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Home , Internal improvements, Mercantilism

A mechanism for infla,tion

Money, the State and Modern Mercantilism

MURRAY N. ROTHBARD

MONEYIS the nerve center of any above the most primitive level. An economy I. on the Free consists of a vast and intricate network of two-person exchanges, and money con- IN THE PURELY , no one person stitutes one side of every exchange. Money or group can have control over money. is the medium by which producers of Money arises, on the free market, when one and services (sold for money) proceed to or more commodities, in particularly intense become consumers of demand and possessing such other qualities (bought for money). If any one person or as durability, portability, and divisibility, organization manages to obtain control over are chosen by individuals to serve as media the supply of money-over its quality, its of exchange. Once a commodity begins to quantity, or its usehe or it has thereby be used as a medium, the process accelerates taken a long step toward gaining complete as this makes the good all the more valuable, control of the entire . Simi- until it finally comes to be used as a general larly, it is difficult to see how complete ~CO- medium for exchanges-as a money. Over nomic control could be achieved without the centuries of civilization, gold and silver domination of the supply of money. have been the leading commodities to be

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thus established as moneys. On the free or enters the gold-mining businms. Apart market, then, money arises as another-and from voluntary gifts, he will receive gold highly important-use for a commodity on or silver in proportion to the that the market; in the civilized era, these chosen other exchangers put on his services to them. commodities have been gold and silver.’ It should be evident that, in the free- On the free market, a person can obtain , no one person or group money in only three ways: (a) by producing will be able to control any aspect of society’s a good or and exchanging it (‘‘sell- money. All money is extracted from the ing it”) for the money-commodity; (b) by ground by private individuals, and there is someone else’s free gift; or (c) by produc- no issue of by the State. The total ing the money-commodity itself. Route (b) supply of money is determined by the state will not be dominant in the economy and, of natural resources and by people freely at any rate, it reduces back to the other and voluntarily entering the gold- or silver- two methods, since at some point backward mining . How much money each in time the gift process must come to an person gets is determined solely by every end; But a good will not be chosen on the individual’s free and vo1u)ntary decision on market as money unless it is in long-lasting how much he will buy and sell, or not buy and great demand, and it cannot be in such and sell, of any given product or service. demand unless it is relatively scarce. There- The aggregate result of these individual fore, route (c) for the acquisition of money choices determines a person’s total sales and involves the complicated production of a income. A free and uncontrolled money, scarce commodity; in the case of gold and and a free and uncontrolled market, go silver, it means finding new reserves of ore necessarily hand in hand. and extracting them from the ground. All And yet, curiously enough, so far has the , all industries on the market tend, world gone from a truly free money that in the long run, to yield about the same even the most “conservative” , rate of return; if not, then and re- often champions of the free market in other sources will flow out of the poorer earning areas, do not contemplate a return to and into the better earning industry until free-market money. and rates of return are equalized. Consequently, the economists of the “Chicago School” the gold-mining business will not provide advocate, indeed, a totally fiat paper money, any lasting bonanza on the market; it will manufactured by government and cut loose tend to earn about the same rate of return entirely from any vestigial connection with as other industries. There will then be no gold and silver. The Chamber a priori inducement to enter the gold- or of Commerce, in its textbook series on silver-mining industry as compared to any economics, simply concedes: “Money is other industry. Furthermore, gold and silver what the government says it is.”2 But surely are so durable that the proportion of new no free market can endure when control gold or silver mined each year will generally over the vital supply of money is thus be negligible compared to the existing stock. granted permanently to government. The overwhelmingly important route to obtaining money on the market, then, will 11. Money and the State be route (a), the sale of goods and services for someone else’s stock of money. No one will be able to obtain money unless he either INTHE LAISSEZ-FAIRE revolution of the nine- produces goods or services for exchange, teenth century, money was one of the cruciaI

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areas where this revolution scarcely made people is to provide them, pari passu, with headway. Government retained not only a services they desire. But there is one way to mintage , legal tender laws, and break the requirement of producing desired the power to fix arbitrary exchange rates goods and services to obtain money; and between gold and silver, but, particularly that is to gain control of the means of cleat- important, it retained its , and ing money. If one can create new money thereby its virtual control over the banking simply and easily, then he can enter the system. Since the liabilities of the banking market to consume goods and services with- system, nominally redeemable in gold or out first having to produce any himself. On silver, increasingly became the bulk of each the market, private individuals cannot do country’s , governmental pro- this, since this constitutes the crime of tection and domination of the banking sys- “counterfeiting.” The State, however, has tem loomed as an ever more vital problem. the unique attribute of being able to per- The British classical liberals never even form actions which would be considered thought of disturbing the hallowed status criminal on the part of private individuals of the Bank of England; the United States (“taxatio.n” as against “robbery” ; “war” as struggled intermittently with central bank- against “murder” ; “” as against ing. At other times, money was subject to “counterfeiting”). If the State controls the other variants of government control. Hav- money supply, then it can create new money ing relinquished little of its monetary con- and use it to increase its own expenditures trol in the nineteenth century, the State on goods and services, as well as the ex- has, in the twentieth, moved to take over penditures of its favored, subsidized groups absolute control of the monetary system, in society. The “legalized counterfeiting” of seizing its subjects’ gold and silver and “monetary issue” permits the State to break preventing them from using these commodi- the production-monetary income chain to ties as their money. In this way, in most its own advantage. Necessarily, this also countries, the State has arrogated to itself means to the detriment of the actual pro- a monopoly of monetary issue; the “paper” ducers in society, who must yield resources standard, which forms the nation’s money to the bidding of those who come to the and on which the government-controlled and marketplace equipped with this newly issued manipulated banking system issues its li- money. This is why “inflation”-the in- abilities, is government-issued paper. crease of paper money or bank liabilities- There is no mystery as to why the State is a hidden, and therefore particularly in- clung to its control of money even while sidious, form of taxation. Being hidden, an temporarily relinquishing its grip on other inflation of money is not likely to arouse areas of the economy. For one thing, as we the opposition that may be stirred by overt have seen, control over a nation’s money is taxation. And since monetary inflation is a prerequisite for dictation over the rest of hidden even while its consequence in rising the economy. Another reason for the State’s prices becomes generally evident, the gov- vital in money is that only through ernment can join the public in denouncing such control can it break the production-in- rising prices, whiIe conveniently overlook- come nexus of the free market. We have ing its own total responsibility for them. In- seen that, on the free market, the only way deed, it may go a step further; it may de- to obtain money is to produce and sell goods nounce any and all groups in the population, or services to those who wish to buy; thus, whose selling prices naturally rise during an the only way to acquire money from other inflation, for wickedly causing the price rise.

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Foreigners, speculators, businessmen (big weal rather than private or income, or little) , laborers-whichever scapegoats nor are they shocked that this is so. And yet, may be convenient are denounced, and then while personal gain is considered a natural the government may go on to use these very motive in private enterprise, the moment a attacks as a point d’uppui for extending its man enters the State apparatus he i-e as- controls and dictates over the society. sumed to be motivated purely by altruistic In short, the State may obtain its reve- striving for the “,” and any nues-may break the production-income other motivation is considered “corrupt.” link of the market-in two ways. It may Perhaps this is because the public realizes impose taxation, which is overt, evidently instinctively that, on the free market, pri- coercive, and likely to stir opposition if vate gain is earned by serving others, so pressed too hard. Or, on the other hand, it that the private gain of one is consistent may obtain control of the monetary system, with, and indeed advances, the private gain and then create new money to spend for it- of all. The public may also instinctively feel, self or to use for rewarding the groups it on the other hand, that the State apparatus favors. Moreover, as we said above, this earns its gains only ut the expense of others. latter inflationary process is hidden and In contrast to the harmony of on subtle, and thus not likely to arouse the gen- the market, there is an inherent conflict of eral public; indeed the State can turn in- interest implicit in State actions. Therefore, flation to its own advantage by taking the to believe that State officials confiscate and lead in denouncing groups it happens to op- rule the of others for their own pose, for causing inflation, and may then private gain would be intolerable. To cloak use this as an excuse to extend its own the actions of the State in morally and aes- power. The State then emerges before the thetically respectable forms, then, the pub- public, not as a predator heavily taxing the lic must believe that these actions are moti- public, but as society’s diligent protector vated by zeal for the “common good.” Let against “inflation.” the public see the fallacy of these assump- We may see now the irony in the doc- tions, and view the State as a group of trine that the State should “protect society people battening off the production of against inflation” or “stabilize the price others, a.nd they are much more likely to le~el.~’For inflation is the health of the see the State as a natural inflator than as State; it is the natural tendency of the an ideal instrument for “stabilizing the State; and it is largely to enable it to in- .” flate for its own benefit that the State is so determined to secure absolute control over III. Centra2 Banking the monetary me~hanism.~Any group, in fact, that is given the exclusive power to NO INSTITUTION is more necessary for State create new money may be expected to use control and manipulation of a modern econ- that power to its own advantage-and the omy than the Central Bank, and no institu- State is surely no exception. It is curious tion is more venerated. Most conservative how differently persons’ motives are ana- economists believe themselves to be daring lyzed and judged when they are private in- when they advocate independence of the dividuals and when they are members of the Central Bank from the Treasury-a vain State apparatus. When a man enters busi- pretense that an organ of the State like the ness or joins the labor force, few people as- Central Bank can somehow be transformed I sume that his prime motivation is the public into a wise and beneficent institution,

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“above .” The wisdom of Federal bank‘s losing cash (gold or paper) to other Reserve manipulation of the American econ- banks, or from runs on the banks. The omy, for example, goes virtually unchal- Central Bank can make sure that all banks lenged. The Chamber of Commerce, for one, expand together, can furnish needed re- has no doubt: serves to banks throughout the country, and lend to banks in trouble, and can thereby It , is an important function of . . . . . bring about a much greater, and centrally the central banking authorities to deter- mine the proper size of the money supply coordinated, expansion of the money sup for the effective functioning of the econ- omy and to try to pursue policies which In refreshing contrast to the plethora of will keep the money supply from either conservative economists who concede the being over---or under-expanded. . . . need for the absolute control of the Federal During and depression pe- Reserve over our money is a perceptive and riods, the Federal Reserve should lower unequivocating article of Oscar B. Johann- reserve requirements, buy U. S. Govern- sen. Beginning with a critique of a report ment securities and lower rediscount by the Commission of the rates. This will provide commercial banks American Banker’s Association, Mr. with excess reserves and tend to increase Johannsen continues: the supply of money. . . . During periods of prosperity and in the latter stages of the Commission apparently accepts recovery, the Federal Reserve should pur- . . . without question the fundamental prin- sue the opposite of its depression policies: ciple that money, banking and credit re- namely, it should raise reserve require- volve around the State and that the State ments, sell U. S. Government bonds, and must, therefore, control monetary affairs raise rediscount rates. This puts a definite through political action. It is no more curb on the amount of credit which can . . . a function of the State to regulate money be created and can act as a lever to pre- and banking than it is a function of the vent a boom from getting out of hand State to regulate growing and marketing and can curb rising prices. . . . of onions . . In keeping with the trend The power to prevent inflation (and to . to intervene in the social sciences, the some extent ) unquestionably is State has, to the limit that it could, now at hand in the U. S. Treasury and gathered money, banking and credit to- the Federal Reserve System. Enlightened gether into one centralized banking sys- public support on the side of reasonable tem controIled by itself. But a govern- price stability is indispensable to mentally centralized banking system is a strengthen the hand of these monetary authorities? socialized banking system, as the essence of is the control and direction It is a generally accepted myth that the by the government of that which should Federal Reserve System-as in the case of be private enterprise. . . . other central banks-was established to It should be apparent now that with the stabilize the economy and check inflation. inception of the Federal Reserve System, America adopted a system dealing with a Actually, it was designed to promote infla- phase of private enterprise totally dif- tion under the aegis of the central govern- ferent from that under which most other ment. Individual banks by themselves, not businesses are conducted. Manufacturing, artificially bolstered by central banks, have mining, are carried on by private a tendency to collapse before they can in- individuals all seeking to make a profit flate very far: either from each expanding with the customer as King. No arbitrary

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commission, or group of men, or bureau- erally been regarded by historians as a plan crats determines who shall make cars, instituted by a mass of small farmer-debtors, what cars shall be made, what prices over the opposition of the -creditors shall be asked. . . . This is all done by of Boston. This stereotype was first fash- private individuals, and they are guided ioned by the contemporary opponents of the by King Customer, who directs them by plan, who dismissed the proponents of the buying or not buying. Unfortunately, in banking, which has as its principal raw bank as “plebeians”; it was systematized material the most important of all com- by such conservative economic historians as modities-money-we have adopted so- Andrew M. Davis, writing at a time when cialism. This is an alarming fact upon agrarian Populist inflationism was a threat which private enterprise cannot look with to sound finance, and then taken over by equanimity, as a socialized banking sys- neo-Marxist historians in the 1930’s, to be- tem is the precursor of socialism in all come established in the history textbooks. business.‘ Actually, as Dr. Billias has shown in an important paper, the major proponents of the plan were as wealthy and as connected IV. Inpationism and Mercantilism with business as its opponents; in America: Five Case Studies were debtors too, and the chief advocates of in Historical Revision a land bank “were all businessmen, poli- ticians, or professional men residing in Bos- IF INFLATION is the health of the State, how ton”; the leading proponent of the plan was l and in what way has government generated John Colman, a prominent Boston merchant inflation in the history of the United and the founder of the Massachusetts Land States? The following ‘case studies’ illus- Bank. Colman, indeed, tried to stir up sup- trate this process, as well as the important port among the farmers by promising them connection between inflation and central- that the inflation arising from the establish- ized State control of the economy. They ment of the bank would raise the prices of illustrate also the connection of inflation farm products. Businessmen were particular- with ‘mercantilism’-the use of economic ly eager for inflation after 1720, because I and intervention by the State after that date the Massachusetts government to create special privileges for a favored adopted a policy of granting unsettled fron- group of merchants or businessmen. Until tier land to speculators, who then sold these very recently, conservative as well as left- lands to the actual settlers at far higher wing historians have accepted the neo- prices. Expanded bank credit was wanted Marxian myth that struggles over infla- to finance business in govern- tion and hard money in America have ment land grants as well as to raise land all been ‘class struggles’ of the farmers prices. Joined with inflation was another and workers (‘debtor classes’) in favor of mercantilist feature: a subsidy to home I inflation, as against merchant-creditors on manufacturing, through permitting repay- behalf of hard money. The case studies in- ment of bank debts in certain specified man- dicate how recent historical scholarship has ufactured cornmoditie~.~ refuted this widely accepted thesis. b. Nicholas Biddle, Planner a. The Massachusetts Land Bank of 1740 and Central Banker One inflationist paper-money scheme, the The famous Bank War between Andrew Massachusetts Land Bank of 1740, has gen- Jackson and the Second Bank of the United

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States has also suffered grievous misinter- and the Bank of the United States, by pretation by historians. Jackson has been providing a uniform currency and regu- considered a wild-eyed agrarian inflation- lating the rates of domestic exchange, ist, out to wreck conservative “sound fi- would similarly facilitate the pecuniary nance,” as represented by Nicholas Biddle, aspects of these same transactions. No single mind created this concept of head of the Bank. Here, again, this inter- a predominantly private economy which pretation began with Jackson’s contempo- was directed, supported, and controlled rary enemies, was forged amidst conserva- in the public interest by responsible na- tive battles with agrarian Populists in the tional authorities. Its origin was in the late nineteenth century, and then was state papers of . . .* adopted-with heroes and villains, of course, reversed-by the neo-Marxist his- torians of the 1920’s and 1930’s. Actually, c. Stephen Colwell, Conservative Socialist as recent historians have pointed out, the true ancestor of the New Deal was not The neglected mercantilistic affinities of but his opponents, includ- conservatism and socialism have never been ing Nicholas Biddle. Biddle, son of a lead- better illustrated than in the case of a lead- ing merchant of Philadelphia, enthusiastical- ing protectionist ideologue of the first half ly embraced the mercantilist “American of the nineteenth century, Stephen Colwell? System” of the Whigs. Biddle’s mercantilist Colwell was an important Pennsylvania iron- views emerge clearly from the eulogistic master and was prominent in railroad in- biography by Professor Govan, who writes: vestments. Iron manufacture, of course, was always a leading beneficiary of the protec- tive , and of bank credit expansion as Biddle’s study of led well?’ In a series of articles published dur- him to reject the . . . doctrines of the ing the 1840’s in the Presbyterian Biblical classical liberals. . . . He had seen too Repertory and Princeton Review, Colwell clearly during the course of the War of bC attempted to weld together in the name of 1812 and its aftermath how business ac- Christianity the pro-slavery, the high-tariff, tivity responded to the expansion and contraction of the money supply to be- pro-bank, and anti-democratic forces of the lieve that economic activity was governed nation.”” Colwell fulminated against the by natural laws with which men inter- “moneyed power” (commerce), which fered at their peril. He advocated a pro-

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materialism rather than religion, morals, reading back ideological and political con- history, and the well-being of the whole man. ditions that obtained only after 1890. In The laissez-faire theorists, in fact, wickedly fact, as a few historians have recently dem- placed the “claims of ” higher than onstrated, the Northern capitalists were the “claims of labor,” which include the pro- split in their opinion of the Reconstruction tection and discipline of the slave syste~n.‘~ program, and the Radical Republicans Colwell also wrote: “The government alone themselves were split on the issues of sound can survey the whole field of national indus- money and the tar8. Of the two famous try and ascertain the condition of all the leaders of the Radicals, Senator Charles laborers.. .how many are suffering from Sumner favored hard money and free trade, the influx of foreign products.” while Representative Thaddeus Stevens, In the 1850’s Colwell concentrated on Pennsylvania ironmaster, favored protection denunciation of hard money, a call for a and the greenbacks. Once again, the Penn- central bank to regulate the currency, and sylvania iron and steel industry was in the for inconvertible paper money. In fact, forefront of the battle for protection and for under Colwell’s scheme, banks would not greenback inflationism. The Pennsylvanians have to redeem their notes, being obligated realized that, in a period of inconvertible only to receive their own notes in repay- greenback money, inflation-and the conse- I quent depreciation of greenbacks compared I ments of debt. Colwell denied that his con- templated inflation would increase prices to gold and foreign exchange-was the greatly: the quantity theory of money was equivalent of a protective tariff, in its arti- , the product of “theorists” and was disproved ficial cheapening of American and I by statistics. And anyway, high prices, even making dear of American imports. Repre- I if they do follow, are beneficial, especially sentative William D. (“Pig Iron”) Kelley if joined with a high tariff to ensure that of Pennsylvania was another leading de- I foreign will not disturb the idyll votee of greenback inflation and a protec- of high prices and high wages. Colwell de- tive tariff. nounced the banking system, with notes pay- The Pennsylvania iron and steel interests able in specie, as “falsely predicated upon feared the lower-cost competition of Great the assumption that whenever our importers, Britain. They were joined in backing pro- in consequence of having overtraded, must tection and greenbacks by the marginal meet a heavily adverse balance, the business Pennsylvania coal industry, which feared , the import of low-cost Nova Scotia coal, and I community as a whole should be denied its by stock speculators such as Henry Clews, I usual bank ac~ommodation.’~’~ who desired inflationary credit for the d. Inflation and financing of stock speculation and the raising in the Reconstruction Period of stock prices. Nor were the wealthy mer- Another myth that has dominated the cantilist partisans above the use of anti- ranks of historians until very recently is capitalist rhetoric. Stephen Colwell was the neo-Marxist Beard-Beale concept of the again active in the cause. And Representa- Reconstruction period as the exploitation of tive Daniel J. Morrell, a leading iron manu- the defeated South by the “rising capitalist facturer from Pennsylvania, attacked the class” of the North. The “exploitation” was hard-money forces as “enemies of the work- supposed to have been imposed largely ingman’, and as “money men, who wish to through sound money and the protective give their money more power over labor tariff. Here again, historians were guilty of and its products.”l6 Joseph Wharton, of the

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Bethlehem Iron , accused the hard- Federal Reserve’s ordinary rediscounts. This money Treasury policy of resuming specie policy of unconditional support and subsidy payment as being engineered “by our of the acceptance market proved disastrous English enemies.yy1aThe cause of protection in the boom of the late 1920’s, several times and inflation was also persistently backed preventing the Federal Reserve from halting by the American Iron and Steel Association, its expansion of credit. During the late 1920’s the Union Meeting of American Iron the Federal Reserve, purchasing acceptances Masters, the American Industrial League in this way directly from private acceptance (composed largely of Pennsylvania iron- banks, came to hold almost half of the masters) and its organ Industrial Bulletin, bankers’ acceptances outstanding in the well as the magazines The American Man- country.’* Furthermore, it confined its ufacturer (Pittsburgh) and Iron Age. generous subsidy policy to a few large ac- One of the leading advocates of cheap ceptance houses. It refused to buy accept- money during this period was the prominent ances directly from business, insisting on banker Jay Cooke. Cooke, a recipient of purchasing them from intermediary accept- government land grants in his railroad ven- ance houses, and from only those with n tures, benefited from inflation and credit ex- capital of over $1 million. It also granted a pansion that drove up the price of land. In- few large dealers “repurchase agreements” cidentally, Cooke had been a driving force -the option to buy back the acceptances at behind the creation of the National Banking the current price. System during the Civil War, an innovation What was the reason for this policy, which brought federal control over the which proved highly inflationary, failed in banking system for the first time since the ultimate attempt to create a permanent Jackson’s abolition of the Second Bank of and widespread acceptance market, and con- the United States. Cooke was hired by the stituted a flagrant form of subsidy and spe- North to be the leading underwriter of cial privilege to the major acceptance government bonds, and he thereupon worked banks? Perhaps the reason centers around for the establishment of a national banking the leading role played in the creation of system whose reserves would rest on govern- the Federal Reserve System by Paul M. ment bonds, thus forcing the banks to invest Warburg, one of the system’s founders. heavily in (Cooke’s) bonds?‘ Warburg came from Germany, where central banking was well established, to e. Varburg, The Acceptance Market Pad become a partner in the bank- and the Federal Reserve System ing house of Kuhn, Loeb, and Company, From its inception the Federal Reserve and promptly embarked on a campaign on System, curiously enough, set out to create behalf of central banking in the United a market for acceptance paper, a form of States. credit that scarcely existed in this country Warburg was named first chairman of the (in contrast to Europe). It was uneconomi- Federal Reserve Board. After the war and cal in the United States, where credit chan- during the 1920’s he continued to be chair- nels preferred another form entirely: single man of the influential Federal Advisory name promissory notes. Yet the “Fed” Council, a statutory group of bankers advis- granted an enormous subsidy to the accept- ing the Federal Reserve System. Interesting ance market by standing ready to buy any ly enough, Warburg also became one of the acceptances offered by the market-and at nation’s leading acceptance bankers, thus a specially favorable price, cheaper than the benefiting greatly from the system he helped

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found and whose course he helped set. He head of the Federal Reserve Bank of New was Chairman of the Board of the Interna- York, which in these years virtually set the tional Acceptance Bank of New York, the policy of the Federal Reserve.20 world’s largest acceptance bank, was a di- In these case studies we have seen that rector of the important Westinghouse Ac- inflationism and State control of the mone- ceptance Bank and of several other accept- tary system have, in many critical periods ance houses, and was chief founder and of American history, been proposed and chairman of the Executive Committee of the established, not by “workers and farmers” American Acceptance Council, a trade as- nor even by disaffected intellectuals, but by sociation organized in 1919. To write of groups of merchants, manufacturers, and Warburg’s influence is not far-fetched spec- other businessmen eager to acquire special ulation, for he himself boasted of his sue privilege, to use the State for their own cess in persuading the Federal Reserve to advantagein short, by men who were es- loosen eligibility rules for purchase of ac- sentially modem mercantilists. This mer- ceptances, and to establish its policy of cantilist drive has played a much greater buying all acceptances offered at a subsi- role in the general movement toward dized rate.19 Furthermore, Warburg had and central planning than is generally recog- considerable influence on Benjamin Strong, nized.

‘Professor Mises has demonstrated that money or power for itself; and (2) the full-time can only originate in this way - as a commodity rulers of the State will try to secure subsidized on the free market - and that it cannot originate allies among the public. by government fiat. See , The ‘The Mystery of Money, p. 17; Economic Re- Theory of Money and Credit, 2nd ed. (New search Department, Chamber of Commerce of Haven: Yale University Press, 1953), pp. 97-123. the United States, Control of the Money Supply For a further discussion, see Murray N. Roth- (Washington: Chamber of Commerce, 1953), bard, Man, Economy, and State (Princeton: D. pp. 15, 21. The enthusiasm for Federal Reserve Van Nostrand Co., Inc., 19621, I, 231-37. See control by leading members of the also Rothhard, “The Case for a 100 Per Cent group, the Economists’ National Committee on Gold Dollar,” in Leland B. Yeager, ed., In Monetary Policv, is a case in point. See also Search of a Monetary Constitution (Cambridge: the remarks of Professors Niehaus, Wiegand, Harvard University Press, 1962). and Spahr in James Washington Bell and Walter ‘Economic Research Department, Chamber of Earl Spahr, eds., A Proper Monetary and Bank- Commerce of the United States, The Mystery of ing System lor the United States (New York: Money (Washington: Chamber of Commerce, Ronald Press, 1960), pp. 51, 106, 165. 1953), p. 1. ‘For an excellent discussion of the inflationary ‘As Wilhelm Riipke says, “Inflation is as old nature of the Federal Reserve System, as well as as the power of government over money.” See his its further inflationary policies and their dis- A Humane Economy (Chicago: Regnery, 19601, astrous consequences, see c. A. Phillips, T. F. p. 196. All manner of groups, at any given time McManus, and R. W. Nelson, Banking and the or place, may become favorites or allies of the (New York: Macmillan, 1937), State: business, farm, labor, religious groups, pp. 21 ff.; also 0. K. Burrell, “The Coming etc. The point is that (1) any group may try to Crisis in External Convertibility in U. S. Gold,” use the State apparatus as a way of obtaining The Commercial and Financial Chronicle (April

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23, 19591, p. 5. “Sharkey, op. cit., pp. 245 ff. For other works ‘Oscar B. Johannsen, “Advocates Unrestricted of recent historical revision on this topic, see, Private Control Over Money and Banking,” The in addition to Unger, op. cit., pp. 46-70, Commercid and Financial Chronicle (June 12, Stanley Coben, “Northeastern Business and 1958), p. 2622. Radical Reconstruction: a Re-examination,” ‘George Athan Billias, The Massachusetts Land Mississippi Valley Historical Review (June, Bankers of 1740, University of Maine Bulletin, 1959), pp. 67-90; Irwin Unger, “Review of April, 1959. Robert P. Sharkey, Money, Class and Party,” ‘Thomas Payne Govan, Nicholas Biddle: Na- Political Science Quarterly (June, 1960) ; and tionalist and Public Banker, 1786-1844 (Chicago: Julius Grodinsky. “Review of Robert P. Sharkey, University of Chicago Press, 19591, pp. 70-71 ; Money, Class and Party,” Mississippi Valley His- cf. pp. 50, 65. torical Review (June, 1960). ‘For an illuminating discussion of Colwell, “See Charles 0. Hardy, Credit Policies of the see Joseph Dorfman, The Economic Mind in Federal Reserve System (Washington: Brookings American Civilization (New York: Viking Press, Institution, 1932), pp. 243-63. Hardy was cer- 1946) 11, 809-26. tainly correct in concluding (p. 263) that “Noth- “The first prominent political leader of the ing has been gained by forcing the acceptance organized protectionist movement in America, form of credit into uses in which it cannot com- Representative Henry Baldwin, was a prominent pete on its own merits.” Pittsburgh iron manufacturer. Baldwin, indeed, ”In his presidential address before the Amer- was dubbed the “Father of the American Sya ican Acceptance Council, January 19, 1923. See tem.” See Murray N. Rothbard, The Panic of Paul M. Warburg, The Federal Reserve System 1819: Reactions and Policies (New York: (New York: hlacmillan, 1930), 11, 822. Columhia University Press, 1%2), pp. 164 ff. Wrong assumed his post only at the insistence I1Dorfman, op. cit., p. 811. of Warburg and of Henry Davison of J. P. ‘*lbid., pp. 811-12. Morgan and Co., his former employer. See Lester ’aCf. Stephen Colwell, The Claims of Labor and V. Chandler, Benjamin Strong, Central Banker Their Precedence to the Claims of Free Trade (Washington: Brookings Institution, 19581, p. (1861). 39. Chandler, a eulogizer of Strong, finds that a “Harry E. Miller, Banking Theories in the “major interest of Strong and many of his col- United States Before 1860 (Cambridge: Harvard leagues, especially Pad Warburg [italics mine], Univ. Press, 1927) p. 138; cf. pp. 135-38. during the 1914-17 period was in promoting the ”Robert P. Sharkey, Money Class, and Party creation and use of dollar acceptances - espe- (Baltimore: Johns Hopkins Press, 19591, p. cially bankers’ acceptances . . .” (p. 86); See 159 n. also pp. 91 ff. For a critical treatment see 18Irwin Unger, “Business Men and Specie Re- Lawrence E. Clark, Central Banking Under the sumption,” Political Science Quarterly (March, Federal Reserve System (New York: Macmillan, 1959), p. 53. 19351, pp. 242-48, 376-78.

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