In a recent paper, submitted to Enterprise and Society, Mathieu Bédard and I argued that free banking in Canada boosted economic growth. However, we proposed another channel for this effect than the proper inter-mediation of savings and investments. We argued that private money produced by banks who backed their notes with their own assets allowed “good money” to crowd out “bad money”. Basically, the “bad money” was the low (and very uncertain) quality of hard currency. Before the appearance of those banks, “good money” circulated at a premium. We argue that private banks solved this important and simplified trade within Canada.
While doing research for other papers, I stumbled upon an article in Le Télégraphe (a Quebec city newspaper) which actually discussed the problem of poor quality currency and how private currency was actually solving the problem. The image of the article (in French from the June 3rd 1837 article) is seen below. I am always sad (and happy) to discover such interesting pieces of supporting evidence after I made my case.
Oh well, at least I know me and Mathieu weren’t wrong!