New from Harvard University Press:
Legislating Instability: Adam Smith, Free Banking, and the Financial Crisis of 1772 (2016), by
Tyler Beck Goodspeed (University of Oxford). A description from the Press:
From 1716 to 1845, Scotland’s banks
were among the most dynamic and resilient in Europe, effectively
absorbing a series of adverse economic shocks that rocked financial
markets in London and on the continent.
Legislating Instability
explains the seeming paradox that the Scottish banking system achieved
this success without the government controls usually considered
necessary for economic stability.
Eighteenth-century Scottish banks operated in a regulatory vacuum: no
central bank to act as lender of last resort, no monopoly on issuing
currency, no legal requirements for maintaining capital reserves, and no
formal limits on bank size. These conditions produced a remarkably
robust banking system, one that was intensely competitive and served as a
prime engine of Scottish economic growth. Despite indicators that might
have seemed red flags—large speculative capital flows, a fixed exchange
rate, and substantial external debt—Scotland successfully navigated two
severe financial crises during the Seven Years’ War.
The exception was a severe financial crisis in 1772, seven years
after the imposition of the first regulations on Scottish banking—the
result of aggressive lobbying by large banks seeking to weed out
competition. While these restrictions did not cause the 1772 crisis, Tyler Beck Goodspeed
argues, they critically undermined the flexibility and resilience
previously exhibited by Scottish finance, thereby elevating the risk
that another adverse economic shock, such as occurred in 1772, might
threaten financial stability more broadly. Far from revealing the
shortcomings of unregulated banking, as Adam Smith claimed, the 1772
crisis exposed the risks of ill-conceived bank regulation.
A few blurbs:
“Tyler Goodspeed has written a
marvelous account of a Scottish bank failure in 1772 that ramified from
Edinburgh to London and to American plantations, where it helped to
transform threatened Virginia debtors into the rebels of 1776. Goodspeed
brilliantly upends the lessons that Adam Smith and subsequent analysts
drew from their near-death experience: precisely the unregulated
profusion of small banks and the unlimited liability assumed by bankers
cushioned against systemic crisis. What a delightfully written challenge
to the conventional wisdom after our own near financial shipwreck!”—Charles S. Maier
“This is an original, scholarly, and
important contribution to financial history, to the political economy of
monetary institutions, and to Adam Smith studies. The prose is vivid,
and it is a pleasure to read.”—Lawrence H. White
More information, including the TOC, is available
here.
