Guest post: An Ireland of Alternative Private Currencies Without Bailouts

Today, we have a guest post by Sean Kenny (Lund), who below summarises some lessons for policymakers from a recent working paper with John Turner (Queens) on the Irish banking system before joint-stock banks.

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As the Irish economy continues to emerge from the financial crisis of 2008 and the controversial blanket guarantee which followed it, from the comfort of hindsight a number of decisions have been criticised by prominent commentators. In particular, the terms of the bailout package and the shouldering of bank debt by the Irish taxpayer have featured frequently in the debate. In other words, the domestic and international political machinery employed to address the collapse of the banking system was deemed by many to be inappropriate, as events unfolded all too rapidly. Over the critical weekend of the guarantee, concerns were raised that no currency would be available from ATM machines at the open of business the following Monday.

It is interesting to ponder what might have happened under such a scenario where no support mechanism, instead of an inadequate one, had existed and where money may in fact have disappeared from the economy. As my research with Professor John Turner (Queen’s University, Belfast) documents, such was largely the experience during the last Irish banking crisis of comparable scale in 1820. During this era, money consisted of alternative private bank notes which were redeemable in Bank of Ireland notes considered “as good as gold.”

No central bank existed and the Irish and British exchequers had recently amalgamated. If a private bank had lent unwisely, pushing too many of its notes into circulation, when their notes were presented for conversion at their counters, failure could quickly occur if its current loan income and reserves fell short of its short term liabilities (notes and deposits). Of course, this tendency was exacerbated by a lack of regulation on the issue of private currency, a lack of trust in the stability of small private partnership banks and a prevailing political ethos which saw no role for government involvement in ensuring financial stability.

The 1820 crisis, which began in Cork and spread north saw 40 per cent of Irish banks fail within three weeks, leaving large portions of the country with neither currency nor banks for many years. This had predictably adverse effects on the economy as investment and consumption were largely suspended. In a scene many of us are familiar with today, many bankers, consisting primarily of the politically-connected landed elite, shielded their personal estates from liquidators as their banks’ deposits and notes went unpaid, ruining whole communities in turn. In the worst affected areas, money was simply unavailable to pay wages or to engage in trade and so consumption and employment further collapsed while price falls continued as money became scarcer. As a petition signed by the Lord Mayor of Cork put it, “all confidence, as well as Trade, is suspended, there not being sufficient currency to represent property in its transfer”.

During the following five years, a twilight zone emerged from the ashes, during which an insufficient supply of private money in the form of trade bills was circulated amongst the merchant class who constantly petitioned for reform of the entire monetary and banking system. In this era of uncertainty, many survivor banks and businesses failed as debts could not be collected and the Bank of Ireland remained solely in Dublin.

The 1820 crisis marked the beginning of the end of a quarter century which one historian called a “financial pantomime” where more than 20 percent of the banking system failed on at least four separate occasions. Compared with our own age where banks are deemed “too big to fail”, this was an era in which banks were too small to survive with primitive legislation controlling their activities. So utterly decimated was the monetary and banking system following 1820, that new legislation was introduced in 1825 which replaced the small partnership banks with a system of well capitalised joint stock banks with unlimited liability for a large number of shareholders.

This revolutionised the Irish banking system and dramatically improved financial access through the coming decades. No major banking crisis was to visit Ireland again until 2008. In an age where private (crypto) currencies are being promoted as a panacea to the alleged ills of current monetary regimes, it is appropriate to recall that when private money dies, it is not only its holders and issuers who are affected when the scale of its exchange is significant.  The demise of this group will reduce their investment, consumption and debt-servicing capabilities, which will in turn affect the wider economy. Instead, the utopia of a well-designed financial system in the context of a political apparatus which minimises the fallout when things go awry, then as now, remains a goal worthy of our finest endeavour.

129th Barrington Medal, 2018/2019

The Barrington Medal is awarded annually by the Council of the Statistical and Social Inquiry Society of Ireland under the auspices of the Barrington Trust (founded in 1836 by the bequest of John Barrington). The award is intended to recognise a promising new researcher in the economic and social sciences in Ireland. The award is a silver medal and €1,000. This will be the 170th anniversary of the lecture series and the recipient will be the one 129th Barrington Lecturer.

The lecture should be based on a paper of not more than 7,500 words addressing a topic of relevance to economic or social policy and of current interest in Ireland. In treating the issue of economic or social policy,
the paper may either report the findings of a statistical research study dealing with some aspect of the problem or deal with the underlying theoretical considerations involved, or preferably combine these two
approaches. It should be written in a manner that makes it accessible to non-specialists in the area. More technical material may be included in an appendix.

The paper is published in the Journal of the Society, so it should not have been published before (nor should it be published subsequently without the prior consent of the Council of the Statistical and Social Inquiry Society of Ireland). Candidates, who at the time of their submission must be not more than 35 years of age, should at least submit a detailed abstract of approximately 1,000 words on the proposed lecture, with preference being
given to full papers. A short CV and the name of a proposer who is familiar with their work should also be submitted.

The call for entries closes on September 8th.  More information, including a list of past winners of the Medal since 1992, is available here and from secretary@ssisi.ie.

41st DEW Annual Conference – September 14/15, Clayton Whites (Wexford)

The 41st Annual DEW Economic Policy Conference, supported by Dublin Chamber, takes place in Whites of Wexford on Friday 14th and Saturday 15th September, 2018.

The conference opens on Friday afternoon with the Cantillon Lecture delivered by Minister for Finance, Paschal Donohoe. The two other sessions on Friday deal with the all-island economy, including Aidan Gough (Intertrade Ireland) and Tom Healy (NERI), and “Ten Years Since the Crisis“, where the expert panel includes Sharon Donnery (Central Bank) and Ann Nolan (ex-Department of Finance).

Saturday morning starts with a session on Housing Supply, featuring among others Orla Hegarty (UCD) and Colette Bennett (Social Justice Ireland). Next up is an expert panel on Higher Education, with Michael Horgan (Chair, Higher Education Authority), Brigid McManus (ex-Department of Education) and Linda Doyle (Vice-Dean for Research, Trinity College Dublin).

After lunch, there are parallel sessions on the application of behavioural economics to policy and on public finances. The conference concludes with an expert panel on Ireland 2040, chaired by Robert Watt (Department of Public Expenditure and Reform), and the William Petty lecture, by another government minister.

For more on the conference, including how to book, please visit the DEW’s website: http://dublineconomics.com.

41st Annual DEW Economic Policy Conference

The Dublin Economics Workshop (DEW) is holding its 41st annual Economic Policy Conference in the Clayton White’s Hotel in Wexford on 14/15 September 2018.

At this stage, the DEW is inviting submissions on the following six topics:

  1. All-island economy
  2. Transport & infrastructure
  3. Higher education
  4. Diversity
  5. Behavioural economics – application to policy
  6. Housing supply

All speakers will be asked to present for 15 minutes each. While a paper is not mandatory, it is preferred. If you would like to submit, please send a short abstract (c.300 words) to sarah@dublineconomics.com by 5pm on Friday 11th May.

 

SSISI Annual Symposium – Ireland 2040

The Statistical and Social Inquiry Society of Ireland will host its annual symposium this Thursday, 26th April 2018 at 5:30pm, in Chartered Accountants House, 47/49 Pearse Street, Dublin 2.

The topic of the symposium is: ‘Where’ will the Economy be in 2040? Delivering on the National Planning Framework

Speakers include:

  • Professor Henry Overman, London School of Economics and Director of the What Works Centre for Local Economic Growth
  • Paul Hogan, Senior Adviser at Department of Housing, Planning & Local Government and project manager for the National Planning Framework
  • Dr. Ronan Lyons, Assistant Professor of Economics at Trinity College Dublin

As ever, non-members are welcome to attend and participate in the discussion.

New ‘Economics of Property Market’ online course at TCD

There is widespread agreement that Ireland lacks the housing policy expertise to solve its current housing woes. For example, Donal MacManus of the Irish Council of Social Housing made the case recently for third-level education in housing, given the small number of people with accredited housing policy expertise in this country.

To help address this skills gap, Trinity have developed an online course entitled The Economics of the Property Market. It is aimed largely at professionals without any formal training in economics whose work involves property/housing, including valuers, architects, engineers, solicitors and accountants, but is open to anyone with an interest in the property market.

The online course takes place April-June and comprises four sessions, which look separately at: understanding markets; the demand for property; the supply of property; and the economics of property market policy. More information, and a link to sign up for the course, is given at this link:
https://www.tcd.ie/Economics/CPD/index.php

The deadline for registering is Friday April 13th, the course is live on April 30 and all participants are expected to complete the four sessions within six weeks. Those who have further questions can contact me (firstname.surname at tcd.ie).

Minister Donohue, Stephen Donnelly speaking at DEW conference

A quick update on the annual DEW Conference. As noted a couple of weeks ago, the conference takes place in White’s of Wexford on September 22nd and 23rd. The post linked above outlined some highlights (at least in my own opinion) based on the programme as it was at the time.

An updated programme is now live at this link [PDF]. There are two further updates to the programme that readers may be interested to know:

  1. Firstly, Minister for Finance Paschal Donohue will be giving the William Petty Keynote on Saturday evening, before the conference closes. He will speak after the Ireland in 2040 session, so it is likely he will address the regional spread of economic activity and the related topic of spending on infrastructure.
  2. Secondly, Stephen Donnelly TD will be giving the Cantillon Lecture on Friday afternoon. Stephen is the Fianna Fail spokesperson on Brexit and his lecture will be on the same topic.

For more on the conference and to buy tickets, please visit dublineconomics.com. Please note that, due to significant demand, there are no longer any rooms available at White’s. There is instead limited availability at the Maldron.

(Observant readers will have noticed that both named lectures are after economists with strong Kerry connections. Particularly in this, the 40th Annual DEW Conference, this is in recognition of the long association it has had with Kerry and with Kenmare in particular.)