Warren E. Weber

The causes of free bank failures : A detailed examination

Abstract In this paper we propose and test a new explanation of bank behavior during the Free Banking Era, 1837–1863. Arguing against the conventional view that free bank failures were due to wildcat banking, we claim they were caused by falling asset prices. Confronting both explanations with our new and detailed data set developed from state auditor reports, we find that the falling asset price explanation of free bank failures explains far more failures than does the wildcatting hypothesis.

Gresham's Law or Gresham's Fallacy?

Greshams law often takes two forms: the rule that bad money drives out good money and a qualified version of that rule that requires a fixed exchange rate between the two monies. Yet history contradicts both of these forms. In fact, the exchange rate has never been fixed, and we doubt it ever could be. We propose a new version of the law that is more feasible and more consistent with the evidence. It requires a fixed transaction cost of using currencies at nonparprices for the rule to apply. Then denomination determines the fate of good money.

Money, Inflation, and Output under Fiat and Commodity Standards

We examine the behavior of money, inflation, and output under fiat and commodity standards to better understand how changes in monetary policy affect economic activity. Using long‐term historical data for 15 countries, we find that, under fiat standards, the growth rates of various monetary aggregates are more highly correlated with inflation and with each other than under commodity standards. Money growth, inflation, and output growth are also higher. In contrast, we do not find that money growth is more highly correlated with output growth under one standard than under the other.

A Model of Bimetallism

Bimetallism has been the subject of considerable debate: Was it a viable monetary system? Was it desirable? In our model, the amounts of each metal are split between coined metal, satisfying a cash‐in‐advance constraint, and uncoined metal, yielding utility. The ratio of the monies in the cash‐in‐advance constraint is endogenous. Bimetallism is feasible: we find a continuum of steady states indexed by the constant exchange rate of the monies. Bimetallism is not desirable: among steady states, welfare under monometallism is higher than under any bimetallic equilibrium. Long‐run trends in gold and silver production placed limits on the maintenance of bimetallism at any given ratio, but its sudden collapse in 1873 remains a puzzle.

The Debasement Puzzle: An Essay on Medieval Monetary History

We establish several facts about medieval monetary debasements: they were followed by unusually large minting volumes and by increased seigniorage; old and new coins circulated concurrently; and, at least some of the time, coins were valued by weight. These facts constitute a puzzle because debasements provide no additional inducements to bring coins to the mint. On theoretical and empirical grounds, we reject explanations based on by-tale circulation, nominal contracts, and sluggish price adjustment. We conclude that debasements pose a challenge to monetary economics.

Nonfundamental uncertainty and exchange rates

This paper shows that there can be equilibria in which exchange rates display randomness unrelated to fundamentals. This is demonstrated in the context of a two-currency, one-good model, with three agent types and cash-in-advance constraints. A crucial feature is that the type i agents, for i = 1, 2, must satisfy a cash-in-advance constraint by holding currency i, while type 3 agents can satisfy it by holding either currency. It is shown that real allocations vary across the multiple equilibria if markets for hedging exchange risk do not exist and that the randomness is innocuous if complete markets exist.

Output Variability under Monetary Policy and Exchange Rate Rules

This paper examines the controversy concerning the relative desirability of fixed versus flexible exchange rates by examining whether a country can achieve a smaller variance of domestic output around its full employment path operating under an exchange rate rule or under a money supply rule. The paper finds that neither policy will always dominate the other. However, it does find that if shocks in one market of the economy are large relative to shocks to other markets, then one type of rule can be shown to dominate the other.

The regulatory wedge between the demand-side and supply-side aggregation-theoretic monetary aggregates

Abstract Barnett introduced the use of neoclassical demand-side aggregation theory into monetary economics. More recently he has introduced supply-side aggregation theory into monetary economics. We show that the demand-side and supply-side exact monetary aggregates need not be equal, even if aggregation is over the same component assets on both sides of the market and if all componentasset markets are cleared. The non-payment of interest on required reserves produces a classical regulatory wedge between the two sides of the aggregate market. We use time-series methods, including a new Hilbert transform method, to investigate the empirical importance of this aggregate gap.

Early State Banks in the United States: How Many Were There and When Did They Exist?

This article describes a newly constructed data set of all U.S. state banks from 1782 to 1861. It contains the names and locations of all banks and branches that went into business and an estimate of when each operated. The compilation is based on reported balance sheets, listings in banknote reporters, and secondary sources. Based on these data, the article presents a count of the number of banks and branches in business by state. I argue that my series are superior to previously existing ones for reasons of consistency, accuracy, and timing. The article contains examples to support this argument.

Interbank payments relationships in the antebellum United States: evidence from Pennsylvania

Abstract This paper investigates antebellum interbank relationships using previously unknown data for Pennsylvania banks from 1851 to 1859 that disaggregate the amounts due from other banks by debtor bank. It finds that country banks, banks outside of Philadelphia and Pittsburgh, dealt almost exclusively with financial center banks. Most had a large, highly stable relationship with a single correspondent bank. The location of a country banks correspondent was consistent with trade patterns, particularly railroad and canal linkages. Philadelphia banks, in contrast, did not establish correspondent-type banking relationships. Further, Philadelphias correspondent banking market was not highly concentrated, and entry was easy.