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The confidence in the alleged stability of a free banking system chiefly rests on two pillars: the so called law of adverse clearings and the possibility of an external drain. Already in the first half of the 19th century, however, McCULLOCH and LONGFIELD have shown that this position may at...
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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...
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