SMITH,ADAM SUPPORT FOR MONEY AND BANKING REGULATION - A CASE OF INCONSISTENCY

The Bank of England originated in a deal between monopoly-seeking fina nciers and a revenue-hungry government with war-seeking propensities. The ultimate payee of the loans that the government secured from the n ew bank was, of course, the taxpayer, and it is surprising that Smith did not focus more on this fact. Indeed, the actual regulation of priv ate banks of which Smith approved, appears to have aided and abetted t he further development of the government alliance with the monopolizin g bank. The suppression of small notes had the effect of reducing entr y into banking while the legal obligation of the option clauses, which Smith also wanted, made private banks more vulnerable to runs on thei r liquidity.