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Adam Smith and the Bankers: Retrospect and Prospect

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  • Alfred Duncan
  • Charles Nolan

Abstract

Adam Smith promoted free banking—private and compe ve bank notes backed by gold. He also supported restricons on banks. This paper analyses Smith’s views and the era in which they developed. We suggest his regulaons were a backstop against the risks banks posed to depositors but primarily to monetary stability. In modern parlance, Smith promoted macroprudenal regulaons to underpin monetary stability, just like Friedman and Schwartz (1963) viewed the FDIC in 1933 in the US. We discuss why Smith’s view of efficient banking was not realised. Ulmately, bank regulaon developed a microprudenal focus running aground in the 2008/9 financial crash. The rising prominence of macroprudenal regulaon may provide a chance to reorientate banking regulaon to support monetary stability. The early signs are not especially promising.

Suggested Citation

  • Alfred Duncan & Charles Nolan, 2023. "Adam Smith and the Bankers: Retrospect and Prospect," Working Papers 2023_08, Business School - Economics, University of Glasgow.
    • Handle: RePEc:gla:glaewp:2023_08
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    References listed on IDEAS

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    Adam Smith; banking;

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