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A Limit on Laissez-Faire Banking

By law of the Scottish Parliament, the Bank of Scotland is established. It differs from the Bank of England in that it is prohibited from making loans to the government except by a specific vote of Parliament. Normally bank shareholders are personally liable for all debts of the bank. That is, a shareholder's liability can extend beyond the value of his deposit at the bank. They can take your house, your boat and the shirt off of your back if necessary. All of it. But the Bank of Scotland is a limited liability bank. In the years to follow two other limited liability banks will chartered: The Royal Bank of Scotland and the British Linen Company. By 1845, unlimited liability banks will come and go but these three limited liability banks will remain standing. [1] [2]

My Take by Alex Shrugged
OK, so what is the difference? One would think that depositors who had so much to lose would be attracted to the best managed banks. Certainly, shareholders would care about how well their money was managed, but there are practical limits to how much control a shareholder might have on the decisions of a bank manager. Thus, it makes more sense to buy shares in a limited liability bank so that one is not risking everything one owns. While it is true that a bank manager of a limited liability bank might not feel the same need for caution with the shareholder's money, the long-term survivability of the bank depends on limiting the damage when a bank hits the inevitable economic snafu or bad decision. The unlimited liability banks were exposed to unlimited damage and thus a major blow could take it down forever. The proof of the pudding is in the eating. The Bank of Scotland survived from its founding until 2006 when it was reorganized and then acquired by Lloyd's Banking Group in 2009.

Putting Money into the "Curse" Jar *

Puritan elements in England have been complaining about the crassness and general deterioration of society, Recently the censorship laws have been allowed to lapse, so there has been a surge in what might be called inappropriate publications. Societies for the improvement of manners have sprung up lately. Members of these private societies are shocked by the easy profanity that the common people engage in. Since the membership of these private societies are made up of public judges and government leadership, a law is passed to punish public profanity. A fine of 2 pounds is levied for each offense which is a little over $400 in today's money. [3] [4] [5] [6]

My Take by Alex Shrugged
I have sympathy for people who curse and for those who don't. I am religious now and I LOOK religious so people often apologize to me when they utter a profanity. I assure them that they need not feel embarrassed. I used to curse a lot when I was younger. In fact, I would curse so much that I would put curse words INSIDE of words! Even after I was praying regularly, I would still curse. It had become a bad habit so I decided to work on it. I didn't beat myself up about it. I didn't create a "curse jar" but when I would utter a curse word, I would simply back up and repeat the sentence without the curse word. I would explain to others that I was trying to change a habit of years, and I was NOT expecting everyone else to do the same thing. People would relax and smile. Breaking a bad habit takes time. I am amazingly better than I was and I feel better because I am working at it honestly. Why am I trying? Well, I am a religious man now and as such, I am identified as one of God's followers. I don't want to give God a bad name, so I work on it. That's the reason.

Clipping the Public with the Window Tax

Coin clipping has become such a problem that the English Parliament has set Isaac Newton and John Locke on the problem. They will standardize the coinage, but as they work through the problem, the government knows that the economy will contract, thus reducing tax revenues. In order to bring in more money, they decide to pass a window tax. The tax is calculated based on the number of windows a house has. This is another type of property tax. A few years ago they had tried a hearth tax based on the number of stoves and fireplaces one had, but people resented it when the taxman would insist on entering a person's home to make a count. In order to avoid the window tax, people start bricking up their windows. [7] [8]

My Take by Alex Shrugged
I find it laughable when I see Congress issue their estimate on how much tax revenue will come in when they pass a particular tax. Their estimates never take into account that people who don't want to pay the tax will avoid doing so. Of course there are always a few people who will do illegal things to avoid the tax, but it never occurs to Congress that there might be legal ways to avoid the same tax. An example is when they placed a very large tax on cigarettes. The tax increased crime and even funded terrorism. Terrorists would buy cigarettes in a low-tax state and drive them to high-tax states, sell them and pocket the profits to fund their attacks. But some people simply gave up smoking, reducing their tax contribution to ZERO! At least the criminals were paying SOME taxes. Raising a tax can actually reduce the amount to money coming in to the treasury, and reducing the tax can bring in more money when it is no longer worth avoiding the tax or dodging the police. There is a sweet spot where taxes seem fair so people don't resent paying them (much), but the government seems unable to hit that spot. In most cases they refuse to believe it even exists.

This Year on Wikipedia

Year 1695, Wikipedia.

See Also


* The asterisk in the section header indicates that it was read on the podcast.
  1. Bank of Scotland - Wikipedia (2015). Retrieved on 28 August 2015. “The Governor and Company of the Bank of Scotland was established by an Act of the Parliament of Scotland on 17 July 1695, the Act for erecting a Bank in Scotland, opening for business in February 1696. Although established soon after the Bank of England (1694), the Bank of Scotland was a very different institution.”
  2. Carr, Jack; Glied, Sherry; Mathewson, Frank (December 1989). "Unlimited Liability and Free Banking in Scotland: A Note". Journal of Economic History, The (Cambridge University Press on behalf of the Economic History Association) 49 (4): 974-978. http://www.jstor.org/stable/2122748. Retrieved December 16, 2015. 
  3. David Hayton (August 1990). "Moral Reform and Country Politics in the Late Seventeenth-Century House of Commons". Past & Present (Oxford University Press on behalf of Past and Present Society) (128): 48-91. http://www.jstor.org/stable/651009. Retrieved December 16, 2015. 
  4. Purchasing Power of British Pounds from 1270 to Present. Measuring Worth (2015). Retrieved on 16 December 2015. “In 2014, the relative value of £2 0s 0d from 1695 ranges from £266.80 to £47,290.00.”
  5. Convert Pounds Sterling (GBP) and United States Dollars (USD): Currency Exchange Rate Conversion Calculator. coinmill.com (2015). Retrieved on 16 December 2015. “This Pound Sterling and United States Dollar convertor is up to date with exchange rates from December 16, 2015.”
  6. 1695 - Wikipedia (2015). Retrieved on 16 December 2015. “A £2 fine is imposed for swearing in England.”
  7. Window tax - Wikipedia (2015). Retrieved on 16 December 2015. “The window tax was a property tax based on the number of windows in a house. It was a significant social, cultural, and architectural force in England, France and Scotland during the 18th and 19th centuries. To avoid the tax some houses from the period can be seen to have bricked-up window-spaces (ready to be glazed or reglazed at a later date). In England and Wales it was introduced in 1696 and was repealed in 1851, 156 years after first being introduced.”
  8. William III, 1695-6: An Act for granting to His Majesty severall Rates or Duties upon Houses for making good the Deficiency of the clipped Money. [Chapter XVIII. Rot. Parl. 7&8 Gul. III. p.5.n.4] - British History Online. british-history.ac.uk (2015). Retrieved on 16 December 2015.

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