Sunday, April 1, 2012

Murray Rothbard: Fraud or Faker?

I fell for Rothbard in 1971 and ’72. I believed everything he wrote and cheered with those who praised him. Then, in 2005, I had an opportunity to present a “Littleton Lecture” paper of my choosing at a convention of the American Numismatic Association. I never completed the paper, but I learned to regard Murray N. Rothbard as a faker who substituted radical political rants for the data from history.

(This is based on comments posted to the Organizations and Markets blog on the occasion of Murray N. Rothbard’s birthdate anniversary.)
  • A History of Money and Banking in the United States: The Colonial Era to World War II by Murray N. Rothbard, Von Mises Institute, 2002.  Pages 119-122 on the Suffolk System.  Rothbard began the section with this: “But Dr. George Tivoli, whose excellent monograph, The Suffolk System, we rely on in this study …” Where does Tivoli's work end?  On page 120 is a footnote 102 to John Jay Knox's A History of Banking in the United States in support of a quote.   Then follows more narrative.  Is this a continued paraphrasing of Tivoli?  Despite the in-line pointer, nowhere did Rothbard provide the publication citation for that monograph by George Tivoli about the Suffolk system.
As for the Suffolk Bank story, I was living in Ann Arbor; and the U of M library did not have the Suffolk booklet by Tivoli.  But MSU did; and I had an MSU card, so I drove up to East Lansing.  Their microfilm of a photostat was unusable when printed.  The librarians helped me find the Adam Smith Institute and they provided me with a PDF.  (Available now to everyone.The booklet had a publication page, giving place and date of printing.  Copies were just hard to find.  Rothbard scissored and pasted and hid the resource.  

The "Suffolk System" was a market-based clearing house in the 1830s, 40s and 50s.  It operated out of Boston to gather the notes of rural banks and take them back to their issuers in exchange for the hard money they promised.  It worked well and then closed when conditions changed and competition came in. Also, after several years, some men took advantage of conflicts of interest in the operation. But it was not killed by the U.S. Treasury. Rothbard told the story he wanted to find in Tivoli. 
  • What Has Government Done to Our Money?, 2nd ed. (Santa Ana: Rampart College, 1974.) Section 7, pages 8-10, ending with footnote 9.  Rothabard said nothing about the instances actual private gold coins issued by Bechtlers, Templeton Reid or many others, or of private copper such as Higley's "Granby tokens", or many other private coins throughout American history, including “Hard Times” and Civil War issues (Patriotics and Store Cards).  He said nothing about "Conder" tokens (British Provincials) that circulated widely in the UK in the 1790s.
Struck in $5, $10, and $20
for 1850 and 1851
In What Has Government Done to Our Money?, Rothbard wrote: “Privately-minted gold coins circulated in California as late as 1848.” (page 10 closing Section 7).  

Although Rothbard claimed that private Gold was used "until" 1848, in fact, California's private gold began in 1848.  The coins of Wass-Molitor & Co. (1852-1855), Kellogg & Co. (1854-1855), Schultz & Co. (1851), and many other issues were widely known to American numismatists.  The annual price guides of Wayte Raymond, Max Mehl, the Whitman "Red Book" and many other sources listed those.  They also told of Mormon Gold (1849-1860).  Private gold had a 20-year run in North Carolina, 1831-1852.  Even so, the actual use of fractional dollar gold coins in California in 1848-1849 is still much debated. 

Private money in both coins and notes are easy to find in American history.  Common publications from any book store or library would have informed any researcher seeking to understand the substantive topic.  Rothbard worked in New York City, where the American Numismatic Society has had its offices since 1858.  Rothbard's writing does not reflect the general knowledge of academic numismatists of his own time and place.  

Rothbard ignored the rich, varied, and informative history of the Wildcat Era of banking between 1811 and 1857, focusing only on the Federal government as the bogeyman.  That Wildcat era provides facts about successful private banks, failed state government banks, as well as failed private banks. Government interfered in the money, often by requiring that banks have hard money on hand to back their paper. Sometimes the gold and silver ran just ahead of the auditors.

Find this and others on the
PCGS "Coin Facts" Site.
Rothbard's narrative is that the first coins were gold and that they were minted by private individuals.  In truth, the first coins were electrum, not gold.  They were, indeed, most likely struck by private individuals, if by that we understand that in a Greek democracy, all citizens were the government.  The likely history is that coinage may have been invented by potential "tyrants" i.e., self-made men on the rise.  That said, the first gold coins were unarguably the issues of king Croesus (Kroisos) of Lydia. About that, there is no doubt. After that, private coinage all but ceased - depending on how we view the issues of generals in the field and certain ad hoc issues such as the silver quinari of Cato the Younger.  It was not that "kings" took over a private trade, but that every city government in the ancient world struck its own coins.  Many were known far and wide for their reliable weight. Sometimes cities with common trade struck coins of the same sizes with their own preferred images. 

It was an open market in money and remained so for thousands of  years. Rothbard claimed that kings minted coins as a forced monopoly. Indeed, they did.  So did perhaps a thousand others, many, admittedly with royal charters; but many more bishops, counts, councils and others did so on their own.  Kings held no monopolies until much later, with the rise of the nation states, France, Spain, and England, but even then only tenuously.

Again, relying on my faith in Rothbard, I was brought up short in an online discussion via Usenet's rec.collecting.coins by Francois Velde, a Federal Reserve economist who authored and co-authored books on medieval economics.  While I disagree with Velde's theories, I have to accept his facts, which are available to anyone who cares to do the research -- which I did for an article, "Champagne: the Athens of the Middle Ages" for The Celator – and which Rothbard apparently did not.

Rothbard completely ignored the error in “Gresham's Conjecture the evidence of the silver half dime and nickel 5-cent circulating in parallel, as did the nickel 3-cent and silver 3-cent, as well as paper promises and the gold and silver coins behind those promises.
  •  A History of Money and Banking in the United States: The Colonial Era to World War II, on page 126, Rothbard claims that the nickel-copper small cent was hoarded (true) and exported (not true). Rothbard also asserts: "The penny shortage was finally alleviated when a debased and lighter-weight penny was issued in the spring of 1864, consisting of bronze instead of nickel and copper." This is contradicted by several facts. 
First, the Mint changed from the alloy of 88% copper 12% nickel simply because it was too hard. Dies wore out. (The Mint adopted nickel because of the influence of Joseph P. Wharton.) In addition, mintage figures from the years in question disprove Rothbard's claim.
1859 Copper-Nickel 36,400,000
1860 Copper-Nickel 20,566,000
1861 Copper-Nickel 10,100,000
1862 Copper-Nickel 28,075,000
1863 Copper-Nickel 48,840,000
1864 Copper-Nickel 13,740,000 
1864 French Bronze 39,233,714
1865 French Bronze 35,429,286
1866 French Bronze  9,826,500
(and so on)

Also, the collateral striking of the same coin in two different metals in 1864 casts doubt on "Gresham's (so-called) Law."

Rothbard raged against the National Bank system created by Secretary of the Treasury Salmon P. Chase. The truth is more interesting. The National Bank Acts of 1863 required the deposit of gold with the Treasury.  In return, banks got Treasury bonds, which paid interest. They could issue their own National Bank Notes worth up to 90% of the value of the bonds.  This was, in fact, a gold-based demand banking system. And some banks failed, nonetheless. Moreover, contrary to the baseless claims of Rothbard, after 1863, state banks did revive; and they continued up to the 1933 mass closings.  Rothbard just tailored his history.  

Clearing House Certificates were an ad hoc currency 
created by banks to clear their books during contractions. 
This, others, and their story at
Market Oracle (UK)
Discussing the origins of the evil Federal Reserve Bank, Rothbard wrote of the Panic of 1907 without a word of the Clearinghouse Scrip that served the banks through the crisis.  Those vouchers demonstrated an ad hoc market solution to the (highly putative) "problem" of credit contraction.  That story would help prove the claim that the Federal Reserve System was not necessary. Rothbard was more interested in blaming the Federal Reserve than in writing about the free market.

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