Discussion — Reading 3: Charles Dunbar

This session covers Reading 3: The Check System, a chapter from Chapters on the Theory and History of Banking by Charles Dunbar.

• Dunbar Study Questions

The chapter is a description of the checking system in the US in the late 19th century. It reinforces what we covered in Lecture 5 by describing the "decentralized" check-based payment system of the United States in the late 19th century. Just like the lecture, Dunbar starts with the "one big bank" example and builds toward multiple banks coordinated through a clearinghouse.

"A payment for goods or of a debt is effected by a simple transfer of a right to demand money from the bank; and so too if the recipient of the check gives it in payment to some third person, and he to a fourth, and so on. To this extent the check is plainly made a substitute for the sum of money for which it calls."

From the course website:

"This passage is from Dunbar's textbook, which was a staple of education at Harvard for a generation before the establishment of the Fed, when the United States was a kind of 'emerging market' economy, not the superpower that it would later become. Allyn Young would have studied this book, and you can see traces of that study in the reading for Week 1. Read Dunbar to develop intuition about the economics of the payment system, and how the lending function of banking connects up with the payments function."

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