The library in my old hometown recently held a competition for the unofficial title of poet laureate of the city. They found two people worthy of the title. One is a high school buddy of mine. Seeing the newspaper story set my mind wandering down the byways of literature and I remembered that free banking counts among its advocates Scotland’s most famous novelist, Sir Walter Scott.
Under the pen name of Malachi Malagrowther, Scott wrote "letters" — more accurately, short essays — defending the Scottish system of bank note issue. A banking crisis in England in 1825-26 led to a search for remedies, and some people argued that raising the minimum denomination of bank notes, then £1, would reduce the risk of future crises. Today, £1 is so little that there is no note for it, just a coin, but back then it was more than two week’s wages for many workers. Scott and other advocates of the £1 note pointed out that Scotland’s banking system had withstood the crisis much better than the more heavily regulated English system. They were successful in making their case: the British Parliament raised the minimum denomination of notes to £5 in England but kept it at £1 in Scotland. Although Scottish free banking ended in 1845, Scottish banks continued to issue notes under regulations that made them more or less Bank of England notes with distinctive designs. Fittingly, Sir Walter Scott’s portrait today adorns all notes issued by the Bank of Scotland.
As far as I know, Scott confined his advocacy of free banking to prose. Neither he nor Robert Burns ever wrote poetry on monetary matters; that was left to Monty Python’s fictional Scottish poet Ewan McTeagle. Burns is, however, on the £5 note issued by the Clydesdale Bank.
This concludes several posts on “what’s old” in free banking. My next post will discuss “what’s new,” that is, what we have learned in the last 15 years or so.