Managing Money Risk in Antebellum New York: From Chartered Banking to Free Banking and Beyond

Extract

One of the most difficult problems facing economic policymakers during the antebellum period was the threat of instability in the banking sector. Banks constituted not only critical sources of credit for both firms and individuals, but also the primary suppliers of money within the economy. Particularly because bank instability tended to be contagious, it was viewed as an especially vicious problem, and one that required a government solution. The challenge was to craft a policy that would be sufficiently stringent to assure a safe banking system and a secure money supply without being so stringent as to suffocate the economy, depriving it of vital credit and liquidity. Even today, this remains a formidable challenge in many developing countries.