Free Banking Theory

Discipline: Economics

A liberal approach to banking in the USA adopted by the New York legislature in 1838 and later extended to other states through the National Bank Act, 1863.

Free banking theory maintained that the banking system should be open to all and not dependent on legislative approval, provided certain minimum deposit requirements are met. Banks would have the power to issue their own banknotes if backed by bonds deposited with a state auditor.

Also see: classical theory of money, currency principle, real bills doctrine

H E Krooss, ed., Documentary History of Banking and Currency in the United States (New York, 1980)


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