DOCSLIB.ORG

The Theory and History of Banking

Total Page：16

File Type：pdf, Size：1020Kb

Download full-text PDF Read full-text
The Theory and History of Banking T H E H EO RY A ND H IST O O F B A NK ING CHARLES F . DUNBAR MRLY P E OF P LITICAL EC MY HARVARD U IVE ITY O ROF SSOR O ONO . N RS W ITH CHAPTE RS ON FOREIGN E"CHANGE AND CENTRAL B ANKS B Y L VE AGUE O I R M. W . SPR P FE OF B K G AND F CE H V D U V E TY RO SSOR AN IN INAN . AR AR NI RSI W ITH SU PPLEMENTARY CHAPTER PRESENTING RECORD OF THE FEDERAL RESERV E SYSTEM B Y HENRY PARKE R WILLIS Pnon sso a op B ANKING COLUMB IA U NI VE RSI TY FORuE RLY EC E T Y FED E L E E a a S R AR RA RES RV li t 8 E 4 FOURTH E DITION A ’ G . P . PUTN MS SONS NEW YORK AND LONDON Obe finichetboc ket p ress o ri h 1 8 1 C p y g t , 9 b y e s n bar Ch arl F. Du o ri h . 1 0 1 1 9 1 7 . by C p y g t 9 , ’ P . P n am s Son s G . ut o ri h 1 2 2 b C p y g t , 9 , y ' P. Pu n am s Son s G . t Fi rst P ublish ed { 8 91 con d sed Ed n 1 S e Revi i ti o 1 90 T rd R d E d i on 1 1 h i e vi se it 9 7 Four h R evi sed E di i on Oc ober 1 2 2 t t t . 9 Re ri n ed D ecember 1 2 2 p t . 9 Made i n th e Uni te d States of Ameri ca PREFACE TO THE FIRST EDITION THE preparati on of the followi ng c hapters i s the result of the need of some c onveni ent statement of i i o a i o i ord nary bank ng per t ns , felt by the wr ter when lecturing upon banki ng to a large c lass of s u i n i c om t dents the elements of pol ti cal e on y . To the chapters devoted to suc h Operati ons itwas found useful to add a series of hi stori c al c hapter s on c ertai n of the great ban ks and banldn s s " g y t for a i us ra i o of ems , partly the e sy ll t t n theory and partly to supply the want of any good manual of a i i s or b nk ng h t y . Eight of the c hapters were printed i n 1 885 for the use of c ss i n a i si butw la es H rvard Un ver ty , ere not i u i T o n ow then g ven to the p bl c . these have been an i uc c a c a on c om added ntrod tory h pter , a h pter bin ed reserves or the system of Clearing House l c i c a on e on of oan ert fi tes , and the Bank Amster i dam . The whole has been revi sed and the not c es of current hi story brought down to the present an d i s l i u date , the book now a d before st dents and readers wi th the hope that itmay ai d i n the sys temati c u of u c of i st dy a s bje t , the treatment wh ch by wri ters upon economi cs i s generally either too u r f s mma y or too di fuse for ordi nary purposes . The wri ter has annotated hi s text wi th a freedom iii Prefac e to th e FirstEdition i c r a ma m a o siri wh h pe h ps de nds so e p logy , de ng to mak e hi s n otes answer the double purpose of i n formi ng the reader as to the sourc es from whi ch m s are ra an d of i vi i n him to state ent d wn , n t g ex plore the sourc es more deeply than was possible s s u i i o wi thi n the limit of the pre ent p bl cat n . C . F . DUNBAR. AN RY 18 1 J UA , 9 . CONTENTS CHAPTER I CHAPTER II D S U T P S T AND SSU I CO N , DE O I , I E CHAPTER III BANKING OPERATIONS AND ACCOU NTS CHAPTER IV TH E CHECK SYST EM CHAPTER V CHAPTER VI CENTRAL BANK S W . S ra By Oli ver M. p gue CHAPTER VII FO REIGN E"CHANGE v ' M W . ra By Oli a . Sp g v1 Con ten ts CHAPTER IX PAGE THE FRENCH BANKING SYSTEM CHAPTER " GERMAN BANKING SYSTEM CHAPTER XI THE NATIONAL BANKS OF TH E UNITED STATES CHAPTER XII FE DERAL RE SERVE BANKS By Hen ry Parker Wi lli s INDE" AND HISTORY OF BANKING THE THEORY AND HISTORY OF BANKING CHAPTER I INTRODUCTORY THE o ra i o of a i as s h as pe t ns b nk ng , the sy tem o i n a c uri s a a been devel ped the l st three ent e , ppe r at fir st sight to be singularly c omplex an d diffic ult m si i i n t r c o o . s o due o Of prehen n Th s , h weve , to r in ra io m but any myste y the ope t ns the selves , is the result of their multipli ci ty an d Of the vari ed co i ndi t ons under whi c h they tak e plac e . The a i c i s are of sim i n w nts wh h banks sat fy a ple k d , sur e to arise early i n the hi story of an y c ommerc i al or in dustrial c ommuni ty i n whi c h there i s mutual confidenc e amon g me n ; an d the sati sfac tion of i si i a i i n these wants s a bu ness eas ly est bl shed , what might well be regarded as an almost primitive i i r a ion s i cond t on Of trade . The t ans c t by wh ch a are a i are mor o r as sim these w nts s t sfied , e ve , ple a s ms s an d are di r uc as the w nt the elve , spee ly ed ed uc ou i to a am i i n to s h r t ne as le d Ad Sm th , a well 2 I n troduc tory o as a to ra an i r s kn wn p s ge , te the b k ng t ade a one fe w hi c i n h i s u c ou r Of the w h , j dgment , ld be b ought to suc h un iformity of method as to be safely c on c oi - o du ted by a j nt stock c mpany . The leadi n g want s to be provided for by banks are rs oa u o a c o si ra sc a uir , fi t , l ns p n n de ble le , req ed by indivi duals embarki n g i n enterpri ses beyond i own an an d s c on m or the r me s ; , e d , the te p ary employmen t of money whi c h i s n otrequir ed by the o r for imm i a use or at as m wne ed te , le t the eans of i n i t om a c for n safely keep g . S e gen y lendi g and some plac e of deposit are c alled for as soon as c omm rc i n s to mo i n a r u ar c ours e e beg ve eg l e . In some c ountries the task of simplifyi n g the c u n c of c o u i an d i i n itan rre y the mm n ty , Of g v g asc ai a u was orm r rus to a ert ned v l e , f e ly ent ted b nk in i n s i u i on s but i i s a s i c i c c an g t t t , th s erv e wh h man ifestly be more sati sfac torily performed by governmen t an d h as n ow everywhere bec ome n l r n i n ra s rs of u o e of its regu a fu c t o s . T n fe f nds an d arran gements for making settlements between persons i n different plac es i n the same or i n dif i i n i t r s i e . om s c or fe re n c ou .
Load more

Recommended publications
  • UNIT - I Evolution of Banking (Origin and Development of Banking)
    UNIT - I Evolution of Banking (Origin and development of Banking) The evolution of banking can be traced back to the early times of human history. The history of banking begins with the first prototype banks of merchants of the ancient world, which made grain loans to farmers and traders who carried goods between cities. This began around 2000 BC in Assyria and Babylonia. In olden times people deposited their money and valuables at temples, as they are the safest place available at that time. The practice of storing precious metals at safe places and loaning money was prevalent in ancient Rome. However modern Banking is of recent origin. The development of banking from the traditional lines to the modern structure passes through Merchant bankers, Goldsmiths, Money lenders and Private banks. Merchant Bankers were originally traders in goods. Gradually they started to finance trade and then become bankers. Goldsmiths are considered as the men of honesty, integrity and reliability. They provided strong iron safe for keeping valuables and money. They issued deposit receipts (Promissory notes) to people when they deposit money and valuables with them. The goldsmith paid interest on these deposits. Apart from accepting deposits, Goldsmiths began to lend a part of money deposited with them. Then they became bankers who perform both the basic banking functions such as accepting deposit and lending money. Money lenders were gradually replaced by private banks. Private banks were established in a more organised manner. The growth of Joint stock commercial banking was started only after the enactment of Banking Act 1833 in England.
    [Show full text]
  • The Reason Given for the UK's Decision to Float Sterling Was the Weight of International Short-Term Capital
    - Issue No. 181 No. 190, July 6, 1972 The Pound Afloat: The reason given for the U.K.'s decision to float sterling was the weight of international short-term capital movements which, despite concerted intervention from the Bank of England and European central banks, had necessitated massive sup­ port operations. The U.K. is anxious that the rate should quickly o.s move to a "realistic" level, at or around the old parity of %2. 40 - r,/, .• representing an effective 8% devaluation against the dollar. A w formal devaluation coupled with a wage freeze was urged by the :,I' Bank of England, but this would be politically embarrassing in the }t!IJ light of the U.K. Chancellor's repeated statements that the pound was "not at an unrealistic rate." The decision to float has been taken in spite of a danger that this may provoke an international or European monetary crisis. European markets tend to consider sterling as the dollar's first line of defense and, although the U.S. Treasury reaffirmed the Smithsonian Agreement, there are fears throughout Europe that pressure on the U.S. currency could disrupt the exchange rate re­ lationship established last December. On the Continent, the Dutch and Belgians have put forward a scheme for a joint float of Common Market currencies against the dollar. It will not easily be implemented, since speculation in the ex­ change markets has pushed the various EEC countries in different directions. The Germans have been under pressure to revalue, the Italians to devalue. Total opposition to a Community float is ex­ pected from France (this would sever the ties between the franc and gold), and the French also are adamant that Britain should re­ affirm its allegiance to the European monetary agreement and return to a fixed parity.
    [Show full text]
  • Nonprofit and Mutual Firms in the Development of the U.S. Personal Finance Industry
    Organizational Form and Industry Emergence: Nonprofit and Mutual Firms in the Development of the U.S. Personal Finance Industry R. Daniel Wadhwani Eberhardt School of Business University of the Pacific [email protected] This article examines historical variations in the ownership and governance of firms in the U.S. personal finance industry between the early nineteenth century and the Great Depression. It focuses, in particular, on mutual savings banks and their role in the development of the intermediated market for savings accounts. Economic theories of commercial nonprofits and mutuals usually emphasise the advantages of such ownership and governance structures in reducing agency and monitoring costs in markets that suffer from information asymmetries in exchanges between firms and their customers. While I find some evidence to support these theories, I also find that mutual savings banks predominated in the early years of the industry because the form offered entrepreneurial advantages over investor-owned corporations and because in some states they benefitted from regulatory and political advantages that joint-stock savings banks lacked. Their relative decline by the early twentieth century was the result of increasing competition in the market for savings deposits, the loosening of regulatory barriers to entry, and changes in public policy that reduced the transaction, innovation and regulatory advantages that the mutual savings bank form had once held. The article draws out the theoretical implications for our understanding of the historical role of nonprofit and mutual firms. Keywords: nonprofit; trusteeship; mutual; cooperative; savings banks; governance; ownership; organizational form; entrepreneurship; innovation. 1 Introduction In recent years, business historians have devoted increasing attention to understanding variation in the organizational forms of modern enterprise.
    [Show full text]
  • Determinants of Automated Teller Machine Deployment: the Case of Commercial Banks of Ethiopia
    DSpace Institution DSpace Repository http://dspace.org Economics Thesis and Dissertations 2020-10-20 Determinants of Automated Teller Machine Deployment: The case of commercial banks of Ethiopia Mahilet Demissie http://hdl.handle.net/123456789/11430 Downloaded from DSpace Repository, DSpace Institution's institutional repository Determinants of Automated Teller Machine Deployment: The case of commercial banks of Ethiopia A Thesis Submitted to Bahir Dar University in Partial Fulfillment of the Requirement for Degree of Masters of Science in Accounting and Finance Bahir Dar University College of Business and Economics Department of Accounting and Finance BY: Mahilet Demissie Adane Advisor: Teramaje Wale (Dr.) February, 2018 Bahir Dar, Ethiopia i Statement of declaration This is to certify that the thesis work by Mahilet Demissie entitled as “Determinants of Automated teller machine Deployment in Commercial Banks of Ethiopia”. A Thesis Submitted to Bahir Dar University in Partial Fulfillment of the Requirement for Degree of Masters of Science in Accounting and Finance. Compilies with the regulations of the university and meets the accepted standard with respect to originality and quality. Approved by the examining committee Advisor: -------------------------------- Signature-----------------Date-------------------- External Examiner:----------------------Signature ----------------Date----------------- Internal Examiner: -------------------------Signature--------------Date----------------- Chair person :--------------------------------Signature--------------Date--------------- ii Acknowledgement First of all, I would like to thank the Almighty God and his mother for their entire help trough out my life. Next, I would like to thank my advisor Teramaje Wale (Dr.) for his unreserved advice for the completion of this thesis. My grateful thanks also go to National Bank of Ethiopia, head office of each bank for their positive cooperation in giving the relevant data for the study.
    [Show full text]
  • Climate-Related Risks for Ministries of Finance
    Climate-Related Risks for Ministries of Finance: An Overview —- Nepomuk Dunz and Samantha Power (World Bank) A product of the Helsinki Principle 5 Workstream May 2021 Authors and Acknowledgements This note was co-authored by Nepomuk Dunz and Samantha Power (World Bank) under the direction of the Sherpa Co-Chairs of the Coalition of Finance Ministers for Climate Action, Pekka Moren (Finland) and Masyita Crystallin (Indonesia), the Lead of the Helsinki Principle 5 Workstream, Meg Nicolaysen (UK), and Fiona Stewart (World Bank). This note benefited from contributions from Robert Zymek, Emmanuelle Dot (UK Treasury), Joanna Tikkanen (MoF Finland), Bryan Gurhy, Sebastien Boitreaud, Cigdem Aslan, Hiroshi Tsubota, Lars Jessen, Henk Jan Reinders, Rachel Chi Kiu Mok (World Bank), Ulrich Volz (SOAS, University of London), Joaquim Levy, Carter Brandon, and Lihuan Zhou (World Resources Institute), as well as input from the Helsinki Principle 5 Workstream Members more broadly. This note also benefited from the work of the Network for Greening the Financial System (NGFS) and its members. Benjamin Holzman provided graphic design. Disclaimer and Copyright This work is a product of the Coalition of Finance Ministers for Climate Action (‘the Coalition’) and was prepared at the request of the Co-Chairs of the Coalition under the Helsinki Principle 5 Workstream on ‘mobilizing private finance for climate action’. The views, findings, interpretations, and conclusions expressed, however, are those of the authors and do not necessarily reflect those of the Coalition, its Members, or the affiliations of the authors. This work may be reproduced, in whole or in part, for non-commercial purposes provided full attribution to this work is given.
    [Show full text]
  • (2019). Bank X, the New Banks
    BANK X The New New Banks Citi GPS: Global Perspectives & Solutions March 2019 Citi is one of the world’s largest financial institutions, operating in all major established and emerging markets. Across these world markets, our employees conduct an ongoing multi-disciplinary conversation – accessing information, analyzing data, developing insights, and formulating advice. As our premier thought leadership product, Citi GPS is designed to help our readers navigate the global economy’s most demanding challenges and to anticipate future themes and trends in a fast-changing and interconnected world. Citi GPS accesses the best elements of our global conversation and harvests the thought leadership of a wide range of senior professionals across our firm. This is not a research report and does not constitute advice on investments or a solicitations to buy or sell any financial instruments. For more information on Citi GPS, please visit our website at www.citi.com/citigps. Citi Authors Ronit Ghose, CFA Kaiwan Master Rahul Bajaj, CFA Global Head of Banks Global Banks Team GCC Banks Research Research +44-20-7986-4028 +44-20-7986-0241 +966-112246450 [email protected] [email protected] [email protected] Charles Russell Robert P Kong, CFA Yafei Tian, CFA South Africa Banks Asia Banks, Specialty Finance Hong Kong & Taiwan Banks Research & Insurance Research & Insurance Research +27-11-944-0814 +65-6657-1165 +852-2501-2743 [email protected] [email protected] [email protected] Judy Zhang China Banks & Brokers Research +852-2501-2798
    [Show full text]
  • Mystery of Banking.Pdf
    The Mystery of Banking Murray N. Rothbard The Mystery of Banking Murray N. Rothbard Richardson & Snyder 1983 First Edition The Mystery of Banking ©1983 by Murray N. Rothbard Library of Congress in publication Data: 1. Rothbard, Murray N. 2. Banking 16th Century-20th Century 3. Development of Modern Banking 4. Types of Banks, by Function, Bank Fraud and Pitfalls of Banking Systems 5. Money Supply. Inflation 1 The Mystery of Banking Murray N. Rothbard Contents Chapter I Money: Its Importance and Origins 1 1. The Importance of Money 1 2. How Money Begins 3 3. The Proper Qualifies of Money 6 4. The Money Unit 9 Chapter II What Determines Prices: Supply and Demand 15 Chapter III Money and Overall Prices 29 1. The Supply and Demand for Money and Overall Prices 29 2. Why Overall Prices Change 36 Chapter IV The Supply of Money 43 1. What Should the Supply of Money Be? 44 2. The Supply of Gold and the Counterfeiting Process 47 3. Government Paper Money 51 4. The Origins of Government Paper ,Money 55 Chapter V The Demand for Money 59 1. The Supply of Goods and Services 59 2. Frequency of Payment 60 3. Clearing Systems 63 4. Confidence in the Money 65 5. Inflationary or Deflationary Expectations 66 Chapter VI Loan Banking 77 Chapter VII Deposit Banking 87 1. Warehouse Receipts 87 2. Deposit Banking and Embezzlement 91 2 The Mystery of Banking Murray N. Rothbard 3. Fractional Reserve Banking 95 4. Bank Notes and Deposits 103 Chapter VIII Free Banking and The Limits on Bank Credit Inflation 111 Chapter X Central Banking: Determining Total Reserves 143 1.
    [Show full text]
  • Has Fractional-Reserve Banking Really Passed the Market Test?
    SUBSCRIBE NOW AND RECEIVE CRISIS AND LEVIATHAN* FREE! “The Independent Review does not accept “The Independent Review is pronouncements of government officials nor the excellent.” conventional wisdom at face value.” —GARY BECKER, Noble Laureate —JOHN R. MACARTHUR, Publisher, Harper’s in Economic Sciences Subscribe to The Independent Review and receive a free book of your choice* such as the 25th Anniversary Edition of Crisis and Leviathan: Critical Episodes in the Growth of American Government, by Founding Editor Robert Higgs. This quarterly journal, guided by co-editors Christopher J. Coyne, and Michael C. Munger, and Robert M. Whaples offers leading-edge insights on today’s most critical issues in economics, healthcare, education, law, history, political science, philosophy, and sociology. Thought-provoking and educational, The Independent Review is blazing the way toward informed debate! Student? Educator? Journalist? Business or civic leader? Engaged citizen? This journal is for YOU! *Order today for more FREE book options Perfect for students or anyone on the go! The Independent Review is available on mobile devices or tablets: iOS devices, Amazon Kindle Fire, or Android through Magzter. INDEPENDENT INSTITUTE, 100 SWAN WAY, OAKLAND, CA 94621 • 800-927-8733 • [email protected] PROMO CODE IRA1703 CONTROVERSY Has Fractional-Reserve Banking Really Passed the Market Test? —————— ✦ —————— J. G. HÜLSMANN he theory of free banking has experienced a great renaissance in recent years. The authors of many articles, books, and doctoral dissertations have made T the case for the possibility and suitability of a purely private or competitive banking system. Virtually all these works were inspired by some variant of Austrian economics, which is no surprise, because Austrians tend to analyze institutional arrangements without any a priori bias in favor of government solutions.
    [Show full text]
  • Development and Restructuring of the Saudi Banking System
    Development and restructuring of the Saudi banking system Saudi Arabian Monetary Agency Early history of banking development and bank restructuring The early years The emergence of Saudi Arabia as a modern day unified state has been a development of recent origin. The consolidation of the state apparatus over a large country with a small population dispersed in far-flung pockets and the laying down of the country’s physical and fiscal infra- structure on the most efficient and modern lines in a relatively short span of time has been a remarkable achievement. The simultaneous development of the legal and institutional framework of finance and commerce in a span of about four decades has been a no less onerous exercise. The basic framework was laid some time back and in recent decades the institutional framework has evolved to support the development of a modern economy. In the early part of this century a few foreign based trading houses (including a trading arm of Algemene Bank Nederland) and money changers provided most of the finance related services to meet the needs of the trading community and pilgrims who were the major sources of finance in the economy. With the discovery of oil in 1939, the inflow of royalty revenue into government coffers started and following the Second World War, there was a surge in oil demand and production. Government revenues and expenditures rose rapidly and foreign banks started entering the market. The French Banque de L’Indochine and Arab Bank opened branches in Jeddah in 1948; followed in 1950 by the British Bank of Middle East, National Bank of Pakistan and Bank Misr of Egypt.
    [Show full text]
  • OMW Sprague (The Man Who" Wrote the Book" on Financial Crises) And
    NBER WORKING PAPER SERIES O.M.W. SPRAGUE (THE MAN WHO “WROTE THE BOOK” ON FINANCIAL CRISES) AND THE FOUNDING OF THE FEDERAL RESERVE Hugh Rockoff Working Paper 19758 http://www.nber.org/papers/w19758 NATIONAL BUREAU OF ECONOMIC RESEARCH 1050 Massachusetts Avenue Cambridge, MA 02138 December 2013 This paper was prepared for a conference on alternatives to the Federal Reserve held at George Mason University on November 1, 2013. I thank the organizers of the conference George Selgin and Larry H. White; my discussant, David Wheelock; and other participants in the discussion for many helpful comments. Elmus Wicker and Eugene White read an earlier draft and made many helpful suggestions. The opinions expressed here and the remaining errors are mine. The views expressed herein are those of the author and do not necessarily reflect the views of the National Bureau of Economic Research. NBER working papers are circulated for discussion and comment purposes. They have not been peer- reviewed or been subject to the review by the NBER Board of Directors that accompanies official NBER publications. © 2013 by Hugh Rockoff. All rights reserved. Short sections of text, not to exceed two paragraphs, may be quoted without explicit permission provided that full credit, including © notice, is given to the source. O.M.W. Sprague (the Man who “Wrote the Book” on Financial Crises) and the Founding of the Federal Reserve Hugh Rockoff NBER Working Paper No. 19758 December 2013 JEL No. B26,N1 ABSTRACT O.M.W. Sprague was America’s leading expert on financial crises when America was debating establishing the Federal Reserve.
    [Show full text]
  • The Effect of Automatic Teller Machine Banking Service Quality on Customer Satisfacsatisfactiontion at Selected Abyssinia Bank Branches in Addis Ababa
    ST.MARY’S UNIVERSITY COLLEGE SCHOOL OF GRADUATE STUDIES THE EFFECT OF AUTOMATIC TELLER MACHINE BANKING SERVICE QUALITY ON CUSTOMER SATISFACSATISFACTIONTION AT SELECTED ABYSSINIA BANK BRANCHES IN ADDIS ABABA BY: --- ELELELIEL IIISABETSABET KENDIE A research project submitted in partial fulfillment of the requirement for Masters of Business Administration November 2016 ST. MARY’S UNIVERSITY COLLAGE SCHOOL OF GRADUATE STUDIES THE EFFECT OF AUTOMATIC TELLER MACHINE BANKING SERVICE QUALITY ON CUSTOMER SATISFACTION AT SELECTED ABYSSINIA BANK BRANCHES IN ADDIS ABABA BY ELISABET KENDIE Approved by the Board of Examiners: Advisor __________________________ Signature __________________________ Examiner __________________________ Signature __________________________ Examiner __________________________ Signature __________________________ DECLARATION I am submitting this paper in Partial fulfillment of the requirements for the award of the Masters of Business Administration and I hereby do declare that this is my own work and that all works of other persons have been dully acknowledged. Elisabet Kendie: ______________________ Date: _________________ ACKNOWLEDGMENTS First of all I would like to praise almighty God for helping me and enabling me to carry out this study and his mother Saint Mary. She pray, bless, protect and intercede for us. I am also greatly indebted to my advisor Dr. Temesgen Belayneh for his patience, encouragement and continual help and advice. A great thank and special gratitude addressed to all of my families and friends for their continual support. I also appreciate the management and staff of Bank of Abyssinia for the vital information they furnished me with. Most importantly, I would like to express my deep gratitude to the staff of the bank who participated in this study during the primary data collection process.
    [Show full text]
  • Panics and the Disruption of Private Payments Networks: the United States in 1893 and 1907
    Panics and the Disruption of Private Payments Networks: The United States in 1893 and 1907 John A. James James McAndrews David F. Weiman Department of Economics Federal Reserve Bank of New York Department of Economics University of Virginia Barnard College The periodic financial crises which hit the United States before the establishment of the Federal Reserve System were often severe enough to occasion collective action on the part of the banking system. In order to relieve pressures on reserves, three times in the postbellum period, 1873, 1893, and 1907, banks in many or most cities declared periods of suspension or restrictions of cash payments at par in which they temporarily restricted or denied altogether the redemption of their deposit liabilities in cash (specie or legal tender notes) (Calomiris and Gorton 1991, pp. 96-100). Friedman and Schwartz (1963, pp. 163-168) have famously contrasted this response to panics under the national banking system (pre- 1914) with that in the Great Depression under the Federal Reserve System. In the earlier period restrictions were argued to have mitigated the effects of panics by stopping bank runs. Bank failures, as a consequence, were, if not completely arrested (e.g., see Wicker 2000, pp. 78-80), certainly greatly reduced, thereby damping the rate of monetary contraction.1 To be sure, they conceded (1963, p. 698) that such restrictions may have caused “severe but brief difficulties,” but with little or no elaboration. Here we consider the downside effects of cash payment restrictions– there was one significant aspect that was not stabilizing, disruptions of the payments system, and it is that element on which this paper focuses.
    [Show full text]