Working Paper: NBER ID: w15594
Authors: Hugh Rockoff
Abstract: Adam Smith advocated laissez faire for most sectors of the economy, but he believed that banking and finance required several forms of regulation including usury laws and the prohibition of small-denomination bank notes. Smith's support for banking regulation appears to have been a response to the shocks that hit the Scottish banking system during the time that he was composing the Wealth of Nations. The most important was the Crisis of 1772, which has been described as the first modern banking crisis faced by the Bank of England. It resembles the Crisis of 2008 in a number of striking ways. This paper describes the Crisis of 1772, the other shocks that hit the Scottish banking system, and the evolution of Smith's views on the regulation of banking. It is based on Smith's writings, the secondary sources, and a quantification of the new issues of Scottish bank notes during Smith's era.
Keywords: No keywords provided
JEL Codes: N1
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| shocks from the Scottish banking system (F65) | Adam Smith's regulatory views (B12) |
| 1772 banking crisis (F65) | Adam Smith's regulatory views (B12) |
| failure of the Ayr Bank (G21) | banking panic (G21) |
| imprudent practices of banks (G21) | banking panic (G21) |
| 1772 banking crisis (F65) | shift in Smith's perspective on banking regulation (G28) |
| failure of Ayr Bank (G21) | shift in Smith's perspective on banking regulation (G28) |