The New Palgrave Dictionary of Economics

2018 Edition
| Editors: Macmillan Publishers Ltd

Banking School, Currency School, Free Banking School

  • Anna J. Schwartz
Reference work entry


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.


Balance of payments Bank Charter Act 1833 (UK) Bank Charter Act 1844 (UK) Bank of England Bank of Ireland Bank of Scotland Banking School Bullion reserve Central banking Convertibility Country banks Credit Currency principle Currency School Free Banking School Fullarton, J. Gilbart, J. Gold standard Inflation Joint stock banking Law of reflux Longfield, M. McCulloch, J. R. Mill, J. S. Money supply Money, definition of Monopoly of note issue Needs of trade doctrine Norman, G. Note issue Overissue Overstone, Lord Parnell, H. Private banks Real bill doctrine Reserve-deposit ratio Rules versus discretion Schwartz, A. J. Scrope, G. P. Stocks and flows Tooke, T. Torrens, R. Trade cycles Wilson, J. 

JEL Classifications

This is a preview of subscription content, log in to check access.


  1. Fullarton, J. 1844. On the regulation of currencies. London: John Murray. Reprinted, New York: Augustus M. Kelley, 1969.Google Scholar
  2. Gilbart, J.W. 1841. Testimony before the Select Committee of the House of Commons on Banks of Issue. British Sessional Papers, vol. 5 (410).Google Scholar
  3. Gregory, T.E. 1928. Introduction to Tooke and Newmarch’s a history of prices. London: P.S. King.Google Scholar
  4. Longfield, S.M. 1840. Banking and currency. Dublin University Magazine.Google Scholar
  5. Loyd, S.J. 1848. Testimony before the Secret Committee of the House of Commons on Commercial Distress. British Sessional Papers, 1847–8, vol. 8, part 1 (584).Google Scholar
  6. Loyd, S.J. 1857. Tracts and other publications on metallic and paper money. London.Google Scholar
  7. McCulloch, J.R. 1831. Historical sketch of the Bank of England. London: Longman.Google Scholar
  8. McCulloch, J.R. 1837. The Bank of England and the country banks. Edinburgh Review.Google Scholar
  9. McCulloch, J.R. 1850. Essays on interest, exchange, coins, paper money, and banks. London.Google Scholar
  10. Mill, J.S. 1848. Principles of political economy, ed. W.J. Ashley. Reprinted London: Longmans & Co., 1909.Google Scholar
  11. Norman, G.W. 1833. Remarks upon some prevalent errors, with respect to currency and banking. London: Hunter.Google Scholar
  12. Parnell, H.B. 1827. Observations on paper money, banking and overtrading. London: James Ridgway.Google Scholar
  13. Scrope, G.P. 1830. On credit-currency, and its superiority to coin, in support of a petition for the establishment of a cheap, safe, and sufficient circulating medium. London: John Murray.Google Scholar
  14. Scrope, G.P. 1832. The rights of industry and the banking system. Quarterly Review, 407–455.Google Scholar
  15. Scrope, G.P. 1833a. An examination of the bank charter question. London: John Murray.Google Scholar
  16. Scrope, G.P. 1833b. Principles of political economy. London: Longman.Google Scholar
  17. Tooke, T. 1840. A history of prices and of the state of the circulation in 1838 and 1839. London: Longman. Reprinted, London: P.S. King, 1928.Google Scholar
  18. Tooke, T. 1848. History of prices and of the state of the circulation, from 1839 to 1847 inclusive. London: Longmans. Reprinted, London: P.S. King, 1928.Google Scholar
  19. Torrens, R. 1840. A letter to Thomas Tooke, Esq. in reply to his objections against the separation of the business of the bank into a Department of Issue and a Department of Discount: With a plan of bank reform. London: Longman.Google Scholar
  20. White, L.H. 1984. Free banking in Britain: Theory, experience, and debate, 1800–1845. Cambridge: Cambridge University Press.Google Scholar
  21. Wilson, J. 1847. Capital, currency, and banking; being a collection of a series of articles published in the Economist in 1845 ... and in 1847. 2nd ed. London: The office of the Economist. London: D.M. Aird, 1859.Google Scholar

Copyright information

© Macmillan Publishers Ltd. 2018

Authors and Affiliations

  • Anna J. Schwartz
    • 1
  1. 1.