Ratio Working Papers
Is the Law of Reflux Valid? Evidence from Sweden 1878–1913
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 1878–1901 with those of the regime in
1904–1914, 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 1880–1913', Financial History Review.
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