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Parallel Journeys: Adam Smith and Milton Friedman on the Regulation of Banking

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  • Hugh Rockoff

    () (Rutgers)

Abstract

Adam Smith and Milton Friedman are famous for championing Laissez Faire, yet both supported government regulation of the banking system. In both cases their deviation from free market orthodoxy was based on a careful reading of financial history: especially Smith's reading of the Crisis of 1772 and Friedman's reading of the Crisis of 1929-33. In both cases they based their reading on a complex and nuanced account of human nature. This paper describes their parallel journeys to the conclusion that banking requires government regulation.

Suggested Citation

  • Hugh Rockoff, 2010. "Parallel Journeys: Adam Smith and Milton Friedman on the Regulation of Banking," Departmental Working Papers 201004, Rutgers University, Department of Economics.
  • Handle: RePEc:rut:rutres:201004
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    File URL: http://www.sas.rutgers.edu/virtual/snde/wp/2010-04.pdf
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    References listed on IDEAS

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    1. White, Eugene Nelson, 1984. "A Reinterpretation of the Banking Crisis of 1930," The Journal of Economic History, Cambridge University Press, vol. 44(01), pages 119-138, March.
    2. Bodenhorn, Howard, 1993. "Small-Denomination Banknotes in Antebellum America," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 25(4), pages 812-827, November.
    3. David Laidler, 1981. "Adam Smith as a Monetary Economist," Canadian Journal of Economics, Canadian Economics Association, vol. 14(2), pages 185-200, May.
    4. Selgin, George, 2001. "In-Concert Overexpansion and the Precautionary Demand for Bank Reserves," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 33(2), pages 294-300, May.
    5. Selgin, George & White, Lawrence H, 1997. "The Option Clause in Scottish Banking: A Comment," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 29(2), pages 270-273, May.
    6. Rockoff, Hugh, 1974. "The Free Banking Era: A Reexamination," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 6(2), pages 141-167, May.
    7. Jadlow, Joseph M, 1977. "Adam Smith on Usury Laws," Journal of Finance, American Finance Association, vol. 32(4), pages 1195-1200, September.
    8. David Levy, 1987. "Adam Smith's Case for Usury Laws," History of Political Economy, Duke University Press, vol. 19(3), pages 387-400, Fall.
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    Cited by:

    1. Gigliobianco Alfredo & Giordano Claire, 2012. "Does Economic Theory Matter in Shaping Banking Regulation? A Case-study of Italy (1861-1936)," Accounting, Economics, and Law: A Convivium, De Gruyter, vol. 2(1), pages 1-78, September.

    More about this item

    Keywords

    banking; Adam Smith; Milton Friedman;

    JEL classification:

    • B10 - Schools of Economic Thought and Methodology - - History of Economic Thought through 1925 - - - General

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