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This chapter examines James Steuart’s explanation of the relationship between banking system and economic development. Unlike other Scottish thinkers of the time, Steuart argues that the origin of commercial nations was not, in his view, a consequence of human nature and a long period of historical evolution. The establishment of the system of trade and commerce that gives rise to a “commercial nation” is conditioned by a series of elements that can render its appearance impossible. This chapter examines how the establishment of the system of trade and commerce that gives rise to a commercial nation is conditioned, according to Steuart, by the development of the banking system. It also broaches Steuart’s explanation of how the banking system functions within a non-commercial nation, which the Scottish author called “the infancy of banking.”

A brief review is provided as to the growth of home banking in the UK in general and in Scotland in particular. Some attention is paid to a comparison in the services provided by two leading home banking systems and a speculative extrapolation is made as to how developments in home banking may proceed into the future.

It is deservedly recognized that James Steuart advanced a monetary theory in which paper money played an important role. The successful establishment of Scottish banknote circulation and theoretical influences from his fellow countrymen such as John Law can be pointed out as backgrounds for his monetary theory. Little attention has been given however to the point that Steuart deduced theory on banks and banknotes quite differently from his predecessors. It is of great significance that Steuart’s theory on banks and banknotes in his first draft of The Principles of Political Oeconomy was, in the following years, drastically expanded and reconstructed. The theory in his first draft written in 1764 was based on the opinion that banknotes should be issued only on landed securities, in consideration of ideas from the Scottish banking system. He then expanded the theory into a dynamic three-stage banking theory where he concluded that as economies and credit grew, banks should issue notes not only on the basis of landed securities but also by discounting bills and giving public credit. By this expansion, banknotes gained a broad and central role in his monetary theory, and the expansion gave his monetary theory more ingenious evolutionary aspects.

Adam Smith’s theory of economic growth, as presented in the Wealth of Nations, is based upon the potential for increasing returns in manufacturing generated by increased specialization and division of labour and upon the accumulation of real capital, which is necessary to support the greater division of labour. The increasing returns part of Smith’s theory leaves open the possibility that bank credit, issued judiciously, might be used to extend the market and so increase an economy’s growth rate. However, Smith’s theory of bank credit and note extension is quite conservative. Henry Dunning Macleod, a century after Smith, made much of the potential of credit to extend the market. Notes Smith’s apparent inconsistency and considers reasons why he might have chosen not to promote the use of credit to enhance economic growth.

Haldane has suggested that modularity would add sustainability to the financial system. The purpose of this paper is to suggest a route by which such modularity might be achieved.

The paper attempts to explore the micro‐foundations of regulatory regimes as rule bound orders and demonstrate that externally imposed rules may not be absolutely necessary to constrain the behaviour of individuals or organisations. Voluntarily self‐agreed rules may allow for greater communication and monitoring among the participants in a group. This in turn can result in greater sustainability. The paper uses examples from the work of Ostrom on sustainable common‐pool resources to support this view. Examples are also given from the financial services industry.

The paper suggests that non‐legislative, informal rules of behaviour may be a useful source of constraining unsustainable behaviour in the financial services industry. In turn these self‐enforcing rule‐bound regimes may facilitate one feature of sustainable systems – modularity.

The paper suggests that stakeholders in financial systems may find it useful, on a bottom‐up basis, to facilitate the creation of groups of financial institutions that would create and then adhere to self‐enforcing rules that could result in sustainable practices.

The originality of the paper is on the focus on self‐created and self‐enforced rule‐following and on using the work of Ostrom in a financial services setting.

Business cycle theory is normally described as having evolved out of a previous tradition of writers focusing exclusively on crises. In this account, the turning point is seen as residing in Clément Juglar's contribution on commercial crises and their periodicity. It is well known that the champion of this view is Schumpeter, who propagated it on several occasions. The same author, however, pointed to a number of other writers who, before and at the same time as Juglar, stressed one or another of the aspects for which Juglar is credited primacy, including the recognition of periodicity and the identification of endogenous elements enabling the recognition of crises as a self-generating phenomenon. There is indeed a vast literature, both primary and secondary, relating to the debates on crises and fluctuations around the middle of the nineteenth century, from which it is apparent that Juglar's book Des Crises Commerciales et de leur Retour Périodique en France, en Angleterre et aux États-Unis (originally published in 1862 and very much revised and enlarged in 1889) did not come out of the blue but was one of the products of an intellectual climate inducing the thinking of crises not as unrelated events but as part of a more complex phenomenon consisting of recurring crises related to the development of the commercial world – an interpretation corroborated by the almost regular occurrence of crises at about 10-year intervals.

Commercial banks are the major source of external finance for small firms in the UK. Describes a study which was carried out to investigate how bank managers make decisions on lending to small firms. The study looked at adverse selection (i.e. where a manager turns down a good proposal which turns out to be a success) and its effect on small firm liquidity constraints. The researcher took on the role of an entrepreneur and presented a business plan based on an actual lending proposition to bank managers in Scotland. Compares the study with an English study. Findings suggest a more favourable treatment of the proposition by the Scottish bank managers. However, there was variation among banks in the way managers assessed the proposition. There was an emphasis on financial information, gearing and security which reflects the capital‐based approach to bank risk assessment in the UK. Considers policy implications for risk assessment and small firms/banking relationships.

The purpose of this paper is to investigate the underlying causes of the series of banking disasters that unfolded from July 2007 onwards and to suggest what action should be taken to avoid a repetition.

The practices and culture that have evolved in banking over recent decades are compared and contrasted with general principles of actuarial science and with Adam Smith's blueprint for a well‐functioning market economy as set out in his Wealth of Nations. Recent instances of financial turmoil such as the Northern Rock debacle and the global “credit crunch” are then viewed from a longer term perspective.

The serious weaknesses identified by comparisons with actuarial science and the wisdom of Adam Smith, amplified by perverse methodologies of finance theory and “fair value” accounting and unchecked by the lax regulatory framework, take not only the global banking industry, but also the entire global economy to the point where the self‐stabilising properties of Western capitalism are destroyed. To avoid a repetition, banking practices and culture must be completely rebuilt along actuarial and “Adam Smith” lines, the destabilising methodologies of finance theory and “fair value” accounting must be abandoned, and the new and more prudent approach must be rigorously enforced by a strong regulatory regime.

By adopting a longer term actuarial perspective, the paper identifies deeper problems and suggests more fundamental solutions than have generally been the case in the continuing debate as to the best way forward in rebuilding a robust financial system.

Michel Foucault and Max Weber dominate contemporary organisation theory. At least in part, Foucault can be read as an extension of Weber's concepts of bureaucracy and rationalisation. Or, more profitably, Weber can be read through Foucault and vice versa. Central to the development of the bureaucracy was the construction of the career as a life-long project of the self. From the late nineteenth to the mid-twentieth century, British banks developed extensive forms of surveillance predicated upon the career. Not all clerks satisfied the banks' close inspection of the individual's personal life. Here, we use Weber and Foucault to tell the story of William Notman, a Scottish bank clerk who successfully sued his employers for dismissing him because he married against their wishes.