Hostname: page-component-848d4c4894-mwx4w Total loading time: 0 Render date: 2024-06-21T21:29:09.513Z Has data issue: false hasContentIssue false
  • English
  • Français

The Note Issue Paradox in the Free Banking Era

Published online by Cambridge University Press:  03 March 2009

Howard Bodenhorn  and
Michael Haupert
Howard Bodenhorn
Affiliation:
Assistant Professor of Economics, Lafayette College, Easton, PA 18042.
Michael Haupert
Affiliation:
Associate Professor of Economics, University of Wisconsin, La Crosse, La Crosse, WI 54601.
Get access Rights & Permissions [Opens in a new window]

Abstract

In recent years a number of papers have appeared offering explanations of the long-noted, long-unresolved note issue paradox in both the free and national banking eras. Some have argued that previous profit calculations overstate the true cost of note issue because they fail to account for risks and costs that are not easily modeled. Others have argued that profit calculations are reasonably accurate and demonstrate that the bankers acted irrationally in failing to reap easily gathered profits. Yet another approach radically modified the basis of the calculation and found potential profits to be quite small. This note offers an explanation overlooked by most previous studies: that although note issue was profitable, a more profitable avenue existed. Because of legal and institutional restrictions, banks found it more profitable at the margin to create deposits rather than issue notes in extending credit.

Type
Articles
Information
The Journal of Economic History , Volume 56 , Issue 3 , September 1996 , pp. 687 - 693
Copyright
Copyright © The Economic History Association 1996

Access options

Get access to the full version of this content by using one of the access options below. (Log in options will check for institutional or personal access. Content may require purchase if you do not have access.)

References

REFERECNES

Albany Argus, various issues, 1845–1854.Google Scholar
Bicknell's Counterfeir Detector, Bank Note Reporter and General Price Current, various issues, 1845–1857.Google Scholar
Bell, Spurgeon. “Profit on National Bank Notes.” American Economic Review 2, no. 1 (1912): 38–60.Google Scholar
Bodenhorn, Howard. “Capital Mobility and Financial Integration in Antebellum America.” this JOURNAL 52, no. 3 (1992): 585–610.Google Scholar
Bodenhorn, Howard, and Haupert, Michael. “Was There a Note Issue Conundrum in the Free Banking Era?” Journal of Money, Credit, and Banking 27, no. 3 (1995): 702–12.Google Scholar
Bodenhorn, Howard, and Rockoff, Hugh. “Regional Interest Rates in Antebellum America.” In Strategic Factors in Nineteenth Century American Economic History: A Volume to Honor Robert W. Fogel, edited by Goldin, Claudia and Rockoff, Hugh, 159–87. Chicago: University of Chicago Press, 1992.Google Scholar
Cagan, Philip, and Anna, J. Schwartz. “The National Bank Note Puzzle Reinterpreted.” Journal of Money, Credit, and Banking 23, no. 3 (1991): 293–307.CrossRefGoogle Scholar
Champ, Bruce. The Underissue of National Banknotes During the Period 1875–1913. Unpublished Manuscript. 1990.Google Scholar
Champ, Bruce, Neil, Wallace, and Weber, Warren. “Resolving the National Bank Note Paradox.” Federal Reserve Bank of Minneapolis Quarterly Review (spring 1992): 13–21.Google Scholar
Hammond, Bray. Banks and Politics in America from the Revolution to the Civil War. Princeton: Princeton University Press, 1957.Google Scholar
James, John. “The Conundrum of the Low Issue of National Bank Notes.” Journal of Political Economy 84, no. 2 (1976): 359–67.Google Scholar
James, John. “A Note on Interest Paid on New York Bankers' Balances in the Postbellum Period.” Business History Review 50, no. 3 (1976): 198–202.Google Scholar
Kuehiwein, Michael. “The National Bank Note Controversy Reexamined.” Journal of Money, Credit, and Banking 24, no. 1 (1992): 111–26.Google Scholar
New York Assembly. “Annual Report of the Superintendent of Banks.” Assembly Documents. Albany, 1835–1861.Google Scholar
New York Daily Times, various issues, 1850–1861.Google Scholar
New York Herald, various issues, 1850–1860.Google Scholar
Rolnick, Arthur, and Weber, Warren. “Free Banking, Wildcat Banking, and Shinplasters.” Federal Reserve Bank of Minneapolis Quarterly Review (fall 1982): 10–19.Google Scholar