The Myth of Free Banking in Scotland

Reviewing Lawrence H. White's Free Banking in Britain, Murray Rothbard dismantles the claim that Scotland enjoyed a century of successful free banking before the Peel Act of 1845. Drawing on Sydney Checkland's history, he shows that the Scottish banks pyramided credit on the Bank of England rather than standing on their own specie, suspended payment alongside England from 1797 to 1821, and let reserves fall from 10–20 percent to as little as 1 percent, while depositors who asked for gold met argument, rebuff, and the threat of losing future credit. The rarity of bank failure that White counts as proof of success, Rothbard argues, is evidence of the opposite.