The Economics of Market Coordination for the Check-Clearing System in the Late 19th Century United States

Abstract:     
On the basis on anecdotes centered on the alleged circuitous routing of checks, researchers focusing on the pre-Fed check-clearing system have usually argued that it was inefficient. In this paper we study a 1910 check remittance register from the State National Bank of Bloomington, Illinois - we dissect the way the bank forwarded checks to various destinations for clearing and collection. We find that the bank followed an orderly process of check remittance according to which checks tended to move in the right direction. This casts doubts on the alleged pervasiveness of cycling and circuitous routing of an extreme nature in the pre-Fed check-clearing process.

Number of Pages in PDF File: 38

Keywords: Monetary systems, Pre-Fed check-clearing system, 19th-century US banking system, exchange charges, the shortest-path problem

JEL Classification: N11, N21, N41, O16

Accepted Paper Series