Banking in the U.S. before the Fed.

Economics Economics Questions
1

I was having a discussion with a Keynesian(an actual Keynesian who believes in free markets, demand-side, etc.), and we were talking about the Fed, and I explained the ABCT and how the fed actually created the business cycle. He didn’t really have a rebuttal to the logic I used to prove that the fed caused booms/busts, but he kept saying, “We already tried having no fed and it didn’t work,” and I don’t really know how to respond to that. Any suggestions?

2

It worked better than the fed ever did.

3

it didnt work?

so between 1776 and 1913 America was just…not existing as a society?

The Founding Fathers were strongly opposed to the formation of a central banking system - the fact that England tried to place the colonies under the monetary control of the Bank of England is seen by many as the ‘last straw’ of English oppression and that it led directly to the War of Independence.

4

Well, you should point out that absent a central bank, fractional reserve banks can still cause problems. Eventually, enough competition would solve those problems, but historically the process was never allowed to fully ran its course.

You can get more historical data here
The Myth of Free Banking in Scotland
and here
Separation of Bank and State – United States Bank, (1834)

edit : in a word, there were other central banks in the US before the fed. Here’s a wiki article which may be good but I suppose somebody else can provided better sources. The Legget book I linked does cover part of the 19th century.

5

We have had periods of central banks/quasi central banks, particularly the First and Second Banks of the United States. Throughout, however, we have had free banking, but never 100% reserve banking. Free banking along with government paper issues, led to most of the turmoil of the 1800’s. I would refer to Rothbard’s numerous works on the subject of money and banking. In particular, try “The Panic of 1819: Reactions and Policies” by Rothbard. It would be good to get a handle on just how the process of a “panic” unfolds.

6

Then why did they create two of it?