Kurt Schuler


Kurt Schuler is an economist in the Office of International Affairs at the U.S. Treasury Department. In his spare time he edits Historical Financial Statistics (a free, noncommercial online data set) for the Center for Financial Stability. He has written a number of publications about the history of free banking and about other monetary systems. Because the Treasury Department discourages employees from commenting publicly on current policy issues within its purview, he refrains from discussing such issues here. His views represent no official Treasury Department position. As befits a bureaucrat, he has chosen to remain faceless, hence we have posted no photo of him.


Leland Yeager, by Roger Koppl

by Kurt Schuler October 4th, 2014 8:10 am

I can recall the first time I saw Leland, though I did not meet him then.  It was September 21st, 1981.  I was a second-year graduate student in NYU’s “Austrian” program.  Along with Don Boudreaux, Sandy Ikeda, George Selgin and the other Austrian students, I was allowed to attend the Mises centenary conference being held at NYU.  We were specifically forbidden to comment, ask questions, or make noise.  We all found it hard to honor this last prohibition when, at a certain point, Leland exclaimed forcefully, “What’s all this about ‘You can’t predict’?  Mises spent his whole life predicting!”   We wanted to cheer.  Later I came to Auburn University to study under Leland.  By the time I came under his influence I had learned some economics at NYU, and much of it was supposed to be “fancy.”  I did not know that economics is not “fancy,” certainly not the core of it.  The best economics is simple, but not simplistic, as Pete Boettke constantly reminds us.  I learned lots of economics from Leland Yeager.  Looking back, though, I think the greatest lesson I learned was the value of fancy-free economics.  The core of the enterprise is price theory, verbal price theory that pays attention to who does what and whether your model makes human sense.  That’s fancy-free economics.  And in the hands of a master like Leland, it is deep and sophisticated economics.  It is what Bruce Caldwell calls “basic economic reasoning,” which he defines as “the sort of reasoning that economists utilize all the time in the classroom.”

Leland also taught me how to pronounce Italian words.  He knew I would soon be getting married in Rome and wanted to help me prepare.  It seemed a dubious skill to properly pronounce words I could not understand.  How would that help me with my Italian in-laws?  I worked on it, though, out of love and respect for my teacher.  Later, I was able to pick up enough Italian to talk to those in-laws. I think Leland realized that if you can discriminate among the sounds, you can pick up the language even without formal training.

I am a poor student.  My economics is still too fancy and I still speak a rather poor and broken Italian.  But if I have made some progress on either front, the credit goes to Leland Yeager.

Roger Koppl is Professor of Finance in the Martin J. Whitman School of Management at Syracuse University and a faculty fellow at SU's Forensic and National Security Sciences Institute


Leland Yeager, by David Tuerck

by Kurt Schuler October 4th, 2014 8:06 am

Professor Yeager was by far the best teacher I had in my Ph.D. program at Virginia. He also offered me the dream opportunity, as a graduate student, to co-author a book with him, entitled Trade Policy and the Price System (and later, Foreign Trade and U.S. Policy).  I wish him many happy returns.

David Tuerck is Professor of Economics at Suffolk University and Executive Director of the Beacon Hill Institute


Leland Yeager, by Thomas D. Willett

by Kurt Schuler October 4th, 2014 8:01 am

Leland Yeager is 90. That's hard for me to believe. It seems only a short while ago that I was sitting in his classes in awe of the way that he would take extremely complicated articles and show us their core arguments and key factors on which they depended.

The clarity of mind needed to do that is an all too rare commodity.

By example he taught us what it was like to think clearly and with intellectual honesty. One should learn both sides of any professional dispute. Yeager was no Keynesian but he made sure that we understood the main Keynesian arguments. Indeed I found that I had learned from him better than many of my colleagues from other universities who had studied with Keynesian oriented professors.

Besides teaching us how to do economics, he gave us insights into many economic issues, such as the integration of absorption, elasticity and monetary approaches to the effects of exchange rate adjustments, which are still relevant to current debates.

I have been blessed with being mentored by a number of fine economists in school and beyond. None taught me more about how to be an economist than Leland Yeager.

I owe him more thanks than I can ever adequately express.

Thomas D. Willett is Director of the Claremont Institute for Economic Policy Studies and Horton Professor of Economics at Claremont Graduate University and Claremont McKenna College


Ronald McKinnon, 1935-2014

by Kurt Schuler October 2nd, 2014 10:08 pm

Ronald McKinnon, William B. Eberle  Professor of Economics at Stanford University, has died from complications of a fall he suffered 12 days ago. I met McKinnon for the first time a month ago after having corresponded with him a few times over the years. He was hard of hearing but otherwise seemingly in good health. He was still full of plans for the future: we talked about financial sanctions, and he mentioned that if he ever got around to a revised edition of his recent book The Unloved Dollar Standard, it would be the topic of the new first chapter.

McKinnon's relation to free banking comes through his book Money and Capital in Economic Development (1973). It and a book by his Stanford colleague Edward S. Shaw, Financial Deepening in Economic Development (also 1973), introduced the ideas of "financial repression" and "financial deepening." Financial repression consists in various kinds of regulatory attempts to direct credit to favored sectors. Exchange controls, interest rate ceilings, compulsory credit allocations, and other measures promulgated to promote financial deepening and economic growth instead usually end up making the financial system and growth more fragile. Larry White, George Selgin, and others have used McKinnon and Shaw's ideas to argue that restrictions on note issue are a kind of financial repression, and that removing them would promote financial deepening.

Another book by McKinnon that influenced me was The Order of Economic Liberalization: Financial Control in the Transition to a Market Economy (1991, second edition 1993),  an in-depth analysis of how the financial systems of former communist countries could best make the transition to a market economy. Although I disagreed with a number of McKinnon's prescriptions, I appreciated the clarity with which he treated the issues and the coherence of his approach. In my own work proposing the currency board system in several former communist countries. some of which adopted the system, I benefited from knowing McKinnon's ideas.

McKinnon had taught at Stanford since 1961, and was a factor in the rise to prominence of its economics department. His Web site is still here for now.


Free banking in Jersey

by Kurt Schuler September 28th, 2014 1:51 pm

Not New Jersey; old Jersey, in the Channel Islands. I recently read a paper by Brandon Dixon, an undergraduate economics student at the University of Chicago, that examines currency arrangements in the periphery of the United Kingdom. The paper should be issued in a month or two and I will post a link when it is, because the paper also discusses Scotland. One of the sources Dixon cites on the history of currency in Jersey is this summary by its government, which briefly discusses the island's free banking period (see pages 12-14). There were more than 100 note issuers by 1817, and even churches issued notes! Consolidation then set in. Later in the century, I gather in 1873 (the year of a worldwide financial panic), a number of banks failed. A subject for detailed research by somebody who can go and poke around local archives?


Free banking in Belgium

by Kurt Schuler September 2nd, 2014 9:23 am

That is the new title of a paper I wrote with the Lebanese economist Patrick Mardini. Patrick did the bulk of the work, and he will be presenting the paper at the conference in Lund, Sweden on free banking history later this week (see the previous post). Here is the abstract:

Belgium had a somewhat free banking system from 1835 to 1850. The country had two major banks in Brussels, the Société Générale and the Banque de Belgique; several smaller banks in the provinces; and many private bankers. The system had restrictions on note issue and legal barriers to entry. Belgium suffered from a bank run in 1838 triggered by the threat of war with the Netherlands. The Banque de Belgique had invested its resources in illiquid assets and did not know how or when to reduce its note issue. It was bailed out by the government but knew that another failure would spell its end. This led the bank to reform its activity, deleverage, and hedge the remaining risk. The Société Générale was not seriously threatened in 1838 and continued as before. In 1848, the French revolution of that year and France’s suspension of convertibility induced another crisis. This time it was the turn of the Société Générale to falter, for the same reasons as the Bank de Belgique in 1838. The government intervened through fiat money, suspension of convertibility and permission to monetize liabilities. The free banking system ended with the creation of a central bank on January 2, 1851.


Schedule of upcoming conference on free banking history

by Kurt Schuler August 28th, 2014 11:43 pm

Free Banking systems: diversity in financial and economic growth

Dates: September 4 – 5, 2014

Venue: Lund University School of Economics and Management, Tycho Brahes väg 1, 22363 Lund, Room EC 1:134

Main organizer: Anders Ögren, Lund University, anders.ogren@ekh.lu.se

Travelling: There are frequent trains from Copenhagen Airport (Kastrup) to the city of Lund.

UPDATE: The conference Web site with links to papers and other features is now available: http://freebankingconference.wordpress.com/

Day 1: Thursday 4 September
10.30 – 10.45 Welcome

10.45 – 12.30 Session1: Empirical Cases of Free Banking I
Chair: Anders Ögren
“Free Banking in Belgium” Patrick Mardini (University of Balamand in Tripoli, Lebanon) & Kurt Schuler (Center for Financial Stability in New York)
“Private notes in the late Tokugawa Japan: the case of the Itami Brewery Guild” Keiichiro Kato (Kobe Ryutsu Kagaku University)
“Metallic Circulation and Fiduciary Circulation during the Free Banking Period in Colombia: 1865-1885” Andrés Álvarez (Universidad de los Andes, Colombia)

12.30 – 14 Lunch
14 – 15.45 Session 2: Free and Central Banking
Chair: Andres Alvarez
“A Tale of Two National Banking Systems: the United States and Japan” Masato Shizume (Waseda University) Co-authors: John A. James (University of Virginia), Masayoshi Tsurumi
(Hosei University) and David Weiman (Barnard College)
“Private bank notes, central banking and monetary policy. The case of Sweden” Anders Ögren (Lund University)
“Why did Italy leave free-banking? The rationale for central banking in the interwar years” Giandomenico Piluso (University of Siena) and Giuseppe Telesca (University of Florence and University of Reading)

15.45 – 16.15 Coffee

16.15 – 17.30 Session 3: Empirical Cases of Free Banking II
Chair: Masato Shizume
“Nature abhors a vacuum: the banking system in the United States from the removal of the Second Bank to the passage of the Legal Tender Act, 1832-1862” Ludovic Desmedt (Université de Bourgogne, LEDi) and Laurent Le Maux (Université de Brest, Economix)
“Integration of regional money markets in England, 18th and 19th centuries” Mina Ishizu (London School of Economics)

Conference Dinner

Day 2: Friday 5 September
9.30 – 11 Session 4: Empirical Cases of Free Banking III
Chair: Keiichiro Kato
“The Mexican Banking System, 1897-1907: A Networked Agent Based Modelling Approach” Fernando Arteaga González (George Mason University) and André L'Huillier Montalba (George Mason University)
“Free Banking and Economic Growth in Lower Canada, 1817–1851” Mathieu Bédard (Aix-Marseille Universite ́ and Tolouse School of Economics) and Vincent Geloso (London School of Economics)
“The Economics of Private Money: Private Bank Notes in Sweden, 1831 – 1906” Lars Jonung (Lund University)

11-11.30 Coffee

11.30 – 12.40 Session 6: Free Banking in Theory
Chair: Lars Jonung
“Free Banking as a Money Demand Gauge” Eric Dennis (AIG)
“What ́s “Free” about Free Banking?” David Howden (St. Louis University – Madrid Campus)

12.40 – 14 Lunch

14 – 15.45 Session 5: Empirical Cases of Free Banking IV
Chair: Ludovic Desmedt
“The Role of the Bangkok agency of the HSBC in Southeast Asia before 1913” Takeshi Nishimura (Kansai University)
“Family Networks and the Emergence of a Financial Capital in Antioquia (Colombia)” Andrés Álvarez (Universidad de los Andes) César Mantilla (Institute for Advanced Study in Toulouse) Javier Mejía-Cubillos (Universidad de los Andes)
“Monthly Estimates of Narrow Money in the United Kingdom, 1841-70” Jason Lennard (Lund University) and Sean Kenny (Lund University)

15.45 – 16.15 Coffee

16.15 – 17.30 Banking, Free Banking and Research in the Future
Chairs: Anders Ögren, Andrés Álvarez and Masato Shizume
Suggested reading: “Establishing an International Data Archive on Free Banking” Kurt Schuler (Center for Financial Stability in New York)
Open discussion


The grumpier economist

by Kurt Schuler August 24th, 2014 3:03 pm

In his generally thought-provoking blog The Grumpy Economist, John Cochrane refers to a recent paper and a paper earlier this year that he wrote. (The title of the blog, by the way, comes from the name his children teasingly gave him after hearing one too many of his dinner-table rants. I suspect it is how most children who have economists as parents think of them.)

In the earlier paper, “Toward a Run-Free Financial System,” Cochrane writes (page 4), “Our government should take over its natural monopoly position in supplying interest-paying money, just as it took over a monopoly position in supplying nineteenth-century bank notes, and for the same reason: to eliminate crises, which have the same fundamental source.”

Cochrane’s specialty is finance, not monetary economics, but I hold the University of Chicago to a higher standard here than such Podunk outfits as Berkeley (where Cochrane earned his Ph.D.) or Harvard. Even a Chicago professor whose specialty is elsewhere within economics should avoid gross errors of historical fact in American monetary history, given the many Chicago professors and students who have done so much to gather and interpret facts ignored by others.

First, government had no natural monopoly position in supplying bank notes. The federal government did not issue notes on a level playing field with privately issued notes and drive the private notes out of circulation. Rather, in 1863 the federal government passed a law requiring federally chartered banks to hold federal bonds as collateral against notes issued, and in 1865 and 1866 it passed acts imposing prohibitively high tax rates on notes issued by state-chartered banks and nonbank issuers. Even after ending the state bank and nonbank notes, federally issued “greenbacks,” gold certificates and silver certificates did not drive the notes of federally chartered banks out of circulation. They remained until finally prohibited by law from circulating further, in 1935.

Second, notes issued by the U.S. government in fact have historically had considerably higher risk of nonpayment than notes issued by U.S. banks. In 1933 the U.S. government defaulted on 100% of its notes with respect to the obligation to redeem them in gold. American citizens were not legally allowed to hold gold again no questions asked until 1975. In the meantime, the dollar had depreciated from $20.67 per troy ounce to nearly $200 per troy ounce.

Third, government control of the note supply was a cause of crisis in the United States, not a path to eliminating them. The “inelasticity” of the note supply in the late 19th century United States contributed to periodic financial crisis from 1873 to 1914. People wanted to convert deposits into notes, but government-imposed restrictions on note issue prevented them from doing so. The result, in those days when deposit accounts were much less widespread among the public, was a shortage of currency that prevented people from making payments and undertaking transactions they wanted to make, which were made by their counterparts in Canada and other countries that had looser restrictions on the ability of banks to convert deposits into notes. Even after the Federal Reserve began operations in November 1914, there was a note shortage during the Great Depression, as seen by the temporary increase, before further issues were outlawed, of notes issued by federally chartered banks. (Details about the regulations I have referred to are available in this old article I wrote.)

Enough of my own grumpiness for now. In a later post I will have some more general, ungrumpy comments on whether risk-free banking is really possible.


Proposal for a data archive on free banking

by Kurt Schuler August 14th, 2014 9:10 pm

For the upcoming conference “Free Banking systems: diversity in financial and economic growth” at Lund University School of Economics and Management (Sweden), September 4–5, 2014 I have written a paper titled "Establishing an International Data Archive on Free Banking."  The idea came from a post I wrote several months ago. Here is the abstract:

In the past 40 years, enough work has been done on historical cases of free banking to show that it was a widespread phenomenon. There has been no concerted effort, however, to draw all this material together. The Internet, which did not exist when the revival of interest in free banking began, offers the chance to create an open international research hub to bring together a mass of statistical, legal, and other material on the various cases of free banking. I describe the advantages of a research hub, what components it should include, and an existing research hub that provides a model.

Click here for the paper. Unfortunately I have a prior commitment to another conference, but my coauthor on another paper, Patrick Mardini, will be presenting the paper if the organizers wish to keep it on the schedule and he will relay comments from the conference to me. I welcome your reactions to the paper in the comment section below.

If any readers are interested in attending the conference (on which I have previously posted), please contact the main organizer, Anders Ögren (anders.ogren@ekh.lu.se) to see if there is room.


World War I and free banking

by Kurt Schuler July 30th, 2014 10:38 pm

The 100th anniversary of the start of World War I was two days ago. Earlier this year I skimmed through a number of New York newspapers from just before the war and during its first few months. It is apparent how great a shock it was. The Christian great powers of Europe had been mostly at peace for nearly a century (though they had been gnawing at the Ottoman Empire), and suddenly they were embroiled in a vast continental war over a matter that from their perspective should have had little importance.

World War I began a rapid decline in free banking. None of the belligerents had free banking in 1914. In the United States, which did not become a belligerent until 1917, 1914 saw the Federal Reserve replace the previous system of government issue of currency alongside heavily regulated issue of notes by banks. The war and its aftereffects also disrupted the monetary systems of countries with free banking such that most adopted arrangements that gave governments a good deal more discretionary control over the monetary system.

There is a hole in free banking theory with respect to war. Free banking, like free trade more generally, is inherently a peacetime system. The question for its political durability is whether, like trade, it can be bent during wartime but prove sufficiently elastic to return to something like its old shape afterwards. If free banking is a peacetime-only system, politically it cannot persist, because war is an unfortunate reality of human existence.

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