Commentary

INTRODUCTION Rolnick, Smith, and Weber describe features of the monetary system in the United States prior to the Civil War and, hence, prior to the establishment of the national banking system in 1863. They focus on the systems in place for the issue of bank notes. Some banks were state-chartered banks, and some, the First and Second Banks of the United States, were federally chartered. The authors devote most of their paper to contrasting the operations of the Suffolk Banking System in New England with those of the Second Bank. They take as given that the goal was a nationwide system in which bank notes were uniform in two senses: Notes issued by different banks were perfect substitutes, and such notes were valued at par, meaning that notes did not trade at a discount or at a premium relative to their stated denomination in units of account. In their view, Suffolk approximated such uniformity in New England, but the activities of the Second Bank did not do so for the country as a whole. I will set out a model that can be used to consider whether and in what sense such uniformity is good. There are at least two reasons for doing so. First, uniformity in the above sense is not an ultimate goal. Therefore, we are left with two options: We can rely on data and natural experiments to judge whether uniformity is good in terms of ultimate goals such as consumption, or we can use a model within which the uniformity experiments can be performed. The modeling alternative is easier and cheaper.