Scottish Banks and the Bank Restriction, 1797-1821, Part 3

Having considered, intwoprevious essays, the origins, legality, and adverse consequences of the Scottish bank suspension, we ’re now ready to ask whether, and in what ways, that episode compels us to reconsider the virtues of free banking, both as practiced in Scotland and in general.If the Scottish bankers were indeed guilty of “violating the property rights of their depositors and noteholders,” asMurray Rothbard and some others charge, does that mean that it ’s not legitimate to treat the Scottish episode as an example of the advantages of freedom in banking? Does it mean that free banking on a fractional-reserve basis is inherently unsustainable?The Bank Notes Act of 1765To answer: yes, the Scottish suspensiondoes suggest that in important respects the Scottish system was not an ideal example of the nature and advantages of freedom in banking. But no, it doesn ’t follow that fractional-reserve based free banking is inherently flawed.Why not? Because the Scottish banks ’ less-than-fully satisfactory response to the Bank Restriction, including both their violation of customer’s property rights and the harm that arose from it, might have been avoided altogether had it not been for two regulatory restrictions imposed upon the Scottish banks by Parliament several decades earlier, as components of the Bank Notes Act (Scotland) of 1765, the full title of which is “An Act to prevent the inconveniences arising from the present method of issuing notes and bills by ba...
Source: Cato-at-liberty - Category: American Health Authors: Source Type: blogs