IDEAS home Printed from https://ideas.repec.org/a/fip/fedlrv/y1998imayp105-116.html
   My bibliography  Save this article

Lessons from a laissez-faire payments system: the Suffolk Banking System, 1825-58

Author

Listed:
  • Arthur J. Rolnick
  • Bruce Smith
  • Warren E. Weber

Abstract

A classic example of a privately created interbank payments system was operated by the Suffolk Bank of New England (1825?58). Known as the Suffolk Banking System, it was the nation?s first regionwide net-clearing system for bank notes. While it operated, notes of all New England banks circulated at par throughout the region. Some have concluded from this experience that unfettered competition in the provision of payments services can produce an efficient payments system. But another look at the history of the Suffolk Banking System questions this conclusion. The Suffolk Bank earned extraordinary profits, and note-clearing may have been a natural monopoly. There is no consensus in the literature about whether unfettered operation of markets with natural monopolies produces an efficient allocation of resources. ; Reprinted in Quarterly Review, Fall 2002 (v. 26. no. 4)
(This abstract was borrowed from another version of this item.)

Suggested Citation

  • Arthur J. Rolnick & Bruce Smith & Warren E. Weber, 1998. "Lessons from a laissez-faire payments system: the Suffolk Banking System, 1825-58," Review, Federal Reserve Bank of St. Louis, issue May, pages 105-116.
  • Handle: RePEc:fip:fedlrv:y:1998:i:may:p:105-116
    as

    Download full text from publisher

    File URL: https://files.stlouisfed.org/files/htdocs/publications/review/98/05/9805ar.pdf
    Download Restriction: no
    ---><---

    Other versions of this item:

    References listed on IDEAS

    as
    1. Ware, Roger, 1984. "Sunk Costs and Strategic Commitment: A Proposed Three-Stage Equilibrium," Economic Journal, Royal Economic Society, vol. 94(374), pages 370-378, June.
    2. Dixit, Avinash, 1980. "The Role of Investment in Entry-Deterrence," Economic Journal, Royal Economic Society, vol. 90(357), pages 95-106, March.
    3. Calomiris, Charles W & Kahn, Charles M, 1996. "The Efficiency of Self-Regulated Payments Systems: Learning from the Suffolk System," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 28(4), pages 766-797, November.
    4. Lake, Wilfred S., 1947. "The End of the Suffolk System," The Journal of Economic History, Cambridge University Press, vol. 7(2), pages 183-207, November.
    5. Kyle Bagwell & Garey Ramey, 1996. "Capacity, Entry, and Forward Induction," RAND Journal of Economics, The RAND Corporation, vol. 27(4), pages 660-680, Winter.
    6. Aaron S. Edlin & Mario Epelbaum & Walter P. Heller, 1998. "Is Perfect Price Discrimination Really Efficient?: Welfare and Existence in General Equilibrium," Econometrica, Econometric Society, vol. 66(4), pages 897-922, July.
    7. Arthur J. Rolnick & Warren E. Weber, 1998. "The Suffolk Banking System reconsidered," Working Papers 587, Federal Reserve Bank of Minneapolis.
    8. Kroszner, Randall S, 1996. "Comment on the Efficiency of Self-Regulated Payments Systems: Learning from the Suffolk System," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 28(4), pages 798-803, November.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. De Bandt, Olivier & Hartmann, Philipp, 2000. "Systemic risk: A survey," Working Paper Series 35, European Central Bank.
    2. David C. Mills, Jr, 2008. "Imperfect Monitoring And The Discounting Of Inside Money," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 49(3), pages 737-754, August.
    3. Gorton, Gary & Huang, Lixin, 2006. "Bank panics and the endogeneity of central banking," Journal of Monetary Economics, Elsevier, vol. 53(7), pages 1613-1629, October.
    4. Bruce Smith & Warren E. Weber, 1999. "Private money creation and the Suffolk Banking System," Proceedings, Federal Reserve Bank of Cleveland, pages 624-667.
    5. Salter, Alexander William & Young, Andrew T., 2018. "A theory of self-enforcing monetary constitutions with reference to the Suffolk System, 1825–1858," Journal of Economic Behavior & Organization, Elsevier, vol. 156(C), pages 13-22.
    6. Young, Andrew T. & Dove, John A., 2013. "Policing the chain gang: Panel cointegration analysis of the stability of the Suffolk System, 1825–1858," Journal of Macroeconomics, Elsevier, vol. 37(C), pages 182-196.
    7. Berentsen, Aleksander, 2006. "On the private provision of fiat currency," European Economic Review, Elsevier, vol. 50(7), pages 1683-1698, October.
    8. Catherine Karyotis, 2008. "Histoire de la compensation: de la monnaie aux titres," Revue d'Économie Financière, Programme National Persée, vol. 91(1), pages 77-95.
    9. Stephen F. Quinn & William Roberds, 2008. "The evolution of the check as a means of payment: a historical survey," Economic Review, Federal Reserve Bank of Atlanta, vol. 93(4).
    10. Arthur J. Rolnick & Bruce Smith & Warren E. Weber, 2000. "The Suffolk Bank and the Panic of 1837," Quarterly Review, Federal Reserve Bank of Minneapolis, vol. 24(Spr), pages 3-13.
    11. Tore Nilssen, 2011. "Risk externalities in a payments oligopoly," Portuguese Economic Journal, Springer;Instituto Superior de Economia e Gestao, vol. 10(3), pages 211-234, December.
    12. Holthausen, Cornelia & Monnet, Cyril, 2003. "Money and payments: a modern perspective," Working Paper Series 245, European Central Bank.
    13. Norman, Ben & Shaw, Rachel & Speight, George, 2011. "The history of interbank settlement arrangements: exploring central banks’ role in the payment system," Bank of England working papers 412, Bank of England.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Randall S. Kroszner, 1998. "Lessons from a laissez-faire payments system: the Suffolk Banking System, 1825-58 - commentary," Review, Federal Reserve Bank of St. Louis, issue May, pages 117-120.
    2. Ohnishi, Kazuhiro, 2019. "Capacity choice in an international mixed triopoly," MPRA Paper 94051, University Library of Munich, Germany.
    3. MITRAILLE Sébastien & MOREAUX Michel, 2007. "Inventories and Endogenous Stackelberg Hierarchy in Two-period Cournot Oligopoly," LERNA Working Papers 07.02.223, LERNA, University of Toulouse.
    4. Michael Waldman, 1987. "Underinvestment in Entry Deterrence: When and Why," UCLA Economics Working Papers 456, UCLA Department of Economics.
    5. Lamantia, Fabio & Pezzino, Mario & Tramontana, Fabio, 2018. "Dynamic analysis of discontinuous best response with innovation," Journal of Economic Dynamics and Control, Elsevier, vol. 91(C), pages 120-133.
    6. Laurent Le Maux, 2004. "L'émergence d'une banque supérieure sous le régime de la liberté bancaire," Recherches économiques de Louvain, De Boeck Université, vol. 70(2), pages 193-221.
    7. Sébastien Mitraille & Michel Moreaux, 2013. "Inventories and Endogenous Stackelberg Leadership in Two‐Period Cournot Oligopoly," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 22(4), pages 852-874, December.
    8. Smith, Bruce D & Weber, Warren E, 1999. "Private Money Creation and the Suffolk Banking System," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 31(3), pages 624-659, August.
    9. Michael Kopel & Clemens Löffler, 2008. "Commitment, first-mover-, and second-mover advantage," Journal of Economics, Springer, vol. 94(2), pages 143-166, July.
    10. Meunier, Guy, 2008. "Strategic commitment in a mixed oligopoly," Research in Economics, Elsevier, vol. 62(2), pages 92-100, June.
    11. Felix Munoz-Garcia & Gulnara Zaynutdinova, 2013. "Capacity Constrained Firms and Expansion Subsidies: Should Governments Avoid Generous Subsidies?," Journal of Industry, Competition and Trade, Springer, vol. 13(4), pages 563-597, December.
    12. Wickelgren, Abraham L., 2006. "The effect of exit on entry deterrence strategies," Games and Economic Behavior, Elsevier, vol. 54(1), pages 226-240, January.
    13. Kurt Annen, 2019. "On the first mover advantage in Stackelberg quantity games," Journal of Economics, Springer, vol. 126(3), pages 249-258, April.
    14. Luís M. B. Cabral & Thomas W. Ross, 2008. "Are Sunk Costs a Barrier to Entry?," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 17(1), pages 97-112, March.
    15. van Damme, E.E.C. & Larouche, P. & Müller, W., 2006. "Abuse of a Dominant Position : Cases and Experiments," Other publications TiSEM 7e471876-96e7-46c7-a956-e, Tilburg University, School of Economics and Management.
    16. Jordi Brandts & Antonio Cabrales & Gary Charness, 2003. "Forward induction and the excess capacity puzzle: An experimental investigation," Economics Working Papers 703, Department of Economics and Business, Universitat Pompeu Fabra.
    17. Pablo Paniagua, 2017. "The institutional rationale of central banking reconsidered," Constitutional Political Economy, Springer, vol. 28(3), pages 231-256, September.
    18. Kazuhiro Ohnishi, 2022. "Lifetime Employment and Stackelberg Mixed Duopoly Games with a Foreign Labour-Managed Competitor," Arthaniti: Journal of Economic Theory and Practice, , vol. 21(1), pages 27-42, June.
    19. Aniruddha Bagchi & Arijit Mukherjee, 2011. "Commitment and excess capacity with licensing: an old debate with a new look," Journal of Economics, Springer, vol. 103(2), pages 133-147, June.
    20. repec:wvu:wpaper:10-20 is not listed on IDEAS
    21. Kazuhiro Ohnishi, 2009. "Capacity Investment and Mixed Duopoly with State-Owned and Labor-Managed Firms," Annals of Economics and Finance, Society for AEF, vol. 10(1), pages 49-64, May.

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:fip:fedlrv:y:1998:i:may:p:105-116. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Scott St. Louis (email available below). General contact details of provider: https://edirc.repec.org/data/frbslus.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.