Free Banking and Economic Growth in Lower Canada, 1817-1851

Mathieu Bédard

Montreal Economic Institute; Aix-Marseille University - Aix-Marseille School of Economics

Vincent Geloso

Texas Tech University

August 28, 2014

Generally, the historical literature presents the period from 1817 to 1851 in Lower Canada (modern day Québec) as one of negative economic growth. This period also coincides with the rise of free banking in the colony. In this paper we propose to study the effects of free banking on economic growth using theoretical and empirical validations to study the issue of whether or not economic growth was negative. First of all, using monetary identities, we propose that given the increase in the stock of money and the reduction in the general price level, there must have been a positive rate of economic growth during the period. We also provide complementary evidence drawn from wages that living standards were increasing. It was hence impossible for growth to have been negative. Secondly, we propose that the rise of privately issued paper money under free banking in the colony had the effect of mitigating the problem of the abundance of poor quality coins in circulation which resulted from legal tender legislation. It also had the effect of facilitating credit networks and exchange. We link this conclusion to the emergence of free banking which must have been an important contributing factor. Although we cannot perfectly quantity the effect of free banking on economic growth in Lower Canada, we can be certain that its effect on growth was clearly positive.

Number of Pages in PDF File: 16

Keywords: Economic Growth, Free Banking, Price Level, Private Money

JEL Classification: N11, N21, E31

Open PDF in Browser Download This Paper

Date posted: August 20, 2014 ; Last revised: August 29, 2014

Suggested Citation

Bédard, Mathieu and Geloso, Vincent, Free Banking and Economic Growth in Lower Canada, 1817-1851 (August 28, 2014). Available at SSRN: http://ssrn.com/abstract=2482313

Contact Information

Mathieu Bédard (Contact Author)
Montreal Economic Institute ( email )
910, rue Peel, bureau 600
Montreal, Quebec J7R 6Y9
514 273-0969 (Phone)
514 273-2581 (Fax)
HOME PAGE: http://www.iedm.org/
Aix-Marseille University - Aix-Marseille School of Economics ( email )
2 rue de la Charité
Marseille, 13236
Vincent Geloso
Texas Tech University ( email )
1901 University Avenue
Lubbock, TX Texas 79410
United States
Feedback to SSRN

Paper statistics
Abstract Views: 1,602
Downloads: 80
Download Rank: 231,931

© 2016 Social Science Electronic Publishing, Inc. All Rights Reserved.  FAQ   Terms of Use   Privacy Policy   Copyright   Contact Us
This page was processed by apollobot1 in 2.251 seconds