Upon Daedalian Wings of Paper Money: Adam Smith and the Crisis of 1772

51 Pages Posted: 22 Dec 2009 Last revised: 10 Feb 2022

See all articles by Hugh Rockoff

Hugh Rockoff

Newark College of Arts & Sciences - Department of Economics; National Bureau of Economic Research (NBER)

Date Written: December 2009

Abstract

Adam Smith advocated laissez faire for most sectors of the economy, but he believed that banking and finance required several forms of regulation including usury laws and the prohibition of small-denomination bank notes. Smith's support for banking regulation appears to have been a response to the shocks that hit the Scottish banking system during the time that he was composing the Wealth of Nations. The most important was the Crisis of 1772, which has been described as the first modern banking crisis faced by the Bank of England. It resembles the Crisis of 2008 in a number of striking ways. This paper describes the Crisis of 1772, the other shocks that hit the Scottish banking system, and the evolution of Smith's views on the regulation of banking. It is based on Smith's writings, the secondary sources, and a quantification of the new issues of Scottish bank notes during Smith's era.

Suggested Citation

Rockoff, Hugh T., Upon Daedalian Wings of Paper Money: Adam Smith and the Crisis of 1772 (December 2009). NBER Working Paper No. w15594, Available at SSRN: https://ssrn.com/abstract=1525772

Hugh T. Rockoff (Contact Author)

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