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

Author

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  • Neldner Manfred

    (Osnabrueck University,Osnabrück, Germany)

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.

Suggested Citation

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