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Free banking and the stability of early joint-stock banking

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  • C. R. Hickson
  • J. D. Turner

Abstract

Proponents of free banking argue that systems adopting their policies will be stable. In this paper, we present evidence suggesting that, in general, early joint-stock banking systems did not adopt free banking, and those that did proved to be unstable. In particular, we demonstrate that those systems imposing regulations were generally stable. We rationalise the success of regulation as a pragmatic solution to the time-inconsistency problem arising from the peculiar nature of the banking firm. Notably, we find that the 'golden age' of free banking stability can be attributed to restrictions on the organisational form of the early banking firm. Copyright 2004, Oxford University Press.

Suggested Citation

  • C. R. Hickson & J. D. Turner, 2004. "Free banking and the stability of early joint-stock banking," Cambridge Journal of Economics, Oxford University Press, vol. 28(6), pages 903-919, November.
  • Handle: RePEc:oup:cambje:v:28:y:2004:i:6:p:903-919
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    File URL: http://hdl.handle.net/10.1093/cje/beh036
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    Citations

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    Cited by:

    1. Ogren, Anders, 2006. "Free or central banking? Liquidity and financial deepening in Sweden, 1834-1913," Explorations in Economic History, Elsevier, vol. 43(1), pages 64-93, January.
    2. Thankom Gopinath Arun & John Turner, 2009. "Corporate Governance of Banks in Developing Economies: Concepts and Issues," Chapters,in: Corporate Governance and Development, chapter 7 Edward Elgar Publishing.
    3. Rodríguez Braun, Carlos, 2014. "La banca y las crisis financieras en la literatura popular: Una fortuna peligrosa, de Ken Follett /Banking and Financial Crises in Popular Literature: A Dangerous Fortune, by Ken Follett," Estudios de Economía Aplicada, Estudios de Economía Aplicada, vol. 32, pages 201-222, Enero.
    4. Graeme G. Acheson & John D. Turner, 2011. "Investor behaviour in a nascent capital market: Scottish bank shareholders in the nineteenth century," Economic History Review, Economic History Society, vol. 64(1), pages 188-213, February.
    5. John D. Turner, 2009. "Wider share ownership?: investors in English and Welsh Bank shares in the nineteenth century -super-1," Economic History Review, Economic History Society, vol. 62(s1), pages 167-192, August.
    6. Hickson, Charles R. & Turner, John D. & McCann, Claire, 2005. "Much ado about nothing: the limitation of liability and the market for 19th century Irish bank stock," Explorations in Economic History, Elsevier, vol. 42(3), pages 459-476, July.
    7. Alexander Fink, 2014. "Free banking as an evolving system: The case of Switzerland reconsidered," The Review of Austrian Economics, Springer;Society for the Development of Austrian Economics, vol. 27(1), pages 57-69, March.
    8. Salter, Alexander W. & Veetil, Vipin & White, Lawrence H., 2017. "Extended shareholder liability as a means to constrain moral hazard in insured banks," The Quarterly Review of Economics and Finance, Elsevier, vol. 63(C), pages 153-160.
    9. Acheson, Graeme G. & Turner, John D., 2008. "The death blow to unlimited liability in Victorian Britain: The City of Glasgow failure," Explorations in Economic History, Elsevier, vol. 45(3), pages 235-253, July.

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