Was There a Note Issue Conundrum in the Free Banking Era?

Abstract

The article focuses on the note issue paradox of American banking in the post-Civil War era. An overview of the conundrum is given, highlighting national bank behaviors inconsistent with profit-maximizing principles and several historiographical interpretations of the behavior, namely that they did not expand note issues in beneficial conditions to do so. Additional examination is offered to free-regime state banks, noting similarities in cost and risk environments to the following national bank-regime era. Conclusions are offered suggesting unseen risk perceptions that prevented the profitable venture.