Free Banking versus Banking Regulation by Monetary Authorities: A Long-Run Comparison of Two Systems: Le Massachusetts (1803-1858) and France (1800-1870)

Antoine Gentier

Journal des Economistes et des Etudes Humaines, 2000, vol. 10, issue 1, 1-39

Abstract: Le propos est de comparer la dynamique concurrentielle à la gestion centralisée de l'industrie bancaire à partir de la mise en perspective de deux systèmes différents : l'expérience des banques libres du Massachusetts (1803-58) et celle de la monopolisation de l'émission de billets par la Banque de France (1803-1870).Nous montrons l'influence de la réglementation sur la structure du système bancaire, l' accumulation du capital bancaire et la stabilité du crédit. Les banques peuvent financer leur politique de crédit à partir de fonds permanents ou de fonds à vue. La mise en place de privilèges réglementaires sur les fonds à vue permettant aux banques de les utiliser sans les payer au prix de marché est à l'origine de l'instabilité cyclique.Our purpose is to compare the competitive dynamics and the centralized management of banking industry from the prospects of two different systems: the Free Banking experience in Massachusetts (1803-58) and the monopolization of issue by the Banque de France (1803-1870).We show the influence of regulation on the banking system structure, the hoarding of banking capital and credit stability. Banks may finance their loans either from investment funds or from demand deposit. The establishment of regulatory privileges on demand deposit allowing the banks to use them without paying the market price involves cyclical instability.

Date: 2000
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DOI: 10.2202/1145-6396.1163

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