Interest Rates Before Fed

Economics Economics Questions
1

Question--------

How did banks set interest rates before 1913 (before the Fed was born)?

Thanks.

2

I’m assuming competition.

3

specifically what interest rates?

4

There is an interesting chapter on Interest Rates in:

http://mises.org/books/historyofmoney.pdf

If you have not read it, check it out. This is a great book.

5

There were other central banks before the Fed. But in the absence of central banking, the interest rate is set by saving/investment. For example, if saving increases, there will be a lower interest rate because people will buy more CDs, stocks, and the like (an increase in supply) and at the same time the demand for loans will decrease (since they’ll be able to pay for more from their saved money).

6

I’ve posted this before and Jon answer but I’m still not sure I understand, let’s say a large number of people want to say money but don’t want that saved money to generate interest. Without FRB they use the bank as a warehouse for their gold and the gold can’t be loaned out. Now, despite the fact that a lot of people are foregoing current consumption for future consumption there aren’t a great deal of loanable funds and hence would the interest rate not be higher than the time preferences of the individuals in society?

I understand the opposite isn’t true under full reserve banking and hence you can’t have the buisness cycle but I don’t understand this.

7

People would just buy more stocks, CDs, etc. A lot of people have a lot of money they don’t use sitting around in the bank. If you have to pay for storage, people would just buy short-term (e.g. one month) CDs and the like so they can still have the money relatively quickly if they need it but they get interest.