Electronic commerce and free banking in the United States in the 1850s are related?  This may seem like a bizarre combination to you at first.  Maybe it won't seem strange after I suggest how electronic commerce and privately issued money are related. 

Electronic commerce will become increasingly important as time goes on.  Some changes will affect the economy a lot, and all changes will affect some people a lot. 

Electronic payments are crucial for the development of electronic commerce.  While credit cards work today, it is unlikely that credit cards will be sufficient by themselves over time.  If nothing else, not everyone who has access to a computer can get a credit card. 

As a result, I think that electronic money will be an important part of the development of electronic commerce. 

This electronic money will almost surely will be private money, not government money. 

Banks issued private currency from 1838 to 1863 -- in what was called free banking -- in the United States.  I have been doing research on this episode for some time.  This episode can be informative about what can make electronic money successful and how electronic money will work. 

In this period, banks, households and firms were learning successful and unsuccessful ways that banks could issue private currency.  While people then didn't learn all that we know now, they did learn things that it would be good to remember when you decide to get some private currency. 

While there are connections, my writings tend to emphasize either electronic commerce and electronic money or else free banking with references to electronic money. 

These are short pieces on electronic commerce and electronic money written for online publications when these outlets were active. I'll include new pieces from time to time. 

“Personalized Pricing on the Net”
analyzes Amazon.com's charging different prices to different customers without warning in September 2000.

“Is There a Future for Electronic Currency on the World Wide Web?”
published in E*Journal, the journal of The Society for Electronic Commerce and Rights Management, Winter 1999.

“Is E-commerce a Revolution?”
published in E*Journal, Fall 1999. 

“Is There a Future for Electronic Cash in the United States?”
published in The Journal of Internet Banking and Commerce, November, 1998. A copy also is available here.

Electronic money raises the same issues raised by other forms of money, the possibility of runs on the money.  These pieces are longer than the ones on e-commerce and e-money and emphasize free banking, banking panics and responses to those panics. 

A less technical discussion of free banking that touches on the relationship between electronic money and free banking is “Wildcat Banking, Banking Panics and Free Banking in the United States” Federal Reserve Bank of Atlanta Economic Review 81 (December 1996), 1-20. 

Private remedies developed for bank runs. R. Alton Gilbert and I focus on private remedies for bank runs in the National Banking period in “Bank Runs and Private Remedies” Federal Reserve Bank of St. Louis Review 71 (May/June 1989), 43-61. 

The following papers on free banking are written primarily for professional economists. 

Runs on the state banking systems occurred in the free banking period. Iftekar Hasan and I document the existence and some implications of bank runs in “Bank Runs in the Free Banking Period.” (With Iftekhar Hasan.)  Journal of Money, Credit, and Banking 26 (May 1994), 271-88.  You may be able to access this online.  You can get a copy at many libraries or from me. 

Suspensions of payments are one way to deal with a bank run: in short, just quit paying out.  “Suspensions of Payments, Bank Failures and the Nonbank Publics' Losses” (with Iftekhar Hasan) provides evidence on the effects of suspensions of payments.  This is a draft version essentially the same as the version published in the Journal of Monetary Economics in 2007.

The primary assets held by these banks were state and federal bonds.  Changes in the prices of these bonds were important for the banks.  Rik Hafer, Warren Weber and I published a paper that collected these data together. “Weekly U.S. and State Bond Prices.” Historical Methods 32 (Winter 1999), 37-42.  You can get a copy of this paper at many libraries or from me.  All of the data that appeared in the paper are available in an Excel spreadsheet. If you'd also like the available data on Illinois and New York, you would prefer a different Excel spreasheet. If you would prefer an ASCII file, let me know by sending me an e-mail. 

While it is easy after the fact to say that banks failed because they were risky, it may not be so obvious before hand.  Rik Hafer and I examine banking panics in the free banking period to see whether banks that appear risky before the panic are more likely to fail.  We find that banks failing in a panic were in fact more likely to appear risky before the panic.  This is an occasion when the conventional wisdom at the time is correct. This paper is “Bank Failures in Banking Panics: Risky Banks or Road Kill?” .

Why do banks promise to pay the face value, or par value, of their liabilities on demand if it is all but certain that they will not honor this promise at an unknown future date? There are three different sets of theories to answer this question.  In “Why Do Bank Promise To Pay Par On Demand?”, Margarita Samartin and I summarize those theories and provide some evidence from historical banking. This paper is under consideration for publication in the Journal of Financial Stability. This paper is not merely of historical interest. It indicates how a key aspect of electronic money is likely to work. In addition, today's money market funds in the U.S. provide an excellent example suggesting that electronic money is likely to be redeemable at par.