Working Paper No. 61.Download
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 Swedish note banking system in 1878–1901 with those of the regime in 1904–1914, when the Bank of Sweden held a note monopoly. Evidence suggests that notes did not become less elastic after monopolisation, thus lending support to the views of the Banking School.
Hortlund, P. (2005). Is the Law of Reflux Valid? Evidence from Sweden 1878–1913. Ratio Working Paper No. 61.