Brendan Greeley

It did not have any domestic sources of gold in the 19th century.

So what all the states do is they turn around and they say, thank you very much.

We're good.

We're going to charter our own banks.

We're going to have the banks do it instead.

The banks begin printing dollar notes, dollar deposits.

So you have this system very early on.

At the time of the Constitution, there were two chartered banks in America.

By the time of the Panic of 1837, there are several hundred.

So states realize banks are useful because they can lend money to do certain things that we need them to do.

And just as important, they create a circulating form of domestic currency, bank notes.

Again, it's not magic.

They're not just printing money.

When a bank made an agricultural loan or a merchant loan, it would hand out dollars that it had printed itself.

Those dollars had meaning because the loan was valuable.

The loan would provide a return over time.

The loan is the asset.

The note is the liability or the brand new deposits.

What we then learned over the course of the next 100 years is that banks are fragile, and you have to protect them, and you also have to force them to protect themselves.

So we have this pattern in America of crisis regulatory response, crisis regulatory response.