The Repeal of the Bubble Act and the Debate Between the Currency School and the Banking School

While it is widely acknowledged that the rise and fall of the Bubble Act holds an important position in British financial and legal history, the contribution of its demise to debates about banking and currency in Victorian economic thought is less well understood. This chapter will reveal the impact of the act and its repeal on the major split in classical economic thought in the nineteenth century over these issues. The act had created a situation of strife between the only English joint-stock bank allowed that issued notes (the Bank of England) and its competitors, the private or country banks. This conflict deepened after the legislation was repealed in 1825. The Currency School supported the Bank of England and what they saw as its central role in limiting banknote issue, while the Banking School supported its competitor banks. Moreover, the Banking School blamed the periodic financial crises of the nineteenth century on the Bank of England’s management of monetary policy, a power which arose partly from the consequences of the restrictive provisions of the Bubble Act. The chapter goes on to explain how some of the Banking School’s ideas have been revived over the past decade, particularly in terms of modern-day worries among economists about the ‘carry trade’, a method used by financial investors to exploit the differences in exchange rates and interest rates in different countries to make a profit.