Professor Capie argues that there developed in Britain, in the course of the nineteenth century, a financial system that was safe, stable, and effective.
It derived from a learning process that involved the banks, the central bank, and the authorities. A system evolved where the banks knew how to behave, the central bank knew how to behave and deal with unexpected shocks, and the authorities learned to stand aside.
That system was then stable for 100 years from around 1870 to around 1970. But the lessons were forgotten. Regulation returned. And crises returned. It should be possible to reverse the process.
Forrest Capie is Professor Emeritus of Economic History at the Cass Business School City, University of London. He was Head of Department of Banking and Finance at City from 1989-1992; editor of the Economic History Review 1993-1999; a member of the Academic Advisory Council of the Institute of Economic Affairs in London (2000-), and an advisor to the Shadow Chancellor of the Exchequer (1997-2004).