Students of U.S. banking history typically hold that the check collection industry was excessively costly prior to 1915 and that the Fed's subsequent entry into check clearing improved efficiency. The authors propose an alternative view based on the economics of network communications...

The payment system is a communications industry in which Federal Reserve Banks, in their check collection activities, provide communication services. The history of government intervention in other communications industries offers lessons for the Fed in its efforts at payment system innovation....