By taking a little discussed time period of American history and introducing the conflicts over the gold standard, inflation and deflation, bank panics
and the Federal Reserve, the basics of financial economics can be examined.
It was the succession of English bank panics
from 1825 to 1866 that led Walter Bagehot in 1873 to advocate that the central bank should stay the panic by acting as the lender of last resort, i.
Furthermore, there were many ways to avoid bank panics
other than the complex machinery of the Federal Reserve.
Thus, whereas the monetarist view focuses on bank panics
and monetary aggregates to explain crises, the asymmetric information theory looks at more particular microeconomic failures in institutions or markets.
In other words, Friedman conceives of the bank panics
as an enormous shock to aggregate demand.
in 1866, a giant interconnected bank denied a bailout on the grounds that it was poorly managed and deserved to fail, the English system suffered no bank panics
for the remainder of the 19th century.
By the time you take the oath of office, the worst of the bank panics
should be behind us.
According to the World Bank, bank panics
today are twice as prevalent than during the period before financial globalization.
In some ways, however, the monetary policy response to all three of these experiences was similar to the response to bank panics
that the Federal Reserve System was created to handle.
Gorton (1988) discusses what he calls the "recession hypothesis," according to which bank panics
are closely associated with the business cycle.
They had the potential to be a major force behind monetary contraction before the bank panics
started and the downturn gained momentum.
Friedman and Schwartz  treated bank panics
as exogenous shocks to money supply and did not consider output and the price level as significant determinants of either high-powered money or the money multiplier.