The Law of National Guaranteed Banks in Argentina (1887-1890): Free Banking Failure or Regulatory Failure?

The Independent Review, Vol. 16, No. 4, pp. 569-590

32 Pages Posted: 4 Apr 2011 Last revised: 15 Mar 2014

See all articles by Nicolas Cachanosky

Nicolas Cachanosky

Metropolitan State University of Denver; American Institute for Economic Research

Date Written: April 3, 2011

Abstract

Among the cited historical cases of free banking is the National Law of Guaranteed Banks in Argentina (1887-1890), a system which proved to be unstable. This historical case presents relevant risks that are attributed to free banking, the absence of proper regulation and a formal lender of last resort. As guaranteed banks vigorously expanded the money supply, they ultimately created a banking crisis.

The law, however, imposed very specific, though inefficient, requirements and regulations on money and banking. These regulations changed the economic incentives altogether and created a dangerous dynamic that was the real cause of the crisis. The Law of National Guaranteed Banks, then, is not a failed historical experiment of free banking but, rather, a failure to effectively regulate the market.

Keywords: guaranteed banks, free banking

JEL Classification: G28, N16, N26

Suggested Citation

Cachanosky, Nicolas, The Law of National Guaranteed Banks in Argentina (1887-1890): Free Banking Failure or Regulatory Failure? (April 3, 2011). The Independent Review, Vol. 16, No. 4, pp. 569-590. Available at SSRN: https://ssrn.com/abstract=1802046

Nicolas Cachanosky (Contact Author)

Metropolitan State University of Denver ( email )

Student Success Building
890 Auraria Pkwy #310
Denver, CO 80217
United States

HOME PAGE: http://www.ncachanosky.edu

American Institute for Economic Research

PO Box 1000
Great Barrington, MA 01230
United States

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