Eighteenth-century Scottish banks operated in a regulatory vacuum: no central bank to act as lender of last resort, no monopoly on issuing currency, no legal requirements for maintaining capital reserves, and no formal limits on bank size. These conditions produced a remarkably robust banking system, one that was intensely competitive and served as a prime engine of Scottish economic growth. Despite indicators that might have seemed red flags—large speculative capital flows, a fixed exchange rate, and substantial external debt—Scotland successfully navigated two severe financial crises during the Seven Years’ War.
A few blurbs:The exception was a severe financial crisis in 1772, seven years after the imposition of the first regulations on Scottish banking—the result of aggressive lobbying by large banks seeking to weed out competition. While these restrictions did not cause the 1772 crisis, Tyler Beck Goodspeed argues, they critically undermined the flexibility and resilience previously exhibited by Scottish finance, thereby elevating the risk that another adverse economic shock, such as occurred in 1772, might threaten financial stability more broadly. Far from revealing the shortcomings of unregulated banking, as Adam Smith claimed, the 1772 crisis exposed the risks of ill-conceived bank regulation.
“Tyler Goodspeed has written a marvelous account of a Scottish bank failure in 1772 that ramified from Edinburgh to London and to American plantations, where it helped to transform threatened Virginia debtors into the rebels of 1776. Goodspeed brilliantly upends the lessons that Adam Smith and subsequent analysts drew from their near-death experience: precisely the unregulated profusion of small banks and the unlimited liability assumed by bankers cushioned against systemic crisis. What a delightfully written challenge to the conventional wisdom after our own near financial shipwreck!”—Charles S. Maier
“This is an original, scholarly, and important contribution to financial history, to the political economy of monetary institutions, and to Adam Smith studies. The prose is vivid, and it is a pleasure to read.”—Lawrence H. WhiteMore information, including the TOC, is available here.