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No 61:
Is the Law of Reflux Valid? Evidence from Sweden 18781913

Per Hortlund

Abstract: In the classical monetary debates, the Banking School held that notes would be equally demand-elastic whether supplied by many or a single issuer. The Free Banking School held that notes would be less demand-elastic if supplied by a single issuer. These assertions have rarely, if ever, been subject to more stringent statistical testing. In this paper I compare the elastic properties of the note stock of the Swed-ish note banking system in 18781901 with those of the regime in 19041914, when the Bank of Sweden held a note monopoly. Evi-dence suggests that notes did not become less elastic after monopoli-sation, thus lending support to the views of the Banking School.

Keywords: Banking School; Free Banking School; Elastic currency; Clearing mechanism; Note competition; Needs of trade; Law of Reflux; Speed of redemption; Real bills doctrine; (follow links to similar papers)

JEL-Codes: B12; E42; E51; E58; N13; N23; (follow links to similar papers)

22 pages, January 3, 2005

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This paper is forthcoming as:
Hortlund, Per, 'Is the Law of Reflux Valid? Evidence from Sweden 18801913', Financial History Review.

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