Banking without a Central Bank: Scotland before 1844 as a ‘Free Banking’ system

Abstract

The traditional view of Scottish banking experience is that the system in operation there before 1844 warranted the label of ‘free banking’ that it has commonly received. That is, the regulatory regime approximated laissez-faire closely enough that its institutions, practices, and performance were essentially those of an unregulated free-market monetary system. This view was promoted by the nineteenth-century advocates of free banking in Britain, America, France, and elsewhere, who cited Scottish banking as a model to be emulated.1 It permeates the early histories of Scottish banking, most notably that of Andrew Kerr (1884). In more recent literature, it underlies the summaries of the Scottish experience offered by Vera Smith (1936, ch. 2), Rondo Cameron (1967, ch. 3) and myself (White (1984), ch. 2), and the use of the Scottish experience as counter-evidence to the legal restrictions theory of money (White (1987)).KeywordsCentral BankPrivate BankFree BankingPublic BankFree Banking SystemThese keywords were added by machine and not by the authors. This process is experimental and the keywords may be updated as the learning algorithm improves.