Free banking and the stability of early joint-stock banking

摘要

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.