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Political Bubbles by Keith T. Poole, Howard Rosenthal, Nolan McCarty

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CHAPTER 1

Bubble Expectations

The banks that survived the holocaust of the early thirties probably differed from those that went under. In addition, and very much likely more important, they undoubtedly drew from their experience lessons that affected their future behavior. For both reasons, the banks that survived understandably placed far greater weight on liquidity than the banks in existence in 1929.

The shift in the liquidity preferences of banks was destined to be temporary. To judge by the experience of earlier episodes, the passage of time without any extensive series of bank failures would have dulled the fears of bank managers.…

—Milton Friedman and Anna J. Schwartz, A Monetary History of the United States, 1867–1960

AN ECONOMIST DEFINES ...

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