The Note Issue Paradox in the Free Banking Era

Howard Bodenhorn and Michael Haupert ()

The Journal of Economic History, 1996, vol. 56, issue 3, 687-693

Abstract: In recent years a number of papers have appeared offering explanations of the long-noted, long-unresolved note issue paradox in both the free and national banking eras. Some have argued that previous profit calculations overstate the true cost of note issue because they fail to account for risks and costs that are not easily modeled. Others have argued that profit calculations are reasonably accurate and demonstrate that the bankers acted irrationally in failing to reap easily gathered profits. Yet another approach radically modified the basis of the calculation and found potential profits to be quite small. This note offers an explanation overlooked by most previous studies: that although note issue was profitable, a more profitable avenue existed. Because of legal and institutional restrictions, banks found it more profitable at the margin to create deposits rather than issue notes in extending credit.

Date: 1996
References: Add references at CitEc
Citations: View citations in EconPapers (1)

Downloads: (external link)
https://www.cambridge.org/core/product/identifier/ ... type/journal_article link to article abstract page (text/html)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:cup:jechis:v:56:y:1996:i:03:p:687-693_01

Access Statistics for this article

More articles in The Journal of Economic History from Cambridge University Press Cambridge University Press, UPH, Shaftesbury Road, Cambridge CB2 8BS UK.
Bibliographic data for series maintained by Kirk Stebbing ().