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At 03:15 PM 9/29/98 -0700, you wrote: 
 
>S. Horwitz refers to "free banking."  Query: wasn't the most 
>successful "free" banking regime that in New York State, which had a 
>tough regulatory regime which, will providing reasonably open entry, 
>had rigorous standards for the capital backing of the banks.  Thus 
>"free" banking really refers to an "open" system, carefully 
>structured by law, but without a central state-controlled monetary 
>authority. 
 
This dual use of the term "free banking" is one that can often cause 
confusion.  Economic historians use it to describe the monetary regimes in 
a number of states between 1837 and 1863, where obtaining a charter had 
been largely de-politicized, but where stiff regulations (reserve 
requirements, anti-branching laws, and bond-collateral requirements among 
others) remained.  Fred is right that a number of states, New York among 
them, had successful experiments with this system.  However, some of these 
"free banking" experiments failed, often because of fluctuations in the 
value of the state government bonds that served as collateral against 
currency.  A number of contemporary authors argued that those laws (and the 
ones like them for federally chartered banks under the National Banking 
System after 1863) were a major cause of problems with the system, 
especially the currency shortages that took place under NBS. 
 
In recent years, a number of authors have also used the term "free banking" 
to describe a hypothesized unregulated banking system - one that would not 
have had the sorts of regulations that were in place during the historical 
"free banking era."  Perhaps these recent theorists should have picked 
another name to avoid the confusion, but it seems to have stuck.  My use of 
"free banking" and James Aune's in the original post, both refer to the 
more recent of the two terms.  Certainly such a hypothesized system would 
be "carefully structured by law" and would lack a central-state bank. 
However, it would also lack the sorts of regulations referred to above, a 
point that those in the literature argue would make such a system even more 
stable and efficiency-enhancing than was that of the "free banking era." 
 
Steven Horwitz 
St. Lawrence University - Economics 
 
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