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The popular conception of the so-called free banking era, and the cause and prevalence of wildcat banking, is wrong. https://www.alt-m.org/2021/07/06/the-fable

The popular conception of the so-called free banking era, and the cause and prevalence of wildcat banking, is wrong. https://www.alt-m.org/2021/07/06/the-fable-of-the-cats/ https://www.alt-m.org/2021/07/06/the-fable-of-the-cats/

deleted 5y ago
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NationalPark 5y ago
Even the Cato blogger here concedes that wildcat banks failed more often and were probably fraudulent from the beginning some of the time (but you can't prove it!). His argument more or less boils down to regulation being inherently bad, therefore it's worth it to try this all over again with stablecoins, in case it works this time, also sometimes people got back like 95 cents on the dollar so if you don't count those cases as wildcat banks the story looks a lot better. Not surprising, but it's a lot of words to make such a banal point.
- CryptoPunk 5y ago
  You've totally missed and mischaracterized the point of the article. That wildcat banks failed was never in dispute. They failed, by definition. As the monetary historian notes, wildcat banks were very rare, and the cause of wildcat banking was not, as alleged, lack of centralized regulatory gatekeeping: the failures were generally directly due to regulatory intervention that exacerbated risk, like prohibitions on bank branching which precluded diversification.
  - deleted 5y ago
    [deleted]
  - bytelines 5y ago
    I mean it's published by the Cato Institute. Regulatory gatekeeping is the root cause of all problems. Joking aside, I didn't see the prohibition on branching specifically called out, other than to say that Scotland (which did allow it) did not see banknote discounting, and that ultimately it was the 1864 National Banking act which finally ended the practice. The most common thread it seemed to be were that banks held confederate bonds and caused massive losses after the war broke out. Ironically I think the author makes an excellent comparison between Wilcat banking to Stablecoin. I've replaced a few key words like "notes" and "loans" and "currency" with coin and stablecoin: > Nor did they make any loans, their profits having instead consisted entirely of fees drawn on the transactions from their stablecoins. "People needed the coins they produced at a time when money was scarce," Du says. "So the community acquiesced in their conduct." > But, the debate continues, if the public "acquiesced," in what sense can the stablecoins be said to have bamboozled it? Would having no stablecoin at all to trade with really have been better than having to rely on suspended ones?
    - CryptoPunk 5y ago
      Where it explains the harm done by the prohibitions on branching: >>Thanks to the combination of a large country, poor (though rapidly improving) transportation infrastructure, and unit banking, when notes traveled any substantial distance from their source, getting them redeemed could be quite costly. In smaller nations, and especially those, like Scotland, where banks were allowed to branch nationwide, banknote discounts were unknown: the fact that there were many different banks of issue, with varying assets, didn't prevent such nations from having "uniform" banknote currencies. Even Canada, which was geographically as large as the United States, but much less populous and with a far less developed internal transportation system, managed (with the help of several private clearinghouses) to achieve a uniform currency, based on the notes of several dozen commercial banks, by the early 1890s.[4] >>Had it not been for unit banking, the United States might well have had a uniform state banknote currency before the Civil War, thanks to its by then impressive railroad network. Even with unit banking, it came a lot closer than most people realize. Despite already having had over a hundred banks of issue at the time, with hardly any branches, New England managed, with the help of the Suffolk System—an early, Boston-based banknote clearinghouse—to achieve a uniform currency as early as 1824. But yes, the most harmful restrictions were those barring banks that didn't hold the state-mandated reserves, which made banks, and the money supply in general, susceptible to changes in public finances, and made those changes systemic in nature, since all banks were affected in the same way, and at the same, by a change in the availability and value of the statutory reserve assets.
  - midev 5y ago
    > They failed, by definition That's not what "by definition" means... This article is nonsense, and typical of intellectually dishonest right-wingers. They always claim that it was actually regulation the whole time that caused the problems! Wow! Yet we can look at the regulations the author cites, and what were ultimately the reasons for the end of wildcat banks, and see those were obviously not the cause. Regardless, the lessons learned are still applicable today. Whether wildcat banks were common or not doesn't change that most cryptocurrencies mirror the failed wildcat banks of the past.
    - CryptoPunk 5y ago
      By definition, a wildcat bank failed, or came close to it: https://www.britannica.com/topic/wildcat-bank https://www.britannica.com/topic/wildcat-bank >>wildcat bank, unsound bank chartered under state law during the period of uncontrolled state banking (1816–63) in the United States. Such banks distributed nearly worthless currency backed by questionable security (e.g., mortgages, bonds) and were located in inaccessible areas to discourage note redemption. As for your criticism: no, the author meticulously details the ways in which regulatory restrictions led to most of the bank failures associated with wildcat banks, and contrasts it with the experience of 19th century British North America, i.e. Canada, and Scotland, which lacked those same restrictions.
wpietri 5y ago
You do realize that the publisher of this is very far from a neutral party here, right?
- CryptoPunk 5y ago
  I assume you're referring to the author, not publisher, since the credibility of the publisher of the article is irrelevant to the content of the article. An economist coming to a conclusion that is different from the establishment's, or yours, doesn't make them not neutral. I don't know of any conflicts of interest they have that would make them not neutral.
  - kasey_junk 5y ago
    The author is employed by the Cato institute which has the stated aim of publishing research and policy papers that advocate for the removal of regulations. While I don’t know that they have a conflict of interest per se, it’s absolutely reasonable to suspect their writing to be mission driven, not pure research.
    - CryptoPunk 5y ago
      The author developed the view that free markets facilitate economic coordination long before joining the Cato Institute, and has enough statute to presumably not need the employment. >>it’s absolutely reasonable to suspect their writing to be mission driven, not pure research. Perhaps, but really the author provides arguments and evidence that can be judged on its own merit.
  - wpietri 5y ago
    I meant what I said.

deleted 5y ago

[deleted]

NationalPark 5y ago

Even the Cato blogger here concedes that wildcat banks failed more often and were probably fraudulent from the beginning some of the time (but you can't prove it!). His argument more or less boils down to regulation being inherently bad, therefore it's worth it to try this all over again with stablecoins, in case it works this time, also sometimes people got back like 95 cents on the dollar so if you don't count those cases as wildcat banks the story looks a lot better. Not surprising, but it's a lot of words to make such a banal point.

CryptoPunk 5y ago
You've totally missed and mischaracterized the point of the article. That wildcat banks failed was never in dispute. They failed, by definition. As the monetary historian notes, wildcat banks were very rare, and the cause of wildcat banking was not, as alleged, lack of centralized regulatory gatekeeping: the failures were generally directly due to regulatory intervention that exacerbated risk, like prohibitions on bank branching which precluded diversification.
- deleted 5y ago
  [deleted]
- bytelines 5y ago
  I mean it's published by the Cato Institute. Regulatory gatekeeping is the root cause of all problems. Joking aside, I didn't see the prohibition on branching specifically called out, other than to say that Scotland (which did allow it) did not see banknote discounting, and that ultimately it was the 1864 National Banking act which finally ended the practice. The most common thread it seemed to be were that banks held confederate bonds and caused massive losses after the war broke out. Ironically I think the author makes an excellent comparison between Wilcat banking to Stablecoin. I've replaced a few key words like "notes" and "loans" and "currency" with coin and stablecoin: > Nor did they make any loans, their profits having instead consisted entirely of fees drawn on the transactions from their stablecoins. "People needed the coins they produced at a time when money was scarce," Du says. "So the community acquiesced in their conduct." > But, the debate continues, if the public "acquiesced," in what sense can the stablecoins be said to have bamboozled it? Would having no stablecoin at all to trade with really have been better than having to rely on suspended ones?
  - CryptoPunk 5y ago
    Where it explains the harm done by the prohibitions on branching: >>Thanks to the combination of a large country, poor (though rapidly improving) transportation infrastructure, and unit banking, when notes traveled any substantial distance from their source, getting them redeemed could be quite costly. In smaller nations, and especially those, like Scotland, where banks were allowed to branch nationwide, banknote discounts were unknown: the fact that there were many different banks of issue, with varying assets, didn't prevent such nations from having "uniform" banknote currencies. Even Canada, which was geographically as large as the United States, but much less populous and with a far less developed internal transportation system, managed (with the help of several private clearinghouses) to achieve a uniform currency, based on the notes of several dozen commercial banks, by the early 1890s.[4] >>Had it not been for unit banking, the United States might well have had a uniform state banknote currency before the Civil War, thanks to its by then impressive railroad network. Even with unit banking, it came a lot closer than most people realize. Despite already having had over a hundred banks of issue at the time, with hardly any branches, New England managed, with the help of the Suffolk System—an early, Boston-based banknote clearinghouse—to achieve a uniform currency as early as 1824. But yes, the most harmful restrictions were those barring banks that didn't hold the state-mandated reserves, which made banks, and the money supply in general, susceptible to changes in public finances, and made those changes systemic in nature, since all banks were affected in the same way, and at the same, by a change in the availability and value of the statutory reserve assets.
- midev 5y ago
  > They failed, by definition That's not what "by definition" means... This article is nonsense, and typical of intellectually dishonest right-wingers. They always claim that it was actually regulation the whole time that caused the problems! Wow! Yet we can look at the regulations the author cites, and what were ultimately the reasons for the end of wildcat banks, and see those were obviously not the cause. Regardless, the lessons learned are still applicable today. Whether wildcat banks were common or not doesn't change that most cryptocurrencies mirror the failed wildcat banks of the past.
  - CryptoPunk 5y ago
    By definition, a wildcat bank failed, or came close to it: https://www.britannica.com/topic/wildcat-bank https://www.britannica.com/topic/wildcat-bank >>wildcat bank, unsound bank chartered under state law during the period of uncontrolled state banking (1816–63) in the United States. Such banks distributed nearly worthless currency backed by questionable security (e.g., mortgages, bonds) and were located in inaccessible areas to discourage note redemption. As for your criticism: no, the author meticulously details the ways in which regulatory restrictions led to most of the bank failures associated with wildcat banks, and contrasts it with the experience of 19th century British North America, i.e. Canada, and Scotland, which lacked those same restrictions.

wpietri 5y ago

You do realize that the publisher of this is very far from a neutral party here, right?

CryptoPunk 5y ago
I assume you're referring to the author, not publisher, since the credibility of the publisher of the article is irrelevant to the content of the article. An economist coming to a conclusion that is different from the establishment's, or yours, doesn't make them not neutral. I don't know of any conflicts of interest they have that would make them not neutral.
- kasey_junk 5y ago
  The author is employed by the Cato institute which has the stated aim of publishing research and policy papers that advocate for the removal of regulations. While I don’t know that they have a conflict of interest per se, it’s absolutely reasonable to suspect their writing to be mission driven, not pure research.
  - CryptoPunk 5y ago
    The author developed the view that free markets facilitate economic coordination long before joining the Cato Institute, and has enough statute to presumably not need the employment. >>it’s absolutely reasonable to suspect their writing to be mission driven, not pure research. Perhaps, but really the author provides arguments and evidence that can be judged on its own merit.
- wpietri 5y ago
  I meant what I said.