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Competition Necessarily Tends to Produce Excess: The Experience of Free Banking in Switzerland

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  • Manfred Neldner

Abstract

According to McCulloch, Longfield and Loyd, a free banking system is always prone to overissues of bank notes. Their view is supported by the free banking era in Switzerland (1826–1907), where, due to competitive pressures within the banking community and the absence of note‐brand loyalty on the part of the general public, overissues (causing a rise in the foreign exchange rates above the upper gold and silver points) finally became permanent. Free competition, therefore, had to give way to collusive action and, in 1907 (with the open consent of the issuing banks), to the establishment of the Swiss National Bank.

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  • Manfred Neldner, 2003. "Competition Necessarily Tends to Produce Excess: The Experience of Free Banking in Switzerland," German Economic Review, Verein für Socialpolitik, vol. 4(3), pages 389-408, August.
    • Handle: RePEc:bla:germec:v:4:y:2003:i:3:p:389-408
    DOI: 10.1111/1468-0475.00086
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    References listed on IDEAS

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    1. Milton Friedman & Anna J. Schwartz, 1987. "Has Government Any Role in Money?," NBER Chapters, in: Money in Historical Perspective, pages 289-314, National Bureau of Economic Research, Inc.
    2. Selgin, George, 1994. "Free Banking and Monetary Control," Economic Journal, Royal Economic Society, vol. 104(427), pages 1449-1459, November.
    3. George A. Selgin & Lawrence H. White, 1994. "How Would the Invisible Hand Handle Money?," Journal of Economic Literature, American Economic Association, vol. 32(4), pages 1718-1749, December.
    4. Frankel, Jeffrey A, 1979. "On the Mark: A Theory of Floating Exchange Rates Based on Real Interest Differentials," American Economic Review, American Economic Association, vol. 69(4), pages 610-622, September.
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    Cited by:

    1. Nils Herger, 2021. "Regulated free banking in Switzerland (1881–1907)," Swiss Journal of Economics and Statistics, Springer;Swiss Society of Economics and Statistics, vol. 157(1), pages 1-12, December.
    2. Herger, Nils, 2022. "Unregulated and regulated free banking: Evidence from the case of Switzerland (1826–1907)," Explorations in Economic History, Elsevier, vol. 83(C).
    3. Alexander Fink, 2014. "Free banking as an evolving system: The case of Switzerland reconsidered," The Review of Austrian Economics, Springer;Society for the Development of Austrian Economics, vol. 27(1), pages 57-69, March.
    4. Nils Herger, 2019. "Unregulated and regulated free banking. The case of Switzerland reinterpreted," Working Papers 19.06, Swiss National Bank, Study Center Gerzensee.

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