Banking School, Currency School, Free Banking School

Abstract

The doctrines of the three nineteenth century schools differed. The Currency School believed that note issues should vary one-to-one with the Bank of England’s gold reserves. The Banking School believed that real bills, needs of trade and the law of reflux should govern bank operations. The Free Banking School believed that competitive private banks would not overissue, whereas a monopoly issuer did so. Other issues were debated. Was a central bank needed? Should a central bank be subject to rules or allowed discretion? How should money be defined? No one point of view carried the day and several of the issues that divided the schools are still debated today.