Since the second half of the nineteenth century, the conventional wisdom has been uniformly hostile to the idea of competition in the supply of money. Yet in the nineteenth century that hostility never suppressed the competition. That was because the hostility focused exclusively on competition in issuing banknotes but ignored it in creating deposits.

Why was that distinction made? Mainly because those who most mistrusted competition in the supply of money believed that deposits were not money. That notion was a legacy of the debate over the Bank Charter Act. Members of the Currency School, as we saw earlier, argued against competition in the supply of money and for a legal limit on the quantity of banknotes. They rationalized supporting a limit on banknotes but not on deposits by insisting that only the former, not the latter, were money.