Are Banks Necessary?

In today’s increasingly digital economy, we can get through our day without ever having to touch cash, write a check or go to a bank. The question of what “money” is emerges as we consider what the relative advantages and disadvantages are of maintaining all of our transactions through electronic systems. Bitcoin poses yet additional challenges for those who believe that banks provide critical functions. Dr. Tiemann is continuing to explore these concepts and, in recent months, has focused his research into economic and banking history on the California Gold Rush. He plans to produce a series of articles from that work, which will help us better understand what money is and how and why it actually works. In the meantime, Dr. Tiemann has released a note examining the fascinating period just before the Gold Rush, when California’s economy suffered a severe shortage of cash and an absence of banks. Click on the image to read about William A. Leidesdorff, a successful San Francisco merchant in the pre-Gold Rush era of the 1840s, who dealt with those handicaps by becoming, in effect, his own banker.