Business & Economics
The Chicago free banking market of the antebellum period has more than once aroused the interest of historians and economists alike. Implemented in the state of Illinois in 1851, free banking was a common, though not universal occurrence in the United States at the time. The city of Chicago’s experience with free banking was anything but common, however. Within the first 18 months after the Illinois legislature enacted the Illinois Free Banking Law, 9 free banks had begun operation in Chicago and between them had an aggregate note issue of over $800,000. But by 1860, Chicago was home to but a single free bank with less than $50,000 in circulation. Free banks in cities of comparable size had around $40 per person in note issue while Chicago had just $3.85.1 Those who have explored the subject have tended to focus on the bank wars or on the nature of free banking as a whole in their explanations, but neither of these explanations are entirely sufficient to explain the almost total lack of free banks in Chicago. Rather, a close examination of free banking in Chicago within the broader framework of Illinois free banking suggests that Chicago had what economist Andrew Economopoulos described as a shadow banking system.2
1Andrew Economopoulos, A Reappraisal of the Chicago Free Banking Market: Why so few Free Banks? (Collegeville: Ursinus College, 2016), pg. 1.
Holtzman, Miles J., "A House of Cards: Free Banking in Antebellum Chicago" (2017). Business and Economics Summer Fellows. 5.