britain. The free banking system in Scotland promoted competition and innovation, bank stability when bank failures were common in England, abolition of the fixed price of gold, and the use of discount bills. Legal restrictions, including the suppression of Scottish free banking, Meulen's theory of credit, a paper exchange medium issued by private bankers, credit tokens, and option-clause notes--which protected banks from undue demand on gold because they could not be redeemed immediately--are mentioned. The 1844 Bank Charter Act gave the Bank of England a monopoly on note issues, banned gold-reserve substitutes, and required total coverage of notes.

The article comments on the use of Scottish banking experience as counter-evidence to the legal restrictions theory of money. The article analyzes the work of Tyler Cown and Randall Kroszner, who are critical of some of the interpretations of Scottish banking. It is explained that Scottish banking is viewed as a regulatory regime approximated laissez-faire closely enough that its institutions, practices, and performance were basically those of an unregulated free-market monetary system. Crown and Kroszner argue that the Scottish regime did not closely enough approximate laissez-faire to provide evidence damaging to the legal restrictions theory.

The article focuses on the impact of integrating free enterprise in the banking system in Scotland. Economists devote increasing attention to what the banking and financial system would look like if laissez-faire, through both deliberate deregulation and financial innovation, continues. The "free banking" perspective contrasts with the analysis of the "legal restrictions theory of money" and the "new monetary economics." Under laissez-faire, the money supply would no longer be well defined, and exchange media could assume such forms as equity shares, similar to today's money market mutual funds, and small denomination interest-bearing assets. Scottish "free banking" banking experience plays a central role in the recent work exploring the consequences of laissez-faire in the banking and financial system.

The article examines the free banking system in the U.S. with an emphasis on Illinois from the period between 1837-1863. A history of how the free banking system was used is included with particular emphasis on the role of state legislatures in granting charters by which banks could be established. States were also responsible for printing bank notes, which were valued on the basis of the bond's market value. It is noted that bank law in the U.S. was designed to protect the rights of noteholders but bank failures still took place because of bankers' corrupt practices.

The article investigates the laissez-faire banking in an optimal market outcome model with decentralized bank reserves. Whether or not free banking will yield a socially optimal outcome in a model with decentralized trade and incomplete information is examined. A model was developed which focuses on one aspect of banking behavior, that of determining an optimal reserve policy, and on one factor suggesting that this policy should be regulated. The model demonstrates that incomplete or asymmetric information alone may not be sufficient to justify restrictions on bank behavior.

The article focuses on re-examining the free banking law and how it relates to contemporary monetary theory. Three omissions in traditional interpretations will attempt to be filled. The first thing missing is an explanation of the diversity of experiences under superficially similar free banking rules. The second thing missing is the lack of any attempt to quantify the damage incurred by wildcat banking. The third omission from traditional interpretations is the inability to inquire on whether free banking could have contributed any benefits for the states in the U.S. that adopted it.

The article presents an economic historical analysis of the impact of the free banking laws enacted in the 19th century in the United States on barriers to entry in both charter and free banking states. Effects measured focus on economies of scale on entry and changes in chartering policies of states. A review of entry policy in the early 19th century is also provided, and an economic capital model for banking is presented. Assertions that the free banking laws actually failed by restricting rather than opening bank entry are addressed through empirical data.

The article focuses on the note issue paradox of American banking in the post-Civil War era. An overview of the conundrum is given, highlighting national bank behaviors inconsistent with profit-maximizing principles and several historiographical interpretations of the behavior, namely that they did not expand note issues in beneficial conditions to do so. Additional examination is offered to free-regime state banks, noting similarities in cost and risk environments to the following national bank-regime era. Conclusions are offered suggesting unseen risk perceptions that prevented the profitable venture.