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The Option Clause in Scottish Banking, 1730-65: A Reappraisal

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  • Gherity, James A

Abstract

Many writers, from Adam Smith's time on, have held that the option clause encouraged overissue of notes and was, therefore, a source of instability. Recently, proponents of the legal-restrictions theory of money and some proponents of free banking have argued that the clause produced a number of desirable effects. Neither position is consistent with the historical facts. These facts indicate that the impact of the clause on the stability of the banking system was limited to discouraging note wars and providing a means by which to deal with specie drains caused by external shocks. Copyright 1995 by Ohio State University Press.

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  • Gherity, James A, 1995. "The Option Clause in Scottish Banking, 1730-65: A Reappraisal," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 27(3), pages 713-726, August.
    • Handle: RePEc:mcb:jmoncb:v:27:y:1995:i:3:p:713-26
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    Cited by:

    1. Ignacio Briones & Hugh Rockoff, 2005. "Do Economists Reach a Conclusion on Free-Banking Episodes?," Econ Journal Watch, Econ Journal Watch, vol. 2(2), pages 279-324, August.
    2. Madarász, Aladár, 2012. "Adósság, pénz és szabadság [Taxation, money and freedom]," Közgazdasági Szemle (Economic Review - monthly of the Hungarian Academy of Sciences), Közgazdasági Szemle Alapítvány (Economic Review Foundation), vol. 0(5), pages 457-507.
    3. Selgin, George & Lastrapes, William D. & White, Lawrence H., 2012. "Has the Fed been a failure?," Journal of Macroeconomics, Elsevier, vol. 34(3), pages 569-596.
    4. Bédard Mathieu, 2014. "Contagious Bank Failures in a Free Banking System: A Persistent Misunderstanding," Journal des Economistes et des Etudes Humaines, De Gruyter, vol. 20(1), pages 1-8, July.
    5. Maria Pia Paganelli, 2014. "David Hume on Banking and Hoarding," Southern Economic Journal, John Wiley & Sons, vol. 80(4), pages 968-980, April.
    6. Nissaf Ben Ayed & Gérard Mondello, 2015. "The Adam Smith's Banking System: The sources of the analysis of modern banking governance," Post-Print hal-01251667, HAL.
    7. Hugh Rockoff, 2009. "Upon Daedalian Wings of Paper Money: Adam Smith and the Crisis of 1772," NBER Working Papers 15594, National Bureau of Economic Research, Inc.
    8. Mathieu Bédard, 2016. "In Which Context is the Option Clause Desirable?," Journal of Business Ethics, Springer, vol. 139(2), pages 287-297, December.

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