Legislating Instability

"From 1716 to 1845, the Scottish financial system functioned with no official central bank or lender of last resort, no public (or private) monopoly on currency issuance, no legal reserve requirements, and no formal limits on bank size. In support of previous research on Scottish "free banking, " the author argues that this absence of legal restrictions on Scottish banking contributed to a proliferation of what Adam Smith derisively referred to as "beggarly bankers, " which rendered the Scottish financial system both intensely competitive and remarkably resilient to a series of severe adverse…