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“In the last several years, economists have produced numoerous studies examining both the theoretical operations and historical manifestations of unregulated banking systems. Recent examples of historical investigations are the studies by L. White (47), who explores the Scottish experience, Selgin (33) on China, and Timberlake (43), Gorton (12), and Mullineaux (20), all of whom examin the role of clearinghouses prior to the creation of the Federal Reserve System in the United States. Timberlake and Gorton emphasize the role that currency substitutes played during banking panics of that era. The present paper seeks to explore the issuing of currency substitutes during the fall of 1907 in greater detail. In particular, it seeks to explain precisely why currency substitutes were needed and how they became accepted and to examine the implications of the panic for both traditional and present arguments over the historical justifications for the Fed.” Read more.

“Competitive Currencies, Legal Restrictions, and the Origins of the Fed: Some Evidence from the Panic of 1907”
Steven Horwitz
Southern Economic Journal, 56 (3), January 1990, pp. 639-49. Reprinted in The International Library of Macroeconomic and Financial History: Free Banking (3 vols.), Lawrence White, editor, Aldershot, UK: Edward Elgar, 1993, v. 2, pp. 330-340.

Tom Duncan

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