Notes Introduction

¹For good discussions of praxeology, see Ludwig von Mises, Human Action: A Treatise on Economics, Scholar’s Edition (Auburn, Ala.: Mises Institute, 1998), pp. 1–71; Murray N. Rothbard, The Logic of Action I: Method, Money, and the Austrian School (Cheltenham, U.K.: Edward Elgar, 1997), pp. 28–77; and Hans-Hermann Hoppe, Economic Science and the Austrian Method (Auburn, Ala.: Mises Institute, 1995).

²Douglass C. North, Growth and Welfare in the American Past: A New Economic History (Englewood Cliffs, N.J.: Prentice-Hall, 1966), pp. 1–2 (emphasis in original).

³Robert William Fogel, “The New Economic History: Its Findings and Methods,” in The Reinterpretation of American History, Robert William Fogel and Stanley L. Engerman, eds. (New York: Harper and Row, 1971), p. 7.

⁴Murray N. Rothbard, America’s Great Depression, 5th ed. (Auburn, Ala.: Mises Institute, 2000).

⁵As Rothbard has written of Theory and History, the book in which Mises gives this method its most detailed exposition, this work “has made remarkably little impact, and has rarely been cited even by the young economists of the recent Austrian revival. It remains by far the most neglected masterwork of Mises.” Murray N. Rothbard, Preface to Ludwig von Mises’s Theory and History: An Interpretation of Social and Economic Evolution, 2nd ed. (Auburn, Ala.: Mises Institute, 1985), p. xi.

⁶Ibid., pp. 224–25.

⁷Ibid., p. 187.

⁸Ludwig von Mises, The Ultimate Foundation of Economic Science: An Essay on Method, 2nd ed. (Kansas City, Mo.: Sheed Andrews and McMeel, 1978), p. 45.

⁹It is true that in deriving theorems that apply to the specific conditions characterizing human action in our world, a few additional facts of a lesser degree of generality are inserted into the deductive chain of reasoning. These include the facts that there exists a variety of natural resources, that human labor is differentiated, and that leisure is valued as a consumer’s good. See Mises, Human Action; Rothbard, The Logic of Action I; and Hoppe, Economic Science and the Austrian Method.

¹⁰Mises, Theory and History, p. 298.

¹¹Ibid., p. 310.

¹²Some economists would date this inflation from 1965 to 1979, but the precise dates do not matter for our present purposes. See, for example, Thomas Mayer, Monetary Policy and the Great Inflation in the United States: The Federal Reserve and the Failure of Macroeconomic Policy (Northampton, Mass.: Edward Elgar, 1999).

¹³Mises, Human Action, p. 50.

¹⁴Mises, Theory and History, p. 309.

¹⁵Ibid., p. 301.

¹⁶John Kenneth Galbraith, The New Industrial State (New York: New American Library, 1967), pp. 189–207, 256–70.

¹⁷Mises, Theory and History, p. 301.

¹⁸Ibid., p. 265.

¹⁹As Mises puts it, “Understanding aims at anticipating future conditions as far as they depend on human ideas, valuations, and actions.” Mises, Ultimate Foundation, p. 49.

²⁰Mises, Theory and History, p. 320.

²¹Mises, Ultimate Foundation, p. 48.

²²Mises, Theory and History, p. 265.

²³Ibid., p. 266.

²⁴Ibid., p. 272.

²⁵Ibid., pp. 272, 274.

²⁶Ibid., p. 313.

²⁷Ibid.

²⁸Mises, Ultimate Foundation, p. 50.

²⁹Ibid.

³⁰Mises, Theory and History, pp. 306–08, 313–14.

³¹Ibid., p. 219.

³²Mises, Human Action, p. 56.

³³Ibid.

³⁴Murray N. Rothbard, “Economic Determinism, Ideology, and The American Revolution,” The Libertarian Forum 6 (November 1974): 4.

³⁵Mises makes a similar point:

The endeavors to mislead posterity about what really happened and to substitute a fabrication for a faithful recording are often inaugurated by the men who themselves played an active role in the events, and begin with the instant of their happening, or sometimes even precede their occurrence. To lie about historical facts and to destroy evidence has been in the opinion of hosts of statesmen, diplomats, politicians and writers a legitimate part of the conduct of public affairs and of writing history.

Mises concludes that one of the primary tasks of the historian, therefore, “is to unmask such falsehoods.” Mises, Theory and History, pp. 291–92.

³⁶Rothbard, “Economic Determinism,” p. 4.

³⁷Ibid.

³⁸See, for example, David Eakins, “Business Planners and America’s Postwar Expansion,” in Corporations and the Cold War, David Horowitz, ed. (New York: Modern Reader, 1969), pp. 143–71.

³⁹Rothbard, “Economic Determinism,” p. 4.

⁴⁰Murray N. Rothbard, Conceived in Liberty, vol. 1, A New Land, A New People: The American Colonies in the Seventeenth Century, 2nd ed. (Auburn, Ala.: Mises Institute, 1999), p. 9.

⁴¹Mises, Human Action, pp. 47–48.

⁴²For expositions of the view of the origin and nature of the state as a coercive organization of the political means for acquiring income, see Franz Oppenheimer, The State (New York: Free Life Editions, [1914] 1975); Albert J. Nock, Our Enemy, The State (New York: Free Life Editions, [1935] 1973); and Murray N. Rothbard, For a New Liberty: The Libertarian Manifesto, 2nd ed. (San Francisco: Fox and Wilkes, 1996), pp. 45–69.

⁴³Rothbard, For a New Liberty, pp. 49–50; and idem, “Economic Determinism,” pp. 4–5.

⁴⁴One of the first expositions of the operation of this law, within the context of social democratic political parties can be found in Robert Michels, Political Parties: A Sociological Study of the Oligarchical Tendencies of Modern Democracy (New York: Dover Publications, [1915] 1959).

⁴⁵Rothbard, “Economic Determinism,” p. 5.

⁴⁶On the alliance between intellectuals and the State, see Rothbard, For a New Liberty, pp. 54–69. A particularly graphic example of this alliance can be found in late-nineteenth-century Germany, where the economists of the German Historical School were referred to as “Socialists of the Chair,” because they completely dominated the teaching of economics at German universities. They also explicitly viewed their role as providing an ideological shield for the royal line that ruled Germany and proudly proclaimed themselves to be “the Intellectual Bodyguard of the House of Hohenzollern.” Ibid., p. 60.

⁴⁷So-called “neoconservatism,” which dominates the conservative movement and the Republican Party in the United States, is merely a variant of modern liberalism. Its leading theoreticians envision a slightly smaller and more efficient welfare state, combined with a larger and more actively interventionist global-warfare state.

⁴⁸Rothbard, “Economic Determinism,” p. 5.

⁴⁹For examples, see, respectively, George J. Stigler, “The Theory of Economic Regulation,” in The Citizen and the State: Essays on Regulation (Chicago: University of Chicago Press, 1975), pp. 114–41; and James M. Buchanan, “Politics without Romance: A Sketch of Positive Public Choice Theory and Its Normative Implications,” in The Theory of Public Choice—II, James M. Buchanan and Robert D. Tollison, eds. (Ann Arbor: University of Michigan Press, 1984), pp. 11–22.

⁵⁰Buchanan, “Politics without Romance,” p. 13.

⁵¹Stigler, “Theory of Economic Regulation,” p. 140.

⁵²Murray N. Rothbard, “Only One Heartbeat Away,” The Libertarian Forum 6 (September 1974): 5.

⁵³Mises, Theory and History, p. 183.

⁵⁴Milton Friedman and Anna Jacobson Schwartz, A Monetary History of the United States, 1867–1960 (Princeton, N.J.: Princeton University Press, 1963).

⁵⁵See, for example, North, Growth and Welfare in the American Past, p. 11, n. 6.

⁵⁶Friedman and Schwartz, A Monetary History, p. xxii.

⁵⁷Ibid., p. 3. As doctrinaire positivists, Friedman and Schwartz consistently refer to the “stock” or “quantity” of money rather than to the “supply” of money, presumably because the former is the observable market outcome of the interaction of the unobservable money supply and money demand curves. However, it is likely that Friedman and Schwartz conceive the money stock as a good empirical proxy for the money supply, because they view the latter as perfectly inelastic with respect to the price level. On this point, compare Peter Temin’s interpretation. Peter Temin, Did Monetary Forces Cause the Great Depression? (New York: W.W. Norton, 1976), p. 18.

⁵⁸Friedman and Schwartz, A Monetary History, pp. 89–188.

⁵⁹Ibid., p. 115, n. 40.

⁶⁰Ibid., p. 171.

⁶¹Milton Friedman, “The Quantity Theory of Money—A Restatement,” in Studies in the Quantity Theory of Money (Chicago: University of Chicago Press, [1956] 1973), p. 18.

⁶²Ibid., p. 168.

⁶³For more on the nature and use of the counterfactual method, see Robert William Fogel, “The New Economic History: Its Findings and Methods,” in The Reinterpretation of American History, Robert William Fogel and Stanley L. Engerman, eds. (New York: Harper and Row, 1971), pp. 8–10; and Donald N. McCloskey, “Counterfactuals,” in The New Palgrave: The New World of Economics, John Eatwell, Murray Milgate, and Peter Newman, eds. (New York: W.W. Norton, 1991), pp. 149–54.

⁶⁴Friedman and Schwartz, A Monetary History, pp. 156–68.

⁶⁵Ibid., p. 168.

⁶⁶Ibid., p. xix.

⁶⁷Mises, Theory and History, p. 285.

⁶⁸Mises, Human Action, p. 48.

⁶⁹Rep. Ron Paul and Lewis Lehrman, The Case for Gold: A Minority Report of the U.S. Gold Commission (Washington, D.C.: Cato Institute, 1982), pp. 17–118.

⁷⁰Murray N. Rothbard, “The Origins of the Federal Reserve System,” Quarterly Journal of Economics 2, no. 3 (Fall 1999): 3–51.

⁷¹A version of this piece appeared as Murray N. Rothbard, “The Gold-Exchange Standard in the Interwar Years,” in Money and the Nation State: The Financial Revolution, Government and the World Monetary System, Kevin Dowd and Richard H. Timberlake, Jr., eds. (New Brunswick, N.J.: Transactions Publishers, 1998), pp. 105–63.

⁷²Murray N. Rothbard, “The New Deal and the International Monetary System,” in Watershed of Empire: Essays on New Deal Foreign Policy, Leonard P. Liggio and James J. Martin, eds. (Colorado Springs, Colo.: Ralph Myles, 1976), p. 19.

Part 1

[Previously published in a volume edited by U.S. Representative Ron Paul (R-Texas) and Lewis Lehrman, The Case for Gold: A Minority Report of the U.S. Gold Commission (Washington, D.C.: Cato Institute, 1983), pp. 17–118.—Ed.]

¹In the late seventeenth and early eighteenth centuries, the British maintained fixed mint ratios of from 15.1-to-1 of silver grains in relation to gold grains, to about 15.5-to-1. Yet the world market ratio of weight, set by forces of supply and demand, was about 14.9-to-1. Thus, silver was consistently undervalued and gold overvalued. In the eighteenth century, the problem got even worse, for increasing gold production in Brazil and declining silver production in Peru brought the market ratio down to 14.1-to-1 while the mint ratios fixed by the British government continued to be the same.

²The name “dollar” came from “thaler,” the name given to the coin of similar weight, the “Joachimsthaler” or “schlicken thaler,” issued since the early sixteenth century by the Count of Schlick in Joachimsthal in Bohemia. The Joachimsthalers weighed 451 Troy grains of silver. So successful were these coins that similar thalers were minted in Burgundy, Holland, and France; most successful of these was the Maria Theresa thaler, which began being minted in 1751 and formed a considerable portion of American currency after that date. The Spanish “pieces of eight” adopted the name “dollar” after 1690.

³Since 20 shillings make £1, this meant that the natural ratio between the two currencies was £l = $4.44.

⁴Government paper redeemable in gold began in the early ninth century, and after three centuries the government escalated to irredeemable fiat paper, with the usual consequences of boom-bust cycles, and runaway inflation. See Gordon Tullock, “Paper Money—A Cycle in Cathay,” Economic History Review 9, no. 3 (1957): 393–96.

⁵The only exception was a curious form of paper money issued five years earlier in Quebec, to become known as “card money.” The governing intendant of Quebec, Monsieur Mueles, divided some playing cards into quarters, marked them with various monetary denominations, and then issued them to pay for wages and materials sold to the government. He ordered the public to accept the cards as legal tender, and this particular issue was later redeemed in specie sent from France.

⁶Donald L. Kemmerer, “Paper Money in New Jersey, 1668–1775,” New Jersey Historical Society, Proceedings 74 (April 1956): 107–44.

⁷Before Massachusetts went back to specie, it was committed to accept the notes of the other New England colonies at par. This provided an incentive for Rhode Island to inflate its currency wildly, for this small colony, with considerable purchases to make in Massachusetts, could make these purchases in inflated money at par. Thereby Rhode Island could export its inflation to the larger colony, but make its purchases with the new money before Massachusetts prices could rise in response. In short, Rhode Island could expropriate wealth from Massachusetts and impose the main cost of its inflation on the latter colony.

⁸If Rhode Island was the most inflationary of the colonies, Maryland’s monetary expansion was the most bizarre. In 1733, Maryland’s public land bank issued £70,000 of paper notes, of which £30,000 was given away in a fixed amount to each inhabitant of the province. This was done to universalize the circulation of the new notes, and is probably the closest approximation in history of Milton Friedman’s “helicopter” model, in which a magical helicopter lavishes new paper money in fixed amounts of proportions to each inhabitant. The result of the measure, of course, was rapid depreciation of new notes. However, the inflationary impact of the notes was greatly lessened by tobacco still being the major money of the new colony. Tobacco was legal tender in Maryland and the paper was not receivable for all taxes.

⁹Roger W. Weiss, “The Colonial Monetary Standard of Massachusetts,” Economic History Review 27 (November 1974): 589.

¹⁰Ibid., p. 591.

¹¹During the sixteenth century, before the rise of the scriveners, most English money-lending was not even conducted by specialized firms, but by wealthy merchants in the clothing and woolen industries, as outlets for their surplus capital. See J. Milnes Holden, The History of Negotiable Instruments in English Law (London: Athlone Press, 1955), pp. 205–06.

¹²Once again, ancient China pioneered in deposit banking, as well as in fractional reserve banking. Deposit banking per se began in the eighth century A.D., when shops would accept valuables, in return for warehouse receipts, and receive a fee for keeping them safe. After a while, the deposit receipts of these shops began to circulate as money. Finally, after two centuries, the shops began to issue and lend out more receipts than they had on deposit; they had caught on to fractional reserve banking. Tullock, “Paper Money,” p. 396.

¹³On the Massachusetts Land Bank, see the illuminating study by George Athan Billias, “The Massachusetts Land Bankers of 1740,” University of Maine Bulletin 61 (April 1959). On merchant enthusiasm for inflationary banking in Massachusetts, see Herman J. Belz, “Paper Money in Colonial Massachusetts,” Essex Institute, Historical Collections 101 (April 1965): 146–63; and Herman J. Belz, “Currency Reform in Colonial Massachusetts, 1749–1750,” Essex Institute, Historical Collections 103 (January 1967): 66–84. On the forces favoring colonial inflation in general, see Bray Hammond, Banks and Politics in America (Princeton, N.J.: Princeton University Press, 1957), chap. 1; and Joseph Dorfman, The Economic Mind in American Civilization, 1606–1865 (New York: Viking Press, 1946), p. 142.

¹⁴For an excellent biographical essay on colonial money and banking, see Jeffrey Rogers Hummel, “The Monetary History of America to 1789: A Historiographical Essay,” Journal of Libertarian Studies 2 (Winter 1978): 373–89. For a summary of colonial monetary experience, see Murray N. Rothbard, Conceived in Liberty, vol. 2, Salutary Neglect, The American Colonies in the First Half of the Eighteenth Century (New Rochelle, N.Y.: Arlington House, 1975), pp. 123–40. A particularly illuminating analysis is in the classic work done by Charles Jesse Bullock, Essays on the Monetary History of the United States (New York: Greenwood Press, [1900] 1969), pp. 1–59. Up-to-date data on the period is in Roger W. Weiss, “The Issue of Paper Money in the American Colonies, 1720–1774,” Journal of Economic History 30 (December 1970): 770–84.

¹⁵Edmund Cody Burnett, The Continental Congress (New York: W.W.Norton, 1964), p. 83.

¹⁶As one historian explained, “Currency and certificates were the ‘common debt’ of the Revolution, most of which at war’s end had been sunk at its depreciated value. Public opinion... tended to grade claims against the government according to their real validity. Paper money had the least status.” E. James Ferguson, The Power of the Purse: A History of American Public Finance, 1776–1790 (Chapel Hill: University of North Carolina Press, 1961), p. 68.

¹⁷In Virginia and Georgia, the state paper was redeemed at the highly depreciated market rate of 1,000-to-1 in specie.

¹⁸As Morris candidly put it, this windfall to the public debt speculators at the expense of the taxpayers would cause wealth to flow “into those hands which could render it most productive.” Ferguson, Power of the Purse, p. 124.

¹⁹When Morris failed to raise the legally required specie capital to launch the Bank of North America, Morris, in an act tantamount to embezzlement, simply appropriated specie loaned to the U.S. by France and invested it for the government in his own bank. In this way, the bulk of specie capital for his bank was appropriated by Morris out of government funds. A multiple of these funds was then borrowed back from Morris’s bank by Morris as government financier for the pecuniary benefit of Morris as banker; and finally, Morris channeled most of the money into war contracts for his friends and business associates. Murray N. Rothbard, Conceived in Liberty, vol. 4, The Revolutionary War, 1775–1784 (New Rochelle, N.Y.: Arlington House, 1979), p. 392.

²⁰See ibid., pp. 409–10. On the Bank of North America and on Revolutionary War finance generally, see Curtis P. Nettels, The Emergence of a National Economy, 1775–1815 (New York: Holt, Rinehart, and Winston, 1962), pp. 23–34.

²¹Nettels, National Economy, p. 82.

²²See Hammond, Banks and Politics, pp. 67, 87–88.

²³Nettels, National Economy, pp. 61–62. See also Hammond, Banks and Politics, pp. 77–80, 85.

²⁴As Jefferson put it at the time: “The unit or dollar is a known coin, and the most familiar of all to the mind of the public. It is already adopted from South to North, has identified our currency, and therefore happily offers itself a unit already introduced.” Cited in J. Laurence Laughlin, The History of Bimetallism in the United States, 4th ed. (New York: D. Appleton, 1901), p. 11, n. 3.

²⁵The text of the Coinage Act of 1792 may be found in ibid., pp. 300–01. See also pp. 21–23; and A. Barton Hepburn, A History of Currency in the United States with a Brief Description of the Currency Systems of all Commercial Nations (New York: MacMillan, 1915), pp. 43–45.

²⁶The current Spanish silver dollars in use were lighter than the earlier dollars, weighing 387 grains. See Laughlin, History of Bimetallism, pp. 16–18.

²⁷Golden half-eagles (worth $5) and quarter-eagles (worth $2.50) were also to be coined, of corresponding proportional weights, and, for silver coins, half-dollars, quarter-dollars, dimes, and half-dimes of corresponding weights.

²⁸Silver had declined in market value from the 14.1-to-1 ratio of 1760, largely due to the declining production of gold from Russian mines in this period and therefore the rising relative value of gold.

²⁹See Laughlin, History of Bimetallism, p. 14.

³⁰For a lucid explanation of the changing silver-gold ratios and how Gresham’s Law operated in this period, see ibid., pp. 10–51. See also J. Laurence Laughlin, A New Exposition of Money, Credit and Prices (Chicago: University of Chicago Press, 1931), pp. 93–111.

³¹These “Spanish” coins were almost exclusively minted in the Spanish colonies of Latin America. After the Latin American nations achieved independence in the 1820s, the coins circulated freely in the United States without being legal tender.

³²On the complex workings of fractional coins as against dollar coins in this period, see the excellent article by David A. Martin, “Bimetallism in the United States before 1850,” Journal of Political Economy 76 (May–June 1968): 428–34.

³³Schultz and Caine are severely critical of these operations: “In indebting itself heavily to the Bank of the United States, the Federal Government was obviously misusing its privileges and seriously endangering the Bank’s stability.” They also charged that

the Federalists had saddled the government with a military and interest budget that threatened to topple the structure of federal finances. Despite the addition of tax after tax to the revenue system, the Federal Government’s receipts through the decade of the ‘90s were barely able to cling to the skirts of its expenditures. (William J. Schultz and M.R. Caine, “Federalist Finance,” in Hamilton and the National Debt, G.R. Taylor, ed. [Boston: D.C. Heath, 1950], pp. 6–7)

³⁴Similar movements occurred in wholesale prices in Philadelphia, Charleston, and the Ohio River Valley. U.S. Department of Commerce, Historical Statistics of the United States, Colonial Times to 1957 (Washington, D.C.: Government Printing Office, 1960), pp. 116, 119–21.

³⁵Nettels, National Economy, pp. 121–22.

³⁶J. Van Fenstermaker, “The Statistics of American Commercial Banking, 1782–1818,” Journal of Economic History (September 1965): 401; J. Van Fenstermaker, The Development of American Commercial Banking 1782–1837 (Kent, Ohio: Kent State University, 1965), pp. 111–83; William M. Gouge, A Short History of Paper Money and Banking in the United States (New York: Augustus M. Kelley, [1833] 1968), p. 42.

³⁷Marshall, a disciple of Hamilton, repeated some of Hamilton’s arguments virtually word for word in the decision. See Gerald T. Dunne, Monetary Decisions of the Supreme Court (New Brunswick, N.J.: Rutgers University Press, 1960), p. 30.

³⁸On the quasi-Federalists as opposed to the Old Republicans, on banking and on other issues, see Richard E. Ellis, The Jeffersonian Crisis: Courts and Politics in the Young Republic (New York: Oxford University Press, 1971), pp. 277 ff.

³⁹Van Fenstermaker notes that there has been a tendency of historians to believe that virtually all bank emissions were in the form of notes, but that actually a large portion was in the form of demand deposits. Thus, in 1804, bank liabilities were $1.70 million in notes and $1.12 million in deposits; in 1811 they were $5.68 million and $5.27 million respectively. He points out that deposits exceeded notes in the large cities such as Boston and Philadelphia, sometimes by two- or threefold, whereas bank notes were used far more widely in rural areas for hand-to-hand transactions. Van Fenstermaker, “Statistics,” pp. 406–11.

⁴⁰Of the Bank of the United States’s liabilities, bank notes totaled $5.04 million and demand deposits $7.83 million. John Jay Knox, A History of Banking in the United States (New York: Bradford Rhodes, 1900), p. 39. There are no other reports for the Bank of the United States extant except for 1809. The others were destroyed by fire. John Thom Holdsworth, The First Bank of the United States (Washington, D.C.: National Monetary Commission, 1910), pp. 111ff., 138–44.

⁴¹Holdsworth, First Bank, p. 83. See also ibid., pp. 83–90. Holdsworth, the premier historian of the First Bank of the United States, saw the overwhelming support by the state banks, but still inconsistently clung to the myth that the Bank of the United States functioned as a restraint on their expansion: “The state banks, though their note issues and discounts had been kept in check by the superior resources and power of the Bank of the United States, favored the extension of the charter, and memorialized Congress to that effect.” Ibid., p. 90 (italics added).

⁴²Van Fenstermaker, “Statistics,” pp. 401–09. For the list of individual incorporated banks, see Van Fenstermaker, Development, pp. 112–83, with Pennsylvania on pp. 169–73.

⁴³For a perceptive discussion of the nature and consequences of Treasury note issue in this period, see Richard H. Timberlake, Jr., The Origins of Central Banking in the United States (Cambridge, Mass.: Harvard University Press, 1978), pp. 13–18. The Gresham Law effect probably accounts for the startling decline of specie held by the reporting banks, from $9.3 million to $5.4 million, from 1814 to 1815. Van Fenstermaker, “Statistics,” p. 405.

⁴⁴Historical Statistics, pp. 115–24; Murray N. Rothbard, The Panic of 1819: Reactions and Policies (New York: Columbia University Press, 1962), p. 4.

⁴⁵On the suspensions of specie payments, and on their importance before the Civil War, see Vera C. Smith, The Rationale of Central Banking (London: P.S. King and Son, 1936), pp. 38–46. See also Dunne, Monetary Decisions, p. 26.

⁴⁶Smith, Rationale, p. 36. Smith properly defines “free banking” as

a regime where note-issuing banks are allowed to set up in the same way as any other type of business enterprise, so long as they comply with the general company law. The requirement for their establishment is not special conditional authorization from a government authority, but the ability to raise sufficient capital, and public confidence, to gain acceptance for their notes and ensure the profitability of the undertaking. Under such a system all banks would not only be allowed the same rights, but would also be subjected to the same responsibilities as other business enterprises. If they failed to meet their obligations they would be declared bankrupt and put into liquidation, and their assets used to meet the claims of their creditors, in which case the shareholders would lose the whole or part of their capital, and the penalty for failure would be paid, at least for the most part, by those responsible for the policy of the bank. Notes issued under this system would be “promises to pay,” and such obligations must be met on demand in the generally accepted medium which we will assume to be gold. No bank would have the right to call on the government or on any other institution for special help in time of need.... A general abandonment of the gold standard is inconceivable under these conditions, and with a strict interpretation of the bankruptcy laws any bank suspending payments would at once be put into the hands of a receiver. (Ibid., pp. 148–49)

⁴⁷See Richard H. Timberlake, Jr., Money, Banking, and Central Banking (New York: Harper and Row, 1965), p. 94.

⁴⁸Hammond, Banks and Politics, pp. 179–80. Even before the suspension, in 1808, a Bostonian named Hireh Durkee who attempted to demand specie for $9,000 in notes of the state-owned Vermont State Bank, was met by an indictment for an attempt by this “evil-disposed person” to “realize a filthy gain” at the expense of the resources of the state of Vermont and the ability of “good citizens thereof to obtain money.” Ibid., p. 179. See also Gouge, Short History, p. 84.

⁴⁹Gouge, Short History, pp. 141–42. Secretary of the Treasury William H. Crawford, a Georgia politician, tried in vain to save the Bank of Darien from failure by depositing Treasury funds there during the panic. Rothbard, Panic of 1819, p. 62.

⁵⁰Ibid., pp. 64–68. Other compulsory par laws were passed by Ohio and Delaware.

⁵¹The most extreme proposal was Tennessee politician Felix Grundy’s scheme, never adopted, to compel creditors to accept bank notes of the state bank or forfeit the debt; that would have conferred full legal tender status on the bank. Ibid., p. 91; and Joseph H. Parks, “Felix Grundy and the Depression of 1819 in Tennessee,” Publications of the East Tennessee Historical Society 10 (1938): 22.

⁵²Only New England, New York, New Jersey, Virginia, Mississippi, and Louisiana were comparatively untouched by the inconvertible paper contagion, either in the form of suspended specie banks continuing in operation or new state-owned banks emitting more paper. For an analysis of the events and controversies in each state, see Rothbard, The Panic of 1819, pp. 57–111.

⁵³Raguet to Ricardo, April 18, 1821, in David Ricardo, Minor Papers on the Currency Question, 1809–23, Jacob H. Hollander, ed. (Baltimore: Johns Hopkins Press, 1932), pp. 199–201; Rothbard, Panic of 1819, pp. 10–11. See also Hammond, Banks and Politics, p. 242.

⁵⁴New note issue series by banks reached a heavy peak in 1815 and 1816 in New York and Pennsylvania. D.C. Wismar, Pennsylvania Descriptive List of Obsolete State Bank Notes, 1782–1866 (Frederick, Md.: J.W. Stovell, 1933); and idem, New York Descriptive List of Obsolete Paper Money (Frederick, Md.: J.W. Stovell, 1931).

⁵⁵On the establishment of the Bank of the United States and on the deal with the state banks, see Ralph C.H. Catterall, The Second Bank of the United States (Chicago: University of Chicago Press, 1902), pp. 9–26, 479–90. See also Hammond, Banks and Politics, pp. 230–48; and Davis R. Dewey, The Second United States Bank (Washington, D.C.: National Monetary Commission, 1910), pp. 148–76.

⁵⁶On the Girard-Dallas connection, see Hammond, Banks and Politics, pp. 231–46, 252; Philip H. Burch, Jr., Elites in American History, vol. 1, The Federalist Years to the Civil War (New York: Holmes and Meier, 1981), pp. 88, 97, 116–17, 119–21; and Kenneth L. Brown, “Stephen Girard, Promoter of the Second Bank of the United States,” Journal of Economic History (November 1942): 125–32.

⁵⁷Annals of Congress, 14th Cong., 1st sess., April 1, 1816, pp. 267–70. See also ibid., pp. 1066, 1091, 1110 ff; cited in Murray N. Rothbard, The Case for a 100 Percent Gold Dollar (Washington, D.C.: Libertarian Review Press, 1974), p. 18 n. See also Gouge, Short History, pp. 79–83.

⁵⁸Hammond, Banks and Politics, p. 248. See also Condy Raguet, A Treatise on Currency and Banking, 2nd ed. (New York: Augustus M. Kelley, [1840] 1967), pp. 302–03; Catterall, Second Bank, pp. 37–39; and Walter Buckingham Smith, Economic Aspects of the Second Bank of the United States (Cambridge, Mass.: Harvard University Press, 1953), p. 104.

⁵⁹Catterall, Second Bank, p. 36.

⁶⁰On the expansion and fraud at the Second Bank of the United States, see Catterall, Second Bank, pp. 28–50, 503. The main culprits were James A. Buchanan, president of the Baltimore mercantile firm of Smith and Buchanan, and the Baltimore Bank of the United States cashier James W. McCulloch, who was simply an impoverished clerk at the mercantile house. Smith, an ex-Federalist, was a senator from Maryland and a powerful member of the National Democratic-Republican establishment.

⁶¹As a result of the contractionary influence on the Boston branch of the Bank of the United States, the notes of the Massachusetts banks actually declined in this period, from $1 million in June 1815 to $850,000 in June 1818. See Rothbard, Panic of 1819, p. 8.

⁶²Total notes and deposits of 39 percent of the nation’s reporting state banks was $26.3 million in 1816, while 38 percent of the banks had total notes and deposits of $27.7 million two years later. Converting this pro rata to 100 percent of the banks gives an estimated $67.3 million in 1816, and $72.9 million in 1818. Add to the latter figure $21.8 million for Bank of the United States notes and deposits, and this yields $94.7 million in 1818, or a 40.7-percent increase. Adapted from tables in Van Fenstermaker, “Statistics,” pp. 401, 405, 406.

⁶³Rothbard, Panic of 1819, pp. 6–10; Historical Statistics, pp. 120, 122, 563. See also George Rogers Taylor, The Transportation Revolution, 1815–1860 (New York: Rinehart, 1951), pp. 334–36.

⁶⁴These estimates are adapted from the tables in Van Fenstermaker, “Statistics,” pp. 401–06, and Development, pp. 66–68. The data for 38 percent of incorporated banks in 1818, and for 54 percent in 1819, are converted pro rata to 100-percent figures. Bank of the United States figures are in Catterall, Second Bank, p. 502. On the contraction by the Second Bank, see ibid., pp. 51–72.

⁶⁵On Treasury note contraction in this period, see Timberlake, Origins of Central Banking, pp. 21–26.

⁶⁶See Rothbard, Panic of 1819, pp. 11–16.

⁶⁷Gouge, Short History, p. 110.

⁶⁸Rothbard, Panic of 1819, p. 188.

⁶⁹Biddle continued the chain of control over both Banks of the United States by the Philadelphia financial elite, from Robert Morris and William Bingham, to Stephen Girard and William Jones. See Burch, Elites, p. 147. See also Thomas P. Govan, Nicholas Biddle: Nationalist and Public Banker, 1786–1844 (Chicago: University of Chicago Press, 1959), pp. 45, 74–75, 79.

⁷⁰Hammond, Banks and Politics, p. 420.

⁷¹For an excellent biographical essay and critique of historical interpretations of Jacksonism and the Bank War, see Jeffrey Rogers Hummel, “The Jacksonians, Banking, and Economic Theory: A Reinterpretation,” Journal of Libertarian Studies 2 (Summer 1978): 151–65.

⁷²For the Bank of the United States data, see Catterall, Second Bank, p. 503; for total money supply, see Peter Temin, The Jacksonian Economy (New York: W.W. Norton, 1969), p. 71.

⁷³Temin, Jacksonian Economy, passim. See also Hugh Rockoff, “Money, Prices, and Banks in the Jacksonian Era,” in The Reinterpretation of American Economic History, R. Fogel and S. Engerman, eds. (New York: Harper and Row, 1971), pp. 448–58.

⁷⁴Temin, Jacksonian Economy, pp. 68–74.

⁷⁵Jean Alexander Wilburn, Biddle’s Bank: The Crucial Years (New York: Columbia University Press, 1979), pp. 118–19, quoted in Hummel, “Jacksonians,” p. 155.

⁷⁶Moreover, if the Jacksonians had been able to move more rapidly in returning the banking system to a 100-percent-specie basis, they could have used the increase in specie to ease the monetary contraction required by a return to a pure specie money.

⁷⁷Mexico was pinpointed as the source of the inflow of specie by Temin, Jacksonian Economy, p. 80, while the disclosure of the cause in Mexican copper inflation came in Rockoff, “Money, Prices, and Banks,” p. 454.

⁷⁸Public land sales by the federal government, which had been going steadily at approximately $4 million–$6 million per year, suddenly spurted upward in 1835 and 1836, to $16.2 million and $24.9 million respectively. The latter was the largest sale of public lands in American history, and the 1835 figure was the second largest. Temin, Jacksonian Economy, p. 124. The first demonstration of the negligible impact of the Specie Circular on the position of the banks was Richard H. Timberlake, Jr., “The Specie Circular and Distribution of the Surplus,” Journal of Political Economy 68 (April 1960): 109–17, reprinted in Timberlake, Origins, pp. 50–62. Timberlake defended his thesis in idem, “The Specie Circular and the Sale of Public Lands: A Comment,” Journal of Economic History 25 (September 1965): 414–16.

⁷⁹Temin, Jacksonian Economy, pp. 128–36.

⁸⁰See Reginald C. McGrane, Foreign Bondholders and American State Debts (New York: Macmillan, 1935), pp. 6–7, 24ff.

⁸¹McGrane, Foreign Bondholders, pp. 39–40.

⁸²The Americans also pointed out that the banks, including the Bank of the United States, which were presuming to denounce repudiation of state debt, had already suspended specie payments and were largely responsible for the contraction. “Let the bondholders look to the United States Bank and to the other banks for their payment declared the people.” Ibid., p. 48.

⁸³In 1839–43, the money supply, as we have seen, fell by 34 percent, wholesale prices by 42 percent, and the number of banks by 23 percent. In 1929–33, the money supply fell by 27 percent, prices by 31 percent, and the number of banks by 42 percent. Temin, Jacksonian Economy, pp. 155 ff.

⁸⁴Probably the Jacksonians did so to preserve the illusion that the original silver dollar, the “dollar of our fathers” and the standard currency of the day, remained fixed in value. Laughlin, History of Bimetallism, p. 70.

⁸⁵For the illuminating discovery that the Jacksonians were interested in purging small bank notes by bringing in gold, see Paul M. O’Leary, “The Coinage Legislation of 1834,” Journal of Political Economy 45 (February 1937): 80–94. For the development of this insight by Martin, who shows that the Jacksonians anticipated a coinage of both gold and silver, and reveals the comprehensive Jacksonian coinage program, see David A. Martin, “Metallism, Small Notes, and Jackson’s War with the B.U.S.,” Explorations in Economic History 11 (Spring 1974): 227–47.

⁸⁶For the next 16 years, from 1835 through 1850, the market ratio averaged 18.5-to-1, a silver premium of only 1 percent over the 16-to-1 mint ratio. For the data, see Laughlin, History of Bimetallism, p. 291.

⁸⁷Martin, “Bimetallism,” pp. 436–37. Spanish fractional silver coins were from 5 percent to 15 percent underweight, so their circulation in the U.S. at par by name (or “tale”) meant that they were still considerably overvalued.

⁸⁸As Jackson’s Secretary of the Treasury Levi Woodbury explained the purpose of this broad legalization of foreign coins: “to provide a full supply and variety of coins, instead of bills below five and ten dollars,” for this would be “particularly conducive to the security of the poor and middling classes, who, as they own but little in, and profit but little by, banks, should be subjected to as small risk as practicable by their bills.” Quoted in Martin, “Metallism,” p. 242.

⁸⁹In 1837 another coinage act made a very slight adjustment in the mint ratios. In order to raise the alloy composition of gold coins to have them similar to silver, the definition of the gold dollar was raised slightly from 23.2 grains to 23.22 grains. With the weight of the silver dollar remaining the same, the silver-gold ratio was now very slightly lowered from 16.002-to-1 to 15.998-to-1. Further slight adjustments in valuations of foreign coins in the Coinage Act of 1843 resulted in the undervaluation of many foreign coins and their gradual disappearance. The major ones—Spanish fractional silver—continued, however, to circulate widely. Ibid., p. 436.

⁹⁰Ibid., p. 240.

⁹¹On gold production, see Laughlin, History of Bimetallism, pp. 283–86; and David A. Martin, “1853: The End of Bimetallism in the United States,” Journal of Economic History 33 (December 1973): 830.

⁹²The silver-gold ratio began to slide sharply in October and November 1850. Laughlin, History of Bimetallism, pp. 194, 291.

⁹³Martin, “Metallism,” p. 240.

⁹⁴For an account of how parallel standards worked in Europe from the medieval period through the eighteenth century, see Luigi Einaudi, “The Theory of Imaginary Money from Charlemagne to the French Revolution,” in Enterprise and Secular Change, F. Lane and J. Riemersma, eds. (Homewood, Ill.: Irwin, 1953), pp. 229–61. Robert Lopez contrasts the ways in which Florence and Genoa each returned to gold coinage in the mid-thirteenth century, after a gap of half a millennium:

Florence, like most medieval states, made bimetallism and trimetallism a base of its monetary policy... it committed the government to the Sysiphean labor of readjusting the relations between different coins as the ratio between the different metals changes, or as one or another coin was debased.... Genoa on the contrary, in conformity with the principle of restricting state intervention as much as possible did not try to enforce a fixed relation between coins of different metals.... Basically, the gold coinage of Genoa was not meant to integrate the silver and bullion coinages but to form an independent system. (Robert Sabatino Lopez, “Back to Gold, 1252,” Economic History Review [April 1956]: 224; emphasis added)

See also James Rolph Edwards, “Monopoly and Competition in Money,” Journal of Libertarian Studies 4 (Winter 1980): 116. For an analysis of parallel standards, see Ludwig von Mises, The Theory of Money and Credit, 3rd ed. (Indianapolis: Liberty Classics, 1980), pp. 87, 89–91, 205–07.

⁹⁵Given parallel standards, the ultimate, admittedly remote solution would be to eliminate the term “dollar” altogether, and simply have both gold and silver coins circulate by regular units of weight: “grain,” “ounce,” or “gram.” If that were done, all problems of bimetallism, debasement, Gresham’s Law, etc., would at last disappear. While such a pure free-market solution seems remote today, the late nineteenth century saw a series of important international monetary conferences trying to move toward a universal gold or silver gram, with each national currency beginning as a simple multiple of each other, and eventually only units of weight being used. Before the conferences foundered on the gold-silver problem, such a result was not as remote or utopian as we might now believe. See the fascinating account of these conferences in Henry B. Russell, International Monetary Conferences (New York: Harper and Bros., 1898).

⁹⁶For an excellent portrayal of the congressional choice in 1853, see Martin, “1853,” pp. 825–44.

⁹⁷Only Spanish-American fractional silver coins were to remain legal tender, and they were to be received quickly at government offices and immediately reminted into American coins. Hepburn, History of Currency, pp. 66–67.

⁹⁸See Martin, “Metallism,” pp. 242–43.

⁹⁹Hugh Rockoff, The Free Banking Era: A Re-Examination (New York: Arno Press, 1975), pp. 3–4.

¹⁰⁰Rockoff goes so far as to call free banking the “antithesis of laissez-faire banking laws.” Hugh Rockoff, “Varieties of Banking and Regional Economic Development in the United States, 1840–1860,” Journal of Economic History 35 (March 1975): 162. Quoted in Hummel, “Jacksonians,” p. 157.

¹⁰¹Hammond, Banks and Politics, p. 627. On free banking, see Hummel, “Jacksonians,” p. 154–60; Smith, Rationale, pp. 44–45; and Rockoff, “American Free Banking,” pp. 417–20. On the effect of usury laws, see William Graham Sumner, A History of American Currency (New York: Henry Holt, 1876), p. 125. On the Jacksonians versus their opponents on the state level after 1839, see William G. Shade, Banks or No Banks: The Money Issue in Western Politics, 1832–1865 (Detroit: Wayne State University Press, 1972); Herbert Ershkowitz and William Shade, “Consensus or Conflict? Political Behavior in the State Legislatures During the Jaksonian Era,” Journal of American History 58 (December 1971): 591–621; and James Roger Sharp, Jacksonians versus the Banks: Politics in the States After the Panic of 1837 (New York: Columbia University Press, 1970).

¹⁰²John Jay Knox, A History of Banking in the United States (New York: Augustus M. Kelley, [1900] 1969), pp. 368–69.

¹⁰³To be able to keep paying interest in specie, Congress provided that customs duties, at least, had to be paid in gold or silver. For a comprehensive account and analysis of the issue of greenbacks in the Civil War, see Wesley Clair Mitchell, A History of the Greenbacks (Chicago: University of Chicago Press, 1903). For a summary, see Paul Studenski and Herman E. Kross, Financial History of the United States (New York: McGraw-Hill, 1952), pp. 141–49.

¹⁰⁴Chase and the administration should have heeded the advice of Republican Senator Jacob Collamer of Vermont: “Gold does not fluctuate in price... because they gamble in it; but they gamble in it because it fluctuates.... But the fluctuation is not in the gold; the fluctuation is in the currency, and it is a fluctuation utterly beyond the control of individuals.” Mitchell, History of Greenbacks, pp. 229–30.

¹⁰⁵On the war against the gold speculators, see ibid., pp. 223–35. The greenbacks fell further to 35¢ in mid-July on news of military defeats for the North. Military victories, and consequently rising prospects of possible future gold redemption of the greenbacks, caused a rise in greenbacks in terms of gold, particularly after the beginning of 1865. At war’s end, the greenback dollar was worth 69¢ in gold. Ibid., pp. 232–38, 423–28.

¹⁰⁶Some of the greenbacks had been decorated with portraits of President Lincoln ($5) and Secretary Chase ($1). However, when Spencer Clark, chief clerk of the Treasury’s National Currency Division, put his own portrait on 5¢ fractional notes, the indignant Republican Representative Martin R. Thayer of Pennsylvania put through a law, still in force, making it illegal to put the picture of any living American on any coin or paper money. See Gary North, “Greenback Dollars and Federal Sovereignty, 1861–1865,” in Gold Is Money, Hans Sennholz, ed. (Westport, Conn.: Greenwood Press, 1975), pp. 124, 150.

¹⁰⁷See Mitchell, History of Greenbacks, pp. 156–63.

¹⁰⁸Banks of deposit existed in California, but of course they could not supply the public’s demand for cash. See Knox, History of Banking, pp. 843–45.

¹⁰⁹This experience illustrates a continuing problem in contract law: It is not sufficient for government to allow contracts to be made in gold or gold coin. It is necessary for government to enforce specific performance of the contracts so that debtors must pay in the weight or value of the gold (or anything else) required in the contract, and not in some paper-dollar equivalent decided by law or the courts.

¹¹⁰Cited in Richard A. Lester, Monetary Experiments (London: David and Charles Reprints, [1939] 1970), p. 166. On the California and Oregon maintenance of the gold standard in this period, see ibid., pp. 161–71. On California, see Bernard Moses, “Legal Tender Notes in California,” in Quarterly Journal of Economics (October 1892): 1–25; and Mitchell, History of Greenbacks, pp. 142–44. On Oregon, see James H. Gilbert, Trade and Currency in Early Oregon (New York: Columbia University Press, 1907), pp. 101–22.

¹¹¹Historical Statistics, pp. 625, 648–49.

¹¹²Bray Hammond, Sovereignty and an Empty Purse: Banks and Politics in the Civil War (Princeton, N.J.: Princeton University Press, 1970), pp. 246, 249–50. See also North, “Greenback Dollars,” pp. 143–48.

¹¹³Historical Statistics, pp. 625, 648–49. In a careful analysis, North estimates the total money supply at approximately $2 billion and also points out that conterfeit notes in the Civil War have been estimated to amount to no less than one-third of the total currency in circulation. North, “Greenback Dollars,” p. 134. The counterfeiting estimates are in William P. Donlon, United States Large Size Paper Money, 1861 to 1923, 2nd ed. (Iola, Wis.: Krause, 1970), p. 15.

¹¹⁴Ralph Andreano, ed., The Economic Impact of the American Civil War (Cambridge, Mass.: Schenckman, 1961), p. 178.

¹¹⁵The Confederacy, on the other hand, financed virtually all of its expenditures through mammoth printing of fiat paper, the Southern version of the greenback. Confederate notes, which were first issued in June 1861 at a sum of $1.1 million, skyrocketed until the total supply of Confederate notes in January 1864 was no less than $826.8 million, an increase of 750.6 percent for three and a half years, or 214.5 percent per year. Bank notes and deposits in the Confederacy rose from $119.3 million to $268.1 million in this period, so that the total money supply rose from $120.4 million to $1.095 billion, an increase of 1,060 percent—or 302.9 percent per year. Prices in the eastern Confederacy rose from 100 in early 1861 to over 4,000 in 1864, and to 9,211 at the end of the war in April 1865. Thus, in four years, prices rose by 9,100 percent or an average of 2,275 percent per annum. See Eugene M. Lerner, “Inflation in the Confederacy, 1861–65,” in Studies in the Quantity Theory of Money, Milton Friedman, ed. (Chicago: University of Chicago Press, 1956), pp. 163–75; and Eugene M. Lerner, “Money, Prices, and Wages in the Confederacy, 1861–65,” in Andreano, Economic Impact, pp. 11–40.

¹¹⁶Mitchell, History of the Greenbacks, pp. 61–74, 119 f., 128–31. See also Don C. Barrett, The Greenbacks and Resumption of Specie Payments, 1862–1879 (Cambridge, Mass.: Harvard University Press, 1931), pp. 25–57.

¹¹⁷In Henrietta Larson, Jay Cooke, Private Banker (Cambridge, Mass: Harvard University Press, 1936), p. 103. See also Edward C. Kirkland, Industry Comes of Age: Business, Labor and Public Policy, 1860–1897 (New York: Holt, Rinehart and Winston, 1961), p. 20.

¹¹⁸Kirkland, Industry, pp. 20–21.

¹¹⁹In his important work on Northern intellectuals and the Civil War, George Frederickson discusses an influential article by one Samuel Fowler written at the end of the war:

The Civil War which has changed the current of our ideas, and crowded into a few years the emotions of a lifetime,” Fowler wrote, “has in measure given to the preceding period of our history the character of a remote state of political existence.” Fowler described the way in which the war, a triumph of nationalism and a demonstration of “the universal tendency to combination,” had provided the coup de grace for the Jefferson philosophy of government with its emphasis on decentralization and the protection of local and individual liberties. (George Frederickson, The Inner Civil War: Northern Intellectuals and the Crisis of the Union [New York: Harper and Row, 1965], p. 184)

See also Merrill D. Peterson, The Jeffersonian Image in the American Mind (New York: Oxford University Press, 1960), pp. 217–18.

¹²⁰For a particularly lucid exposition of the structure of the national banking system, see John J. Klein, Money and the Economy, 2nd ed. (New York: Harcourt, Brace and World, 1970), pp. 140–47.

¹²¹Banks generally paid interest on demand deposits until the practice was outlawed in 1934.

¹²²Adapted from Klein, Money and the Economy, pp. 144–45.

¹²³See Hepburn, History of Currency, pp. 317–18.

¹²⁴Originally, national banks could only issue notes to the value 90 percent of their U.S. government bonds. This limitation was changed to 100 percent in 1900.

¹²⁵Except, of course, as we have seen with the greenbacks, for payment of customs duties, which had to be paid in gold, to build up a fund to pay interest on the government debt in gold.

¹²⁶See Smith, Rationale, p. 48.

¹²⁷Ibid., p. 132.

¹²⁸Historical Statistics, pp. 628–29.

¹²⁹Quoted in Robert P. Sharkey, Money, Class, and Party: An Economic Study of Civil War and Reconstruction (Baltimore, Md.: The Johns Hopkins Press, 1959), p. 245.

¹³⁰See Hammond, Sovereignty, pp. 289–90.

¹³¹Actually, Cooke erred, and national bank notes never reached that total. Instead, it was demand deposits that expanded, and reached the billion-dollar mark by 1879.

¹³²See Sharkey, Money, Class, and Party, p. 247.

¹³³The leader of the protectionists in Congress in 1820 was Representative Henry Baldwin, a leading iron manufacturer from Pittsburgh. Rothbard, Panic of 1819, pp. 164 ff.

¹³⁴On the Carey circle and its influence, see Irwin Unger, The Greenback Era: A Social and Political History of American Finance, 1865–1879 (Princeton, N.J.: Princeton University Press, 1964), pp. 53–59; and Joseph Dorfman, The Economic Mind in American Civilization, vol. 3, 1864–1918 (New York: Viking Press, 1949), pp. 7–8. Dorfman notes that Congressman Kelley dedicated his collected Speeches, Addresses, and Letters on Industrial and Financial Questions of 1872 to “The Great Master of Economic Science, The Profound Thinker, and the Careful Observer of Social Phenomena, My Venerable Friend and Teacher, Henry C. Carey.” Ibid., p. 8. On the link between high tariffs and greenbacks for the Pennsylvania ironmasters, see Sharkey, Money, Class, and Party, chap. 4.

¹³⁵Thus, Keynes wrote: “‘To dig holes in the ground,’ paid for out of savings will increase, not only employment, but the real national dividend of useful goods and services.” John Maynard Keynes, The General Theory of Employment, Interest and Money (New York: Harcourt, Brace, 1936), p. 220. On pyramid-building, see ibid., pp. 131, 220.

¹³⁶Unger, Greenback Era, p. 46.

¹³⁷Ibid., p. 222.

¹³⁸The federal government had contracted to redeem the interest on the wartime public debt in gold, but nothing was contracted about the repayment of the principal.

¹³⁹Similar motivations had impelled many hard-money anti-Federalists during the 1780s to advocate the issue of state paper money for the sole purpose of redeeming swollen wartime public debts.

¹⁴⁰On the McCulloch Loan Bill, see Sharkey, Money, Class, and Party, p. 75; on the Inflation Bill, see Unger, Greenback Era, p. 410.

¹⁴¹This political and compromise interpretation of the Resumption Act successfully revises the previous hard-money view of this measure. See Unger, Greenback Era, pp. 249–63.

¹⁴²See Charles Fairman, “Mr. Justice Bradley’s Appointment to the Supreme Court and the Legal Tender Cases,” Harvard Law Review (May 1941): 1131; cited in Unger, Greenback Era, p. 174.

¹⁴³The first new justice, William Strong of Pennsylvania, had been a top attorney for the Philadelphia and Reading Railroad, and a director of the Lebanon Valley Railroad. The second jurist, Joseph P. Bradley, was a director of the Camden and Amboy Railroad and of the Morris and Essex Railroad, in New Jersey. On the railroad ties of Strong and Bradley, see Philip H. Burch, Jr., Elites in American History, vol. 2, The Civil War to the New Deal (New York: Holmes and Meier, 1981), pp. 44–45. On the reaction of the Grant administration, see Unger, Greenback Era, pp. 172–78. For a legal analysis of the decisions, see Hepburn, History of Currency, pp. 254–64; and Government’s Money Monopoly, Henry Mark Holzer, ed. (New York: Books in Focus, 1981), pp. 99–168.

¹⁴⁴Klein, Money and the Economy, pp. 145–46.

¹⁴⁵For the bemusement of Friedman and Schwartz, see Milton Friedman and Anna Jacobson Schwartz, A Monetary History of the United States, 1867–1960 (New York: National Bureau of Economic Research, 1963), pp. 33–44. On totals of bank money, see Historical Statistics, pp. 624–25.

¹⁴⁶S.B. Saul, The Myth of the Great Depression, 1873–1896 (London: Macmillan, 1969).

¹⁴⁷Unger, Greenback Era, pp. 47 and 221.

¹⁴⁸For the best discussion of the crime against silver, see Allen Weinstein, Prelude to Populism: Origins of the Silver Issue, 1867–1878 (New Haven, Conn.: Yale University Press, 1970), pp. 8–32. See also Paul M. O’Leary, “The Scene of the Crime of 1873 Revisited: A Note,” Journal of Political Economy 68 (1960): 388–92.

¹⁴⁹Weinstein, Prelude to Populism, p. 356.

¹⁵⁰Friedman and Schwartz, Monetary History, pp. 91–93; and Historical Statistics, p. 625.

¹⁵¹Friedman and Schwartz, Monetary History, pp. 98–99.

¹⁵²See Rendigs Fels, American Business Cycle, 1865–1897 (Chapel Hill: University of North Carolina Press, 1959), pp. 130–31.

¹⁵³See Friedman and Schwartz, Monetary History, pp. 106, n. 25.

¹⁵⁴On silver agitation, the gold reserves, and the panic of 1893, see Friedman and Schwartz, Monetary History, pp. 104–33, 705.

¹⁵⁵Ibid., Monetary History, pp. 113–19.

¹⁵⁶The locus classicus of the new political history in late nineteenth-century politics is Paul Kleppner, The Cross of Culture: A Social Analysis of Midwestern Politics, 1859–1900 (New York: Free Press, 1970). See also other writings of the prolific Kleppner, especially his magnum opus, The Third Electoral System, 1853–1892: Parties, Voters, and Political Cultures (Chapel Hill: University of North Carolina Press, 1979). On the late nineteenth century, see also Richard J. Jensen, The Winning of the Midwest: Social and Political Conflict, 1888–1896 (Chicago: University of Chicago Press, 1971). On the Civil War period and earlier, see the works of Ronald Formisano, Joel Sibley, and William Shade. For Eastern confirmation on the Kleppner and Jensen findings on the Middle West, see Samuel T. McSeveney, The Politics of Depression: Political Behavior in the Northeast, 1893–1896 (Oxford: Oxford University Press, 1972).

¹⁵⁷”Yankees” originated in rural New England and then emigrated westward in the early nineteenth century, settling in upstate (particularly western) New York, northern Ohio, northern Indiana, and northern Illinois.

¹⁵⁸These pietists have been called “evangelical pietists” to contrast them with the new Southern pietists, called “salvational pietists,” who did not include the compulsion to save everyone else in their doctrine.

¹⁵⁹These pietists are distinguished from contemporary “fundamentalists” because the former were “postmillennialists” who believe that the world must be shaped up and Christianized for a millennium before Jesus will return. In contrast, contemporary fundamentalists are “pre-millennials” who believe that the Second Coming of Jesus will usher in the millennium. Obviously, if everyone must be shaped up before Jesus can return, there is a much greater incentive to wield State power to stamp out sin.

¹⁶⁰Lutherans, then as now, were split into many different synods, some highly liturgical, others highly pietist, and still others in between. Paul Kleppner has shown a 1-to-1 correlation between the degree of liturgicalness and the percentage of Democratic Party votes among the different synods.

¹⁶¹Grover Cleveland himself, of course, was neither a Roman Catholic nor a Lutheran. But he was a Calvinist Presbyterian who detested the takeover of the Presbyterian Church by the pietists.

¹⁶²So intense was the German-American devotion to gold and hard money that even German communist-anarchist Johann Most, leader of a movement that sought the abolition of money itself, actually came out for the gold standard during the 1896 campaign! See Jensen, Winning of the Midwest, pp. 293–95.

¹⁶³Kleppner, Third Electoral System, pp. 291–96.

^*[Congress eliminated federal restrictions on interstate banking and branching in September 1994, with the passage of the Riegle-Neal Interstate Banking and Branching Efficiency Act.—Ed.]

Part 2

[Originally published as “The Origins of the Federal Reserve,” Quarterly Journal of Austrian Economics 2, no. 3 (Fall): 3–51.—Ed.]

¹On the national banking system background and on the increasing unhappiness of the big banks, see Murray N. Rothbard, “The Federal Reserve as a Cartelization Device: The Early Years, 1913–1920,” in Money in Crisis, Barry Siegel, ed. (San Francisco: Pacific Institute, 1984), pp. 89–94; Ron Paul and Lewis Lehrman, The Case for Gold: A Minority Report on the U.S. Gold Commission (Washington, D.C.: Cato Institute, 1982); and Gabriel Kolko, The Triumph of Conservatism: A Reinterpretation of American History (Glencoe, Ill.: Free Press, 1983), pp. 139–46.

²Indeed, much of the political history of the United States from the late nineteenth century until World War II may be interpreted by the closeness of each administration to one of these sometimes cooperating, more often conflicting, financial groupings: Cleveland (Morgan), McKinley (Rockefeller), Theodore Roosevelt (Morgan), Taft (Rockefeller), Wilson (Morgan), Harding (Rockefeller), Coolidge (Morgan), Hoover (Morgan), and Franklin Roosevelt (Harriman–Kuhn, Loeb–Rockefeller).

³For the memorandum, see James Livingston, Origins of the Federal Reserve System: Money, Class, and Corporate Capitalism, 1890–1913 (Ithaca, N.Y.: Cornell University Press, 1986), pp. 104–05.

⁴Yale Review 5 (1897): 343–45, quoted in ibid., p. 105.

⁵See Philip H. Burch, Jr., Elites in American History, vol. 2, The Civil War to the New Deal (New York: Holmes and Meier, 1981), p. 189, n. 55.

⁶Ibid., pp. 231, 233. See also Louise Ware, George Foster Peabody (Athens: University of Georgia Press, 1951), pp. 161–67.

⁷See Kolko, Triumph, pp. 147–48.

⁸See Livingston, Origins, pp. 106–07.

⁹See Livingston, Origins, pp. 107–08.

¹⁰Ibid., pp. 109–10.

¹¹Ibid., pp. 113–15.

¹²See Rothbard, “Federal Reserve,” pp. 95–96.

¹³On Hadley, Jenks, and especially Conant, see Carl P. Parrini and Martin J. Sklar, “New Thinking about the Market, 1896–1904: Some American Economists on Investment and the Theory of Surplus Capital,” Journal of Economic History 43 (September 1983): 559–78. The authors point out that Conant’s and Hadley’s major works of 1896 were both published by G.P. Putnam’s Sons of New York. President of Putnam’s was George Haven Putnam, a leader in the new banking reform movement. Ibid., p. 561, n. 2.

¹⁴Frank W. Taussig, “What Should Congress Do About Money?” Review of Reviews (August 1893): 151, quoted in Joseph Dorfman, The Economic Mind in American Civilization (New York: Viking Press, 1949), 3, p. xxxvii. See also ibid., p. 269.

¹⁵Ibid., pp. 392–93.

¹⁶The final report, including its recommendations for a central bank, was hailed by F.M. Taylor, in his “The Final Report of the Indianapolis Monetary Commission,” Journal of Political Economy 6 (June 1898): 293–322. Taylor also exulted that the convention had been “one of the most notable movements of our time—the first thoroughly organized movement of the business classes in the whole country directed to the bringing about of a radical change in national legislation.” Ibid., p. 322.

¹⁷Livingston, Origins, p. 153.

¹⁸Rothbard, “Federal Reserve,” pp. 94–95.

¹⁹Livingston, Origins, p. 123.

²⁰Frank W. Taussig, “The Currency Act of 1900,” Quarterly Journal of Economics 14 (May 1900): 415.

²¹Joseph French Johnson, “The Currency Act of March 14, 1900,” Political Science Quarterly 15 (1900): 482–507. Johnson, however, deplored the one fly in the Bank of England ointment—the remnant of the hard-money Peel’s Bank Act of 1844 that placed restrictions on the quantity of bank note issue. Ibid., p. 496.

²²Ibid., pp. 497f.

²³Kolko, Triumph, pp. 149–50.

²⁴See Livingston, Origins, pp. 150–54.

²⁵Nelson W. Aldrich, who entered the Senate a moderately wealthy wholesale grocer and left years later a multimillionaire, was the father-in-law of John D. Rockefeller, Jr. His grandson and namesake, Nelson Aldrich Rockefeller, later became vice president of the United States, and head of the “corporate liberal” wing of the Republican Party.

²⁶Baker was head of the Morgan-dominated First National Bank of New York, and served as a director of virtually every important Morgan-run enterprise, including: Chase National Bank, Guaranty Trust Company, Morton Trust Company, Mutual Life Insurance Company, AT&T, Consolidated Gas Company of New York, Erie Railroad, New York Central Railroad, Pullman Company, and United States Steel. See Burch, Elites, pp. 190, 229.

²⁷On the meeting, see Livingston, Origins, p. 155.

²⁸Burch, Elites, pp. 134–35.

²⁹Livingston, Origins, p. 156. See also ibid., pp. 161–62.

³⁰On Gage’s and Shaw’s manipulations, see Rothbard, “Federal Reserve,” pp. 94–96; and Milton Friedman and Anna Jacobson Schwartz, A Monetary History of the United States, 1867–1960 (Princeton, N.J.: National Bureau of Economic Research, 1963), pp. 148–56.

³¹Indeed, the adoption of this theory of the alleged necessity for imperialism in the “later stages” of capitalism went precisely from pro-imperialists like the U.S. Investor, Charles A. Conant, and Brooks Adams in 1898–99, read and adopted by the Marxist H. Gaylord Wilshire in 1900–01, in turn read and adopted by the English left-liberal anti-imperialist John A. Hobson, who in turn influenced Lenin. See in particular Norman Etherington, Theories of Imperialism: War, Conquest, and Capital (Totowa, N.J.: Barnes and Noble, 1984). See also Etherington, “Reconsidering Theories of Imperialism,” History and Theory 21, no. 1 (1982): 1–36.

³²Review of Charles A. Conant’s The United States in the Orient, by S.J. Chapman in Economic Journal 2 (1901): 78. See Etherington, Theories of Imperialism, p. 24.

³³David Healy, U.S. Expansionism: The Imperialist Urge in the 1890s (Madison: University of Wisconsin Press, 1970), pp. 200–01.

³⁴Ibid., pp. 202–03.

³⁵The Investor, 19 January 1901, pp. 65–66, cited in Etherington, Theories of Imperialism, p. 17. Also ibid., pp. 7–23.

³⁶Parrini and Sklar, “New Thinking,” p. 565, n. 16.

³⁷Seligman was also related by marriage to the Loebs and to Paul Warburg of Kuhn, Loeb. Specifically, E.R.A. Seligman’s brother, Isaac N., was married to Guta Loeb, sister of Paul Warburg’s wife, Nina. See Stephen Birmingham, Our Crowd: The Jewish Families of New York (New York: Pocket Books, 1977), app.

³⁸Quoted in Edward T. Silva and Sheila A. Slaughter, Serving Power: The Making of the Academic Social Science Expert (Westport, Conn.: Greenwood Press, 1984), p. 103.

³⁹Ibid., pp. 120–21.

⁴⁰Ibid., p. 133.

⁴¹Ibid., p. 135. The volume in question is Essays in Colonial Finance (Publications of the American Economic Association, 3rd series, August 1900).

⁴²See the illuminating article by Emily S. Rosenberg, “Foundations of United States International Financial Power: Gold Standard Diplomacy, 1900–1905,” Business History Review 59 (Summer 1985): 172–73.

⁴³Also getting their start in administering imperialism in Puerto Rico were economist and demographer W.H. Willcox of Cornell, who conducted the first census on the island as well as in Cuba in 1900, and Roland P. Falkner, statistician and bank reformer first at the University of Pennsylvania, and then head of the Division of Documents at the Library of Congress. Faulkner became commissioner of education in Puerto Rico in 1903, then went on to head the U.S. Commission to Liberia in 1909 and to be a member of the Joint Land Commission of the U.S. and Chinese governments. Harvard economist Thomas S. Adams served as assistant treasurer to Hollander in Puerto Rico. Political scientist William F. Willoughby succeeded Hollander as treasurer (Silva and Slaughter, Serving Power, pp. 137–38).

⁴⁴See Rosenberg, “Foundations,” pp. 177–81. Other economists and social scientists helping to administer imperialism in the Philippines were: Carl C. Plehn of the University of California, who served as chief statistician to the Philippine Commission in 1900–01, and Bernard Moses, historian, political scientist, and economist at the University of California, an ardent advocate of imperialism who served on the Philippine Commission from 1901 to 1903, and then became an expert in Latin American affairs, joining in a series of Pan American conferences. Political scientist David P. Barrows became superintendent of schools in Manila and director of education for eight years, from 1901 to 1909. This experience ignited a lifelong interest in the military for Barrows, who, while a professor at Berkeley and a general in the California National Guard in 1934, led the troops that broke the San Francisco longshoremen’s strike. During World War II, Barrows carried over his interest in coercion to help in the forced internment of Japanese Americans in concentration camps. On Barrows, see Silva and Slaughter, Serving Power, pp. 137–38. On Moses, see Dorfman, Economic Mind, pp. 96–98.

⁴⁵Parrini and Sklar, “New Thinking,” pp. 573–77; Rosenberg, “Foundations,” p. 184.

⁴⁶See Rosenberg, “Foundations,” pp. 186–88.

⁴⁷It is certainly possible that one of the reasons for the outbreak of the nationalist Mexican Revolution of 1910, in part a revolution against U.S. influence, was reaction against the U.S.-led currency manipulation and the coerced shift from silver to gold. Certainly, research needs to be done into this possibility.

⁴⁸See Rosenberg, “Foundations,” pp. 189–92.

⁴⁹The failure, however, did not diminish the U.S. government’s demand for Jenks’s services. He went on to advise the Mexican government, serve as a member of the Nicaraguan High Commission under President Wilson’s occupation regime, and also headed the Far Eastern Bureau of the State Department. See Silva and Slaughter, Serving Power, pp. 136–37.

⁵⁰Rosenberg, “Foundations,” p. 197.

⁵¹Ibid., p. 198.

⁵²Ibid.

⁵³For an excellent study of the Kemmerer missions in the 1920s, see Robert N. Seidel, “American Reformers Abroad: The Kemmerer Missions in South America, 1932–1931,” Journal of Economic History 32 (June 1972): 520–45.

⁵⁴On Schiff’s speech, see Bankers Magazine 72 (January 1906): 114–15.

⁵⁵Schiff and Warburg were related by marriage. Schiff, from a prominent German banker family himself, was a son-in-law of Solomon Loeb, cofounder of Kuhn, Loeb; and Warburg, husband of Nina Loeb, was another son-in-law of Solomon Loeb’s by a second wife. The incestuous circle was completed when Schiff’s daughter Frieda married Paul Warburg’s brother Felix, another partner of Schiff’s and Paul Warburg’s. See Birmingham, Our Crowd, pp. 21, 209–10, 383, and appendix. See also Jacques Attali, A Man of Influence: Sir Siegmund Warburg, 1902–82 (London: Weidenfeld and Nicholson, 1986), p. 53.

⁵⁶See Livingston, Origins, pp. 159–64.

⁵⁷Livingston, Origins, pp. 168–69.

⁵⁸See the collection of Warburg’s essays in Paul M. Warburg, The Federal Reserve System, 2 vols. (New York: Macmillan, 1930). See also Warburg, “Essays on Banking Reform in the United States,” Proceedings of the Academy of Political Science 4 (July 1914): 387–612.

⁵⁹When the Federal Reserve System was established, Warburg boasted of his crucial role in persuading the Fed to create an acceptance market in the U.S. by agreeing to purchase all acceptance paper available from a few large acceptance banks at subsidized rates. In that way, the Fed provided an unchecked channel for inflationary credit expansion. The acceptance program helped pave the way for the 1929 crash.

It was surely no accident that Warburg himself was the principal beneficiary of this policy. Warburg became chairman of the board, from its founding in 1920, of the International Acceptance Bank, the world’s largest acceptance bank, as well as director of the Westinghouse Acceptance Bank and of several other acceptance houses. In 1919, Warburg was the chief founder and chairman of the executive committee of the American Acceptance Council, the trade association of acceptance houses. See Murray N. Rothbard, America’s Great Depression, 4th ed. (New York: Richardson and Snyder, 1983), pp. 119–23.

⁶⁰Bankers Magazine 75 (September 1907): 314–15.

⁶¹Livingston, Origins, p. 175, n. 30.

⁶²Ibid., p. 177.

⁶³The emergency currency provision was only used once, shortly before the provision expired, in 1914, and after the establishment of the Federal Reserve System.

⁶⁴Livingston, Origins, pp. 182–83.

⁶⁵Victor Morawetz was an eminent attorney in the Morgan ambit who served as chairman of the executive committee of the Morgan-run Atchison, Topeka and Santa Fe Railway, and member of the board of the Morgan-dominated National Bank of Commerce. In 1908, Morawetz, along with J.P. Morgan’s personal attorney, Francis Lynde Stetson, had been the principal drafter of an unsuccessful Morgan-National Civic Federation bill for a federal incorporation law to regulate and cartelize American corporations. Later, Morawetz was to be a top consultant to another “progressive” reformer of Woodrow Wilson’s, the Federal Trade Commission. On Morawetz, see Rothbard, “Federal Reserve,” p. 99.

⁶⁶Wall Street Journal, 16 September 1909, p. 1. Cited in Livingston, Origins, p. 191.

⁶⁷Ibid.

⁶⁸Ibid., p. 194.

⁶⁹See Rothbard, “Federal Reserve,” pp. 98–99. Also, on Warburg’s speech, see Livingston, Origins, pp. 194–98.

⁷⁰Livingston, Origins, p. 203.

⁷¹Ibid., pp. 205–07.

⁷²See Rothbard, “Federal Reserve,” pp. 99–101; and Frank A. Vanderlip, From Farm Boy to Financier (New York: D. Appleton-Century, 1935), pp. 210–19.

⁷³Henry Parker Willis, The Federal Reserve System (New York: Ronald Press, 1923), pp. 149–50. Willis’s account, however, conveniently overlooks the dominating operational role that both he and his mentor Laughlin played in the Citizens’ League. See Robert Craig West, Banking Reform and the Federal Reserve, 1863–1923 (Ithaca, N.Y.: Cornell University Press, 1977), p. 82.

⁷⁴Kolko, Triumph, p. 186.

⁷⁵Ibid., p. 235.

⁷⁶On the essential identity of the two plans, see Friedman and Schwartz, A Monetary History of the United States, p. 171, n. 59; Kolko, Triumph, p. 235; and Paul M. Warburg, The Federal Reserve System, Its Origins and Growth (New York: Macmillan, 1930), 1, chaps. 8 and 9. On the minutiae of the various drafts and bills and the reactions to them, see West, Banking Reform, pp. 79–135; Kolko, Triumph, pp. 186–89, 217–47; and Livingston, Origins, pp. 217–26.

⁷⁷On the capture of banking control in the new Federal Reserve System by the Morgans and their allies, and on the Morganesque policies of the Fed during the 1920s, see Rothbard, “Federal Reserve,” pp. 103–36.

Part 3

¹On the National Civic Federation, see James Weinstein, The Corporate Ideal in the Liberal State, 1900–1918 (Boston: Beacon Press, 1968).

²So close were Strong and Davison that, when Strong’s wife committed suicide after childbirth, Davison took the three surviving children into his home. On Strong and the Morgans, see Murray N. Rothbard, “The Federal Reserve as a Cartelization Device,” Money in Crisis, Barry Siegel, ed. (San Francisco: Pacific Institute for Public Policy, 1984), p. 109; Lester V. Chandler, Benjamin Strong, Central Banker (Washington, D.C.: Brookings Institution, 1958), pp. 23–41; and Ron Chernow, The House of Morgan: An American Banking Dynasty and the Rise of Modern Finance (New York: Atlantic Monthly Press, 1990), pp. 142–45, 182.

³Philip H. Burch, Jr., Elites in American History, vol. 2, The Civil War to the New Deal (New York: Holmes and Meier, 1981), pp. 207–09.

⁴Hughes was both counsel and chief foreign policy adviser to the Rockefellers’ Standard Oil of New Jersey. On Hughes’s close ties to the Rockefeller complex and their being overlooked even by Hughes’s biographers, see the important but neglected article by Thomas Ferguson, “From Normalcy to New Deal: Industrial Structure, Party Competition, and American Public Policy in the Great Depression,” International Organization 38 (Winter 1984): 67. On Hughes’s and Rockefeller’s men’s Bible class, see Raymond B. Rosdick, John D. Rockefeller, Jr.: A Portrait (New York: Harper and Bros., 1956), p. 125.

⁵Stearns, however, had not met Coolidge before being introduced to him by Morrow. Cochran was a leading Morgan partner, and board member of Bankers Trust Company, Chase Securities Corporation, and Texas Gulf Sulphur Company. Burch, Elites, 2, pp. 274–75, 302–03; and Harold Nicolson, Dwight Morrow (New York: Harcourt Brace, 1935), p. 232.

⁶Morgan partner Dwight Morrow became ambassador to Mexico in 1927, while Nicaraguan affairs came under the direction of Henry L. Stimson, Wall Street lawyer and longtime leading disciple of Elihu Root, and a partner in Root’s law firm. As for Frank Kellogg, in addition to being a director of the Merchants National Bank of St. Paul, he had been general counsel for the Morgan-dominated United States Steel Company for the Minnesota region, and most importantly, the top lawyer for railroad magnate James J. Hill, long closely allied with the Morgan interests. Burch, Elites, 2, pp. 277, 305.

⁷Chernow, House of Morgan, pp. 254–55.

⁸Ibid., p. 382.

⁹Lamont was actually able to induce Hoover to conceal Lamont’s influence by faking entries in a diary left to historians. Ferguson, “From Normalcy to New Deal,” p. 79. See also ibid., p. 77; and Burch, Elites, 2, p. 280.

¹⁰Mills was a descendant of the highly aristocratic eighteenth-century Livingston family of New York, as well as related to the Reids, Morgan-oriented owners of the New York Herald-Tribune. Mills’s first wife was a member of the longtime Morgan-connected Vanderbilt family. See Jordan A. Schwarz, The Interregnum of Despair: Hoover, Congress, and the Depression (Urbana: University of Illinois Press, 1970), p. 111.

¹¹On the Morgan role in pressuring the United States into entering World War I, see the classic work by Charles Callan Tansill, America Goes to War (Boston: Little, Brown, 1938), pp. 67–133.

¹³See A. Wilfred May, “Inflation in Securities” in The Economics of Inflation, H. Parker Willis and John M. Chapman, eds. (New York: Columbia University Press, 1935), pp. 292–93; Benjamin H. Beckhart, “Federal Reserve Policy and the Money Market, 1923–1931,” in The New York Money Market (New York: Columbia University Press, 1931), 4, pp. 127, 142ff.; and Murray N. Rothbard, America’s Great Depression, 4th ed. (New York: Richardson and Snyder, 1983), pp. 117–23, 142–43, 148, 151–52.

¹⁴William T. Foster and Waddill Catchings, “Mr. Hoover’s Plan: What It Is and What It Is Not—The New Attack on Poverty,” Review of Reviews (April 1929): 77–78. See also Foster and Catchings, The Road to Plenty (Boston: Houghton Mifflin, 1928); and Rothbard, America’s Great Depression, pp. 167–78.

¹⁵Rothbard, America’s Great Depression, p. 186.

¹⁶Chernow, House of Morgan, p. 319.

¹⁷Rothbard, America’s Great Depression, pp. 192–93.

¹⁸Benjamin M. Anderson, Jr., Economics and the Public Welfare (New York: D. Van Nostrand, 1949), pp. 222–23.

¹⁹Reynolds was affiliated with the First National Bank of New York, long a flagship of the Morgan interests.

²⁰Rothbard, America’s Great Depression, p. 332.

²¹Willis, professor of banking at Columbia University and editor of the Journal of Commerce, had been a student of the great hard-money economist J. Laurence Laughlin at the University of Chicago. Laughlin and Willis were leading proponents of the “real bills” doctrine, the erroneous view that fractional reserve banking is sound and never inflationary, provided that banks confine their lending to short-term business credit that would be “self-liquidating” because loaned for inventory (“real goods”) that would be sold shortly. Laughlin and Willis played an influential role in drafting, and then agitating for, the Federal Reserve System, which they expected would be strictly confined to rediscounting short-term “real bills” held by the banks. Willis was a longtime assistant to, and theoretician for, the powerful Democratic Senator Carter Glass of Virginia, ruling figure on the Senate Banking and Currency Committee.

Upon seeing the Fed stray far from his expected policies, H. Parker Willis, in the 1920s and 1930s, was a tireless and perceptive critic of the inflationary policies of the Fed, whether in boom or depression. The criticism was particularly intense to the extent that the Fed engaged in open market operations on government securities, or discounted bank loans to corporate securities. On Willis, see Rothbard, America’s Great Depression.

After resigning as editor of the Journal of Commerce in May 1931, Willis continued to slam the inflationist policies of the Fed in the pages of the Commercial and Financial Chronicle during 1931 and 1932. A Willis article in a French publication in January 1932 upset George Harrison so much that he went so far as to plead with Senator Carter Glass to help put an end to “Willis’s rather steady flow of disturbing and alarming articles about the American position.” Harrison to Glass, January 16, 1932, cited in Milton Friedman and Anna J. Schwartz, A Monetary History of the United States (Princeton, N.J.: National Bureau of Economic Research, 1963), pp. 408–09, n. 162.

²²Commercial and Financial Chronicle 131 (August 2, 1930): 690–91; Commercial and Financial Chronicle 132 (January 17, 1931): 428–29. Even though the Chase Bank was still in Morgan control at the time, Benjamin Anderson had always pursued an independent course.

²³Business Week (October 22, 1930). Rothbard, America’s Great Depression, p. 213.

²⁴It is also true that Meyer was never particularly close to Blumenthal. Merlo J. Pusey, Eugene Meyer (New York: Alfred A. Knopf, 1974).

²⁵The advent of World War I cut the American textile industry off from the dyes of the German dye cartel, which had supplied 90 percent of its dyes. Meyer was astute enough to discover and finance a new dye-making process invented by a struggling chemist and German dye salesman, Dr. William Beckers, and Meyer quickly set up the Beckers Aniline and Chemical Works to sell dyes to the woolen industry. In 1916, Meyer brought about a merger with another new dye firm selling to the cotton industry, and with the supplier of aniline oil to both companies, forming the National Aniline and Chemical Company. Meyer eventually seized control of National Aniline and Chemical, which made heavy profits during the war selling blue dyes to the Navy. After the war, Meyer engineered the merger of National Aniline with companies making acids, alkalis, coke ovens, chemical by-products, and coal-tars, to form the powerful and highly profitable Allied Chemical and Dye Corporation on January 1, 1921. Pusey, Eugene Meyer, pp. 117–25.

²⁶Ibid., pp. 82–88.

²⁷On the Council of National Defense and the War Industries Board, see Murray N. Rothbard, “War Collectivism in World War I,” in A New History of Leviathan: Essays on the Rise of the American State, Ronald Radosh and Murray N. Rothbard, eds. (New York: E.P. Dutton, 1972), pp. 70–83. On Meyer’s role, see Pusey, Eugene Meyer, pp. 137–49.

²⁸Pusey, Eugene Meyer, p. 163.

²⁹Rothbard, “War Collectivism,” pp. 100–05. On an abortive attempt to continue collectivist planning through the Industrial Board of the Department of Commerce, see ibid., pp. 105–08; and Robert F. Himmelberg, “Business, Antitrust Policy, and the Industrial Board of the Department of Commerce, 1919,” Business History Review (Spring 1968): 1–23.

³⁰Thomas W. Lamont, Morgan partner, made the proposal to Assistant Secretary of the Treasury Russell Leffingwell, and Secretary of the Treasury McAdoo pushed the measure through Congress. Not only was McAdoo solidly in the Morgan ambit, as we have seen, but Leffingwell, after he left the Treasury, became a leading partner of the Morgan bank. Burton I. Kaufman, Efficiency and Expansion: Foreign Trade Organization in the Wilson Administration, 1913–1921 (Westport, Conn.: Greenwood Press, 1974), pp. 231–32; and Carl P. Parrini, Heir to Empire: United States Economic Diplomacy, 1916–1923 (Pittsburgh: University of Pittsburgh Press, 1969), pp. 54–55.

³¹Pusey, Eugene Meyer, p. 164.

³²Houston was a respected academic, who had been a political scientist and college president in Texas, and then served as chancellor of Washington University of St. Louis. It is refreshing to see a person of laissez-faire principle in this critical post. Ibid., pp. 169–70; and Burch, Elites, 2, pp. 210–11.

³³Pusey, Eugene Meyer, p. 174.

³⁴Rothbard, America’s Great Depression, pp. 199–200.

³⁵Pusey, Eugene Meyer, pp. 183–92; Rothbard, America’s Great Depression, pp. 196–98; and James Stuart Olson, Herbert Hoover and the Reconstruction Finance Corporation, 1931–1933 (Ames: Iowa State University Press, 1977), p. 12.

³⁶Pusey, Eugene Meyer, pp. 209–15.

³⁷Gerald D. Nash’s story of a Hoover bitterly resisting the Reconstruction Finance Corporation until the last moment has now been replaced by a more accurate portrayal provided by James Olson: willing to give “voluntarism” a brief play, but then cheerfully falling back on pure statism. Gerald D. Nash, “Herbert Hoover and the Origins of the Reconstruction Finance Corporation,” in Mississippi Valley Historical Review 46 (December 1959): 455–68; and James Olson, Herbert Hoover, pp. 24–29.

³⁸Theodore Knappen, “The Irony of Big Business Seeking Government Management,” in Magazine of Wall Street 49 (January 23, 1932): 386–88, cited in Olson, Herbert Hoover, pp. 45–46. See also ibid., pp. 39–46; and the excellent article by William E. Leuchtenburg, “The New Deal and the Analogue of War,” in Change and Continuity in Twentieth-Century America, John Braeman, Robert H. Bremner, and Everett Walters, eds. (New York: Harper and Row, [1964] 1967), pp. 81–143.

³⁹Thus, see Arthur Stone Dewing, The Financial Policy of Corporations, 5th ed. (New York: Ronald Press, 1953), 2, p. 1263. On the Reconstruction Finance Corporation in this period, see Rothbard, America’s Great Depression, pp. 261–65.

⁴⁰Pusey, Eugene Meyer, p. 226.

⁴¹John T. Flynn, “Inside the RFC,” Harper’s Magazine 166 (1933): 161–69, quoted in Rothbard, America’s Great Depression, pp. 263–64. See also J. Franklin Ebersole, “One Year in the Reconstruction Finance Corporation,” Quarterly Journal of Economics (May 1933): 464–87.

⁴²The Glass-Steagall Act of 1932 also contributed to inflation of bank credit by broadening the description of what assets were eligible for banks to rediscount at the Fed. Pusey, Eugene Meyer, pp. 227–31; and Susan Estabrook Kennedy, The Banking Crisis of 1933 (Lexington: University Press of Kentucky, 1973), pp. 46–47.

⁴³Seymour E. Harris, Twenty Years of Federal Reserve Policy (Cambridge, Mass.: Harvard University Press, 1933), 2, p. 700. See also Rothbard, America’s Great Depression, pp. 266–72.

⁴⁴The Young Committee included Walter S. Gifford, head of AT&T (Morgan), Charles E. Mitchell of the National City Bank (Rockefeller), Alfred P. Sloan of General Motors (DuPont-Morgan), and Walter C. Teagle of Standard Oil of New Jersey (Rockefeller). Rothbard, America’s Great Depression, pp. 271–72.

⁴⁵Chernow, House of Morgan, pp. 330–36, 358–59; Rothbard, America’s Great Depression, p. 289.

⁴⁶Murray N. Rothbard, “The New Deal and the International Monetary System,” in The Great Depression and New Deal Monetary Policy (San Francisco: Cato Institute, [1976] 1980), pp. 93–95.

⁴⁷In early 1933, Mary Harriman Rumsey, sister of Averell, decided to establish a major pro-New Deal newspaper to offset the Republican ownership of the bulk of the press. She, Averell, and their friend and associate Vincent Astor, tried to buy the near-bankrupt Washington Post, but were beaten out by Eugene Meyer, who was looking for a satisfying post after leaving the Federal Reserve Board in the early days of the Roosevelt administration. The trio then established the weekly news magazine Today, bringing in former New Deal brain truster Raymond Moley as editor, and, in a couple of years, merged with, and took control over, the influential weekly, Newsweek. Philip H. Burch, Jr., Elites in American History, vol. 3, The New Deal to the Carter Administration (New York: Holmes and Meier, 1980), p. 60.

⁴⁸The unsung power of Harriman in the New Deal may be gauged by his neglected but vital role in the two most left-wing appointments to the Roosevelt Cabinet: Frances Perkins as secretary of labor and Harry Hopkins as secretary of commerce. How did these two social workers, without apparent ties to either labor or business, acquire these posts? Frances Perkins was a close, longtime friend of Mary Harriman Rumsey, and indeed lived in the same house as Mrs. Rumsey in Washington (the latter had been widowed since 1922) until her accidental death in 1934. Perkins was also a close friend of the New York banker Henry Bruere, who was president of the large Bowery Savings Bank, treasurer of the influential left-liberal Twentieth Century Fund, and a director of the Harriman-controlled Union Pacific Railroad. Bruere served as credit coordinator in the Roosevelt administration and as executive assistant to Secretary of the Treasury William Woodin.

As for Hopkins, he was a friend of Harriman’s, who obtained the unanimous support of the BAC for Hopkins’s Cabinet appointment. Hopkins chose as his No. 2 man at commerce Edward J. Noble, who had been a board member in the early 1930s of the ambitious but ill-fated Aviation Corporation, set up by Harriman, and by Robert Lehman of Lehman Brothers. In 1933, the Aviation Corporation was reorganized, and most of its assets sold to the newly formed Pan American Corporation, on whose board sat both Robert Lehman and FDR’s cousin, Lyman Delano. It did not harm Hopkins that he was also a friend of John D. Hertz, partner in Lehman Brothers. Burch, Elites, 3, pp. 30–31, 59.

⁴⁹Aldrich’s father, Nelson W. Aldrich, had been a moderately wealthy wholesale grocer who became senator from Rhode Island. Nelson’s daughter Abby married John D. Rockefeller, Jr., and from then on Nelson, a longtime Republican majority leader, was Rockefeller’s man in government. Winthrop was therefore a brother-in-law of John D. Rockefeller, Jr., and uncle to the next generation of Rockefeller brothers.

⁵⁰Burch, Elites, 3, pp. 26–27.

⁵¹See Rothbard, “The New Deal,” pp. 93–97; Chernow, House of Morgan, pp. 357–59; and Jordan Schwarz, 1933: Roosevelt’s Decision, the United States Leaves the Gold Standard (New York: Chelsea House, 1969). Fisher was also a partner with James H. Rand, Jr., in a card-index manufacturing firm.

⁵²Rothbard, “The New Deal,” pp. 97–105. On the World Economic Conference, see Leo Pasvolsky, Current Monetary Issues (Washington, D.C.: Brookings Institution, 1933). The full text of the Roosevelt bombshell message can be found in ibid., pp. 83–84.

⁵³Lewis W. Douglas, The Liberal Tradition (New York: D. Van Nostrand, 1935).

⁵⁴Professor Thomas Ferguson, who has done particularly illuminating research on the Morgan-Rockefeller battle in the New Deal, had access to the Rene Leon papers, which, as well as oral testimony from Leon’s widow, attests to the crucial Leon-Moffett role in persuading Roosevelt to make his decisive repudiation of the London agreement. Moffett was later to join the Rockefeller-controlled Standard Oil of California. Thomas Ferguson, “Industrial Conflict and the Coming of the New Deal: The Triumph of Multinational Liberalism in America,” in The Rise and Fall of the New Deal Order, 1930–1980, Steve Fraser and Gary Gerstle, eds. (Princeton, N.J.: Princeton University Press, 1989), pp. 28–29.

⁵⁵Debevoise served as the general counsel for all three top Rockefeller philanthropies: the Rockefeller Institute for Medical Research, the General Education Board, and the Rockefeller Foundation. John Ensor Harr and Peter J. Johnson, The Rockefeller Century (New York: Charles Scribner’s Sons, 1988), p. 160.

⁵⁶Ibid., pp. 312–15; Ferguson, “The Coming of the New Deal,” pp. 14–15; and Chernow, House of Morgan, pp. 206–09, 362.

⁵⁷The Roosevelt administration was embarrassed by the appearance on the Morgan preferred list of its secretary of the Treasury, William H. Woodin of the American Car and Foundry Company, and Vice President John Nance Garner led a campaign at a Cabinet meeting to fire Woodin. Roosevelt, however, refused to fire his friend, who resigned from the Cabinet in late 1933 on account of illness. The Cabinet was also disturbed by the appearance on the Morgan list of another of FDR’s old friends, Norman H. Davis, a roving ambassador in the State Department. Davis, however, was able to retain his place in the administration, and used his post later to enable the Morgans to recoup their political fortunes in the later New Deal. Chernow, House of Morgan, pp. 369–74. Other notables on the Morgan preferred list included former President Calvin Coolidge; Charles Francis Adams of the famed Boston Adams family, secretary of the Navy under Hoover and father-in-law of Harry Morgan, son of J.P. Morgan, Jr.; John J. Raskob of DuPont, Democratic National Committee chairman; former Secretary of the Treasury William Gibbs McAdoo, a senator actually sitting on the Pecora committee; and many others.

Norman Davis, son of a successful Tennessee businessman and a millionaire from financial dealings in Cuba before World War I, was known, correctly, as a longtime friend of the Morgans. Davis had been a close friend of key Morgan partner Henry P. Davison, and was made Morgan’s representative to Cuba in 1912, negotiating a $10 million Morgan loan to the Cuban government two years later. Davis became a financial adviser on foreign loans to Secretary of the Treasury McAdoo during World War I, and after the war worked with Morgan partner Thomas W. Lamont as a financial adviser to the American delegation to the Paris Peace Conference. During the Wilson administration, Davis had become undersecretary of state and was a director of the American Foreign Banking Corporation, headed by Albert Wiggin of Chase. See G. William Domhoff, The Power Elite and the State: How Policy Is Made in America (New York: Aldine de Gruyter, 1990), pp. 115–16.

⁵⁸The Rockefeller forces, noted their friendly biographers, had “thrown [Wiggin] to the wolves.” Peter Collier and David Horowitz, The Rockefellers: An American Dynasty (New York: Holt, Rinehart and Winston, 1976), p. 161; and Burch, Elites, 3, p. 39.

⁵⁹Rothbard, America’s Great Depression, pp. 278–79; see also, pp. 170, 219, 241.

⁶⁰Chernow, House of Morgan, pp. 352–53.

⁶¹Joel Seligman, The Transformation of Wall Street: A History of the Securities and Exchange Commission and Modern Corporate Finance (Boston: Houghton Mifflin, 1982), pp. 20–21, 29–30; Kennedy, Banking Crisis, pp. 106–28; Chernow, House of Morgan, pp. 362–74; and Ferguson, “Coming of the New Deal,” p. 16.

⁶²This Glass-Steagall Act of 1933 is not to be confused with the Glass-Steagall Act of 1932, which had broadened the eligibility of bank assets to be rediscounted by the Fed.

⁶³Benston points out, for example, that Albert Wiggin’s much-denounced practice of acquiring Chase stock helped align his managerial interests with that of the Chase bank, and was therefore economically helpful. See George J. Benston, The Separation of Commercial and Investment Banking: The Glass-Steagall Act Revisited and Reconsidered (New York: Oxford University Press, 1990), pp. 88–89, and, more largely, pp. 1–133.

⁶⁴Ibid., pp. 128–33. The banks set up these wholly owned affiliates by state charter because the National Banking Act, setting up national banks during the Civil War, had been interpreted as prohibiting underwriting operations carried out directly. Ibid., p. 25.

⁶⁵The National City Bank, powerful rival of Chase in New York, was also unfairly pilloried at the Pecora hearings. See Bentson.

⁶⁶Edward J. Kelly, III, “Legislative History of the Glass-Steagall Act,” in Deregulating Wall Street: Commercial Bank Penetration of the Corporate Securities Market, Ingo Walter, ed. (New York: John Wiley and Sons, 1985), pp. 53–63.

⁶⁷Chernow, House of Morgan, pp. 362–63, 375.

⁶⁸Ibid., pp. 384ff.

⁶⁹Benston, Separation of Commercial and Investment Banking, pp. 136, 221–22.

⁷⁰Sidney Hyman, Marriner S. Eccles: Private Entrepreneur and Public Servant (Stanford, Calif.: Stanford University Graduate School of Business, 1976), pp. 156–57; Kennedy, Banking Crisis, p. 210; and Chernow, House of Morgan, p. 383.

⁷¹Vincent P. Carosso, Investment Banking in America: A History (Cambridge, Mass.: Harvard University Press, 1970), p. 357. See also Benston, Separation of Commercial and Investment Banking, pp. 136–37.

⁷²Carosso, Investment Banking, pp. 356–68, 375–79.

⁷³Chernow, House of Morgan, pp. 316, 421–29. The revelation, conviction, and imprisonment of Richard Whitney in 1938 for embezzlement of Stock Exchange funds to cover reckless personal debts was another horrific blow to Morgan power, especially since Morgan partners George Whitney and Thomas W. Lamont, by the end knew of (but did not condone) Whitney’s criminal activities, but failed to report them to the authorities. Radical New Dealer William O. Douglas, then chairman of the SEC and out for Morgan blood, was able to use the scandal to dominate, alter, and dictate Stock Exchange procedures from then on.

⁷⁴For Frankfurter’s role in the securities acts, see Seligman, Transformation of Wall Street, pp. 39–127. The sinister Brandeis-Frankfurter connection lasted for decades until 1937, when Frankfurter broke with his mentor and paymaster for opposing Roosevelt’s plan to pack the Supreme Court. It was a case of Frankfurter, for the first time trapped between Brandeis and FDR, choosing to serve the more powerful friend. It was also yet another case in history of one of the leaders of a revolution (in this case the New Deal Revolution), here the aging Brandeis, being left behind by a movement that had become too radical for him. On Brandeis and Frankfurter, see the illuminating Bruce Allen Murphy, The Brandeis-Frankfurter Connection: The Secret Political Connection of Two Supreme Court Justices (New York: Anchor Press, [1982] 1983), pp. 130–38 and passim.

⁷⁵In recent years, historians have fortunately been able to shake off the hagiographical tradition, depicting Brandeis as a saintly “people’s lawyer” and devotee of free competition—a tradition typified in Alpheus Thomas Mason, Brandeis: A Free Man’s Life (New York: Viking, 1946). Instead, we are beginning to find a duplicitous statist and advocate of retail cartelization at the expense of consumers. For excellent revisionist works on Brandeis, in addition to Murphy, see Allon Gal, Brandeis of Boston (1980), and Thomas K. McCraw, “Brandeis and the Origins of the FTC,” in Prophets of Regulation (Cambridge, Mass.: Harvard University Press, 1984), pp. 80–142. The later revisionist works were inspired by the publication of the letters and papers of Brandeis during the 1970s, a task completed in 1980.

⁷⁶Seligman, Transformation of Wall Street, p. 105.

⁷⁷Burch, Elites, 3, p. 32. Chernow writes of Joseph Kennedy as a Morgan “hobgoblin,” who had been repeatedly snubbed by J.P. Morgan, Jr., in the late 1920s. In fact, Chernow sees the New Deal clash with Morgan in ethnic terms: “The money changers had indeed been chased from the Temple, by the Irish, the Italians, and the Jews—the groups excluded from WASP Wall Street in the 1920s.” Chernow, House of Morgan, p. 379.

⁷⁸McCraw, “Landis and the Statecraft of the SEC,” in Prophets of Regulation, p. 188. Ferdinand Pecora, however, resisted this new Landis dispensation, which he regarded as a sellout to Wall Street. After six months as an SEC commissioner, Pecora resigned to accept an appointment as a justice on the New York State Supreme Court.

⁷⁹As McCraw puts it, “When the leaders of the profession realized that a unique opportunity to gain respect lay at hand, their hostility to regulation abruptly ceased.” Ibid., p. 190.

⁸⁰Ibid.

⁸¹Ibid., pp. 191–92.

⁸²Ibid., p. 192

⁸³In McCraw’s worshipful account, Landis’s brilliant achievement, achieving the status of a living “legend” before he was 40 (Landis was born in 1899) and apparently slated for the Supreme Court, was succeeded by tragic decline. Burnt out and unhappy in academia, Landis gradually but surely went into decline, marked by alcoholism. Finally, Landis was jailed for failure to file income tax returns for six years, and suspended from the practice of law for a year in July 1964. Shortly afterward, Landis died in his pool, either of heart attack or suicide. Landis’s house and effects were promptly seized by the IRS, and sold to settle his tax claims. Some may call this denouement a terrible tragedy; others, poetic justice. McCraw, Prophets of Regulation, pp. 203–09.

⁸⁴McCraw, Prophets of Regulation, pp. 352–53. See also ibid., pp. 193–96.

⁸⁵1938 saw the extension of federal regulation and cartelization to the once free, decentralized and unregulated over-the-counter market. In 1933, the elite investment bankers in the Investment Bankers’ Association, eager to cartelize and regulate the over-the-counter market, seized the opportunity offered by the National Recovery Administration (NRA) to draft a very strict “Code of Fair Competition.” The association then established an Investment Bankers Code Committee that could pursue stringent enforcement of the code using the powers of the federal government. There was one weakness of the cartel, however: it did not include the smaller but numerous noninvestment-bank over-the-counter dealers.

When the Supreme Court ruled the NRA unconstitutional in the Schechter decision in May 1935, Landis promptly stepped in to try to reconstitute the code under the aegis of the SEC. The code committee, now reconstituted in an Investment Bankers Conference Committee, engaged in lengthy negotiations with the SEC, to try to replicate the SEC structure for the organized stock exchanges. Finally, in early 1938, Senator Frank Maloney (D-Conn.), a friend of Chairman Douglas, pushed through the Maloney Act, which provided that the over-the-counter industry could establish its own private association that would be invested with the power, under SEC supervision, to fine, suspend, or expel those dealers found in violation of rules jointly worked out with the SEC. This new association, so reminiscent of the NRA, was specifically declared exempt from the antitrust laws.

The over-the-counter industry happily responded to the Maloney Act by creating the National Association of Securities Dealers (NASD), a private association invested with government power. The NASD promptly fixed a uniform dealer commission rate of 5 percent—an open measure of cartelization—and, while no broker or dealer was required to join the NASD, nonmembers were prohibited by law from engaging in any securities underwriting. In effect, membership was compulsory, and the NASD “assumed the functions and structure of a regulatory agency.” At the SEC’s insistence, the NASD strengthened this regulatory function by hiring its own professional staff of several hundred examiners and investigators, and the SEC habitually ratified stern disciplinary measures, including suspension and expulsion, meted out over the years by the NASD. McCraw, Prophets of Regulation, pp. 197–200.

⁸⁶Seligman, Transformation of Wall Street, pp. 127–38. Wendell Willkie’s sudden surprise Republican nomination for president in 1940 was a cleverly engineered Morgan coup in the Republican Party. During that period, Willkie sat on the board of the Morgan-dominated First National Bank of New York. Willkie’s close friends included the inevitable Thomas W. Lamont; Perry Hall, vice president of Morgan, Stanley and Company; George Howard, president of the United Corporation; and S. Sloan Colt, president of the Morgan-established and Morgan-dominated Bankers Trust Company. Moreover, the two young New York Republican leaders who actually engineered the nomination were Oren Root, Jr., of the top “Morgan” law firm of Davis (John W.), Polk, Wardwell, Gardiner and Reed; and Charlton MacVeagh. Not only was MacVeagh a former officer of J.P. Morgan and Company, but his father had been a longtime partner of the Davis Polk law firm, and his brother was still an officer there. Burch, Elites, 3, pp. 44–45, 66.

It is intriguing that one of Willkie’s two main rivals for the nomination, New York’s Thomas E. Dewey, was all his life virtually in the hip pocket of Winthrop W. Aldrich, the Rockefellers, and the Chase National Bank. Thus, see Harr and Johnson, Rockefeller Century, pp. 208–09, 405–06.

⁸⁷Hyman, Marriner Eccles, passim. Hyman goes so far as to say that “Marriner Eccles is American economic history.” For a good summary of Eccles’s “remarkable intellectual accomplishment” from the hagiographical point of view, see L. Dwight Israelson, “Marriner S. Eccles, Chairman of the Federal Reserve Board,” American Economic Review 75 (May 1985): 357–62.

⁸⁸By the time of the depression, Marriner Eccles was president of: the First Security Corporation, the Eccles Investment Company, the First National Bank of Ogden (Utah), the First Savings Bank of Ogden, the Eccles Hotel Company, the Sego Milk Company, the Utah Construction Company, and the Amalgamated Sugar Company.

⁸⁹Hyman, Marriner Eccles, p. 107. Israelson is therefore wrong to imply that Eccles confined his statism to the macro sphere. Israelson, “Marriner S. Eccles,” pp. 358–59. Actually, this implication is belied by evidence on the same page of Israelson’s article.

⁹⁰Another major firm in this construction consortium was W.A. Bechtel Company. Eccles and Utah Construction had a close association with the Bechtels for many years, often subcontracting construction work to Bechtel in northern California. This association continues to the present day: Eccles’s successor as chairman of Utah Construction, Edmund Littlefield, became a senior director of Bechtel Corporation in the early 1980s.

The construction of the Boulder Dam was also the occasion for Bechtel to save Stephen Bechtel’s old college chum John A. McCone’s Consolidated Steel from bankruptcy by awarding Consolidated a huge fabricated steel contract in constructing the dam. Bechtel and McCone soon began to collaborate closely with Standard Oil of California in worldwide construction contracts for refineries and oil complexes. McCone went on to become a high public official, including head of the Atomic Energy Commission and of the CIA. Laton McCartney, Friends in High Places: The Bechtel Story (New York: Simon and Schuster, 1988), pp. 34 and passim.

⁹¹Israelson, “Marriner S. Eccles,” p. 358.

⁹²See Lauchlin Currie, The Supply and Control of Money in the United States, 2nd rev. ed. (Cambridge, Mass.: Harvard University Press, [1934] 1935). Currie’s doctoral thesis proved to be perhaps the most important monetarist work of the pre–World War II period. Currie’s thesis was simple:

An ideal monetary system from the standpoint of control would be one in which expansions and contractions of the supply of money could be brought about easily and quickly to any required extent.... It appears to the writer that the most perfect control could be achieved by direct government issue of all money, both notes and deposits subject to check. (Ibid., p. 151)

A history of monetary theory by a leading early monetarist partially acknowledged the importance of Currie’s influence on economic theory. Lloyd W. Mints, A History of Banking Theory (Chicago: University of Chicago Press, 1945). Currie’s vital influence on Eccles and hence on banking legislation in the United States is shown in Hyman, Marriner Eccles, pp. 155 ff., and in Israelson, “Marriner S. Eccles,” p. 358. It is therefore all the more astonishing that there is not a single mention of Currie in Friedman and Schwartz, Monetary History.

⁹³Hyman, Marriner Eccles, pp. 157–58.

⁹⁴Ibid., pp. 167–71.

⁹⁵Lauchlin Currie, continuing as economist at the Fed, rose to the post of administrative assistant to President Roosevelt during World War II. There he was recruited as a valuable member of the Silvermaster group of Soviet espionage agents. The group was organized by Board of Economic Warfare official Nathan Gregory Silvermaster, and it included Treasury economist and later director of the International Monetary Fund, Harry Dexter White. After the defection of Soviet agent Elizabeth Bentley after World War II and his naming by Bentley, Lauchlin Currie found it expedient to emigrate to Colombia, spending the rest of his days as economic adviser to the Colombian government. Elizabeth Bentley, Out of Bondage (New York: Ballantine Books, 1988), particularly the “Afterword” by Hayden Peake; and Christopher Andrew and Oleg Gordievsky, KGB: The Inside Story of Its Foreign Operations from Lenin to Gorbachev (New York: Harper Collins, 1990), pp. 281–84, 369–70.

⁹⁶Friedman and Schwartz, Monetary History, pp. 445–49.

⁹⁷Chernow, House of Morgan, p. 384; Ferguson, “Coming of the New Deal,” pp. 29–30.

⁹⁸Henry Parker Willis, The Theory and Practice of Central Banking: With Special Reference to American Experience 1913–1935 (New York: Harper and Brothers, 1936), p. 107.

⁹⁹Ibid., p. 108. Marriner Eccles, too, ended up left behind by the New Deal revolution he had helped to lead. Specifically, Eccles could not understand why Truman’s Fair Deal insisted on continuing deficits and monetary inflation even after the depression and World War II were over. Removed by Truman as chairman of the Federal Reserve Board in 1948, Eccles, as a continuing member of the board, was the principal figure in forcing an end, in 1951, to the disastrously inflationary Fed policy of supporting the price of Treasury securities, and hence providing a channel for perpetual monetization of the federal deficit. After leaving the Fed, Eccles went back into the conservative Republican camp. Such is the leftward drift of American politics that he could do so without repudiating any of his New Deal macro positions.

¹⁰⁰Rothbard, “New Deal and International Monetary System,” pp. 105–11. Germany could not devalue the mark, because the German public erroneously blamed foreign exchange devaluation, instead of monetary expansion, for the disastrous runaway inflation of 1923, and devaluation would have been political suicide for any government, even Hitler’s. For a valuable explanation of the workings of the German barter agreements of the 1930s, see Ludwig von Mises, Human Action (New Haven, Conn.: Yale University Press, 1949), pp. 796–99. Unfortunately, this section was removed in later editions. [Mises’s original text was reinstated in the scholar’s edition (Auburn, Ala.: Ludwig von Mises Institute, 1998), pp. 796–799.—Ed.]

¹⁰¹One incident almost marred the success of the Tripartite Agreement. In the fall of 1938, the British began pushing the pound below $4.80. Treasury officials promptly warned Morgenthau that if “sterling drops substantially below $4.80, our foreign and domestic business will be adversely affected.” Morgenthau then successfully insisted that a new trade agreement then being worked out with Britain include a provision that the agreement would end should the British allow the pound to fall below $4.80. Lloyd C. Gardner, Economic Aspects of New Deal Diplomacy (Madison: University of Wisconsin Press, 1964), p. 107.

¹⁰²At the Atlantic Conference with Churchill in August 1941, FDR revealingly told his son, Elliott:

It’s something that’s not generally known, but British bankers and German bankers have had world trade pretty well sewn up in their pockets for a long time.... Well, that’s not so good for world trade, is it?... If in the past German and British economic interests have operated to exclude us from world trade, kept our merchant shipping closed down, closed us out of this or that market, and now Germany and Britain are at war, what should we do? (Robert Freeman Smith, “American Foreign Relations, 1920–1942,” in Toward a New Past, Barton J. Bernstein, ed. [New York: Pantheon, 1968], p. 252)

See also Gabriel Kolko, The Politics of War: The World and United States Foreign Policy, 1943–45 (New York: Random House, 1968), pp. 248–49; and Rothbard, “New Deal and International Monetary System,” pp. 111–15.

¹⁰³Richard N. Gardner, Sterling-Dollar Diplomacy (Oxford: Clarendon Press, 1956), p. 76.

¹⁰⁴Kolko, Politics of War, p. 294. See also Rothbard, “New Deal and International Monetary System,” pp. 112, 120.

¹⁰⁵See the illuminating research of Domhoff, Power Elite, pp. 115ff.; and Laurence H. Shoup and William Minter, Imperial Brain Trust: The Council on Foreign Relations and United States Foreign Policy (New York: Monthly Review Press, 1977).

¹⁰⁶Stettinius chose as his assistant secretary for economic affairs William L. Clayton, chairman and major partner of the cotton export firm, Anderson, Clayton and Company. Clayton had formerly been a leader of the fiercely anti-New Deal Liberty League. Clayton’s major focus in the postwar era was the promotion of American exports, especially cotton; as undersecretary of state he was chiefly responsible for drafting and pushing through the Marshall Plan, which promptly awarded Anderson, Clayton and Company a major cotton export contract. His work in foreign policy accomplished, Clayton could return to private life. Rothbard, “New Deal and International Monetary System,” p. 113.

¹⁰⁷It is no wonder that, in the late 1950s, John Kenneth Galbraith and Richard Rovere dubbed McCloy “Chairman of the Establishment.” Kai Bird, The Chairman: John J. McCloy, the Making of the American Establishment (New York: Simon and Schuster, 1992).

Part 4

¹Germany, which multiplied its money supply eightfold during the war, would soon spiral into runaway inflation, propelled by accelerated monetization of government deficits and of private credit; France and Austria also went into hyperinflation after the war to a lesser extent than Germany. See Melchior Palyi, The Twilight of Gold 1914–1936 (Chicago: Henry Regnery, 1972), p. 33. See also D.E. Moggridge, British Monetary Policy, 1924–1931: The Norman Conquest of $4.86 (Cambridge: Cambridge University Press, 1972).

[Previously published in an edited version as “The Gold-Exchange Standard in the Interwar Years,” in Money and the Nation State: The Financial Revolution, Government and the World Monetary System, Kevin Dowd and Richard H. Timberlake, Jr., eds. (New Brunswick, N.J.: Transactions Publishers, 1998), pp. 105–63.—Ed.]

²Precisely, British currency had traditionally been defined so that one ounce of gold was equal to 77s. 102d. Comparing the prewar ratios of the dollar and the pound to gold, the pound sterling was therefore set at $4.86656. The gold ounce was also set equal to $20.67.

³See Palyi, Twilight of Gold, pp. 1–21, 118–19. See also David P. Calleo, “The Historiography of the Interwar Period: Reconsiderations,” in Balance of Power or Hegemony: The Interwar Monetary System, Benjamin M. Rowland, ed. (New York: Lehrman Institute and New York University Press, 1976), pp. 227–60. Calleo shows that the pre-1914 gold standard was a genuine, multicentered gold standard, not a British sterling standard.

⁴Professor Timberlake misconstrues the historical research of Luigi Einaudi on “imaginary money” in the Middle Ages. Far from showing, as Timberlake believes, that moneys of account can be “imaginary” in relation to media of exchange, they simply reveal various countries’ experiences with various relationships between gold and silver, both commodity moneys. See Luigi Einaudi, “The Theory of Imaginary Money from Charlemagne to the French Revolution,” in Enterprise and Secular Change, F.C. Lane and J.C. Riemersma, eds. (Homewood, Ill.: Richard D. Irwin, 1953), pp. 229–61; Richard Timberlake, Gold, Greenbacks, and the Constitution (Berryville, Va.: George Edward Durell Foundation, 1991); and Murray N. Rothbard, “Aurophobia, or Free Banking on What Standard?” Review of Austrian Economics 6, no. 1 (1992): 97–108.

⁵Prices during the boom did not necessarily increase in historical terms. If a secular price fall was occurring due to increased production, as happened in much of the nineteenth century, the inflationary boom took the form of prices being higher than they would have been in the absence of the expansion of money and credit.

⁶While the United States was the only major power before 1914 to lack a central bank, the quasi-centralized national banking system performed a similar function in the years between the Civil War and 1914. Instead of the government conferring a monopoly note-issuing privilege upon the central bank, the federal government conferred that privilege upon a handful of large, federally chartered “national banks,” located in New York and a few other Eastern financial centers.

⁷Palyi, Twilight of Gold, pp. 38–39.

⁸For an early English critique of not going back at a realistic par, see Lionel Robbins, The Great Depression (New York: Macmillan, 1934), esp. pp. 77–87.

⁹The pound sterling was depreciated by 45 percent before the end of the Napoleonic War. When the war ended, the pound returned nearly to its prewar gold par. This appreciation was caused by (a) a general expectation that Britain would resume the gold standard, and (b) a monetary contraction of 17 percent in one year, from 1815 to 1816, accompanied by a price deflation of 63 percent. See Frank W. Fetter, Development of British Monetary Orthodoxy, 1797–1875 (Cambridge, Mass.: Harvard University Press, 1965).

¹⁰Moggridge, British Monetary Policy, p. 18; and Palyi, Twilight of Gold, p. 75.

¹¹R.S. Sayers, “The Return to Gold, 1925” (1960) in The Gold Standard and Employment Policies Between the Wars, Sidney Pollard, ed. (London: Metheun, 1970), p. 86.

¹²Palyi, Twilight of Gold, p. 155; and Benjamin M. Anderson, Economics and the Public Welfare: Financial and Economic History of the United States, 1914–1946 (Princeton, N.J.: D. Van Nostrand, 1949), p. 74.

¹³Moggridge, British Monetary Policy, pp. 28–29.

¹⁴It is unfortunate that Dr. Melchior Palyi, in his valuable perceptive and solidly anti-inflationary work on the interwar period, is blind to the problems generated by the insistence on going back to gold at the prewar par. Palyi dismisses all such considerations as “Keynesian.” Palyi, Twilight of Gold, passim.

¹⁵In an address to the annual general meeting of the Federation of British Industries in November 1921. See L.J. Hume, “The Gold Standard and Deflation: Issues and Attitudes in the 1920s” (1963), in The Gold Standard, Pollard, ed., p. 141.

¹⁶Round Table 14 (1923), p. 28, quoted in ibid., p. 136.

¹⁷The Times (London) April 29, 1925, cited in ibid., p. 144.

¹⁸Bradbury to Farrer, July 24, 1924. Moggridge, British Monetary Policy, p. 47.

¹⁹Undoubtedly the most charming testimony before the committee was by the free-market, hard-money economist from the London School of Economics, Edwin Cannan. In contrast to the other partisans of $4.86, Cannan fully recognized that the return to gold would require considerable deflation, and that the needed reduction in wage rates would cause extensive difficulty and unemployment in view of the new system of widespread unemployment insurance which made the unemployed far “more comfortable than they used to be.” The only thing to be done, counseled Cannan, was to return to gold immediately at $4.86, and get it over with. As Cannan wrote at the time, the necessary adjustments “must be regarded in the same light as those which a spendthrift or a drunkard is rightly exhorted by his friends to face like a man.” Ibid., pp. 45–46; Edwin Cannan, The Paper Pound: 1797–1821, 2nd ed. (London: P.S. King, 1925), p. 105, cited in Murray Milgate, “Cannan, Edwin,” in The New Palgrave: A Dictionary of Economics, Peter Newman, Murray Milgate, and John Eatwell, eds. (New York: Stockton Press, 1987), 1, p. 316.

Cannan’s sentiment and passion for justice are admirable, but, in view of the antagonistic political climate of the day, it might have been the better part of valor to return to gold at a realistic, depreciated pound.

²⁰Moggridge, British Monetary Policy, p. 72.

²¹Actually, the old Gold Embargo Act remained in force until allowed to expire on December 31, 1925. Since gold exports were prohibited until then, the gold standard was really not fully restored until the end of the year. Palyi, Twilight of Gold, p. 71. The Churchill dinner party included Prime Minister Stanley Baldwin, Foreign Secretary Austen Chamberlain, Keynes, McKenna, Niemeyer, Bradbury, and Sir Percy Grigg, principal private secretary to the chancellor of the Exchequer. Sir Percy James Grigg, Prejudice and Judgment (London: Hutchinson, 1948), pp. 182–84. On Churchill’s early leaning to Keynes, see Moggridge, British Monetary Policy, p. 76.

²²Moggridge, British Monetary Policy, pp. 84ff.

²³In a memorandum to Churchill, Sir Otto Niemeyer delivered an eloquent critique of the Keynesian view that inflation would serve as a cure for the existing unemployment. Niemeyer declared:

You can by inflation (a most vicious form of subsidy) enable temporary spending power to cope with large quantities of products. But unless you increase the dose continually there comes a time when having destroyed the credit of the country you can inflate no more, money having ceased to be acceptable as a value. Even before this, as your inflated spending creates demand, you have had claims for increased wages, strikes, lockouts, etc. I assume it will be admitted that with Germany and Russia before us [that is, runaway inflation] we do not think plenty can be found on this path.

Niemeyer concluded that employment can only be provided by thrift and accumulation of capital, facilitated by a stable currency, and not by doles and palliatives. Unfortunately, Niemeyer neglected to consider the crucial role of excessively high wage rates in causing unemployment. Ibid., p. 77.

²⁴See Murray N. Rothbard, “The Federal Reserve as a Cartelization Device: The Early Years, 1913–1930,” in Money in Crisis, Barry Siegel, ed. (San Francisco: Pacific Institute for Public Policy, 1984), pp. 93–117.

²⁵Rothbard, “Federal Reserve,” p. 109; Lester V. Chandler, Benjamin Strong, Central Banker (Washington, D.C.: Brookings Institution, 1958), pp. 23–41; Ron Chernow, The House of Morgan: An American Banking Dynasty and the Rise of Modern Finance (New York: Atlantic Monthly Press, 1990), pp. 142–45, 182; and Lawrence E. Clark, Central Banking Under the Federal Reserve System (New York: Macmillan, 1935), pp. 64–82.

²⁶France also appointed the House of Morgan as its fiscal agent, having long had close connections through the Paris branch, Morgan Harjes. Chernow, House of Morgan, pp. 104–05, 186, 195. Sir Henry Clay, Lord Norman (London: Macmillan, 1957), p. 87.

²⁷On the interconnections among the Morgans, the Allies, foreign loans, and the Federal Reserve, and on the role of the Morgans in bringing the United States into the war, see Charles C. Tansill, America Goes to War (Boston: Little, Brown, 1938), pp. 32–143. See also Chernow, House of Morgan, pp, 186–204. It is instructive that the British exempted the House of Morgan from its otherwise extensive mail censorship in and out of Britain, granting J.P. Morgan, Jr., and his key partners special code names. Ibid., pp. 189–90.

²⁸Rothbard, “Federal Reserve,” pp. 107–08, 111–12; Henry Parker Willis, The Theory and Practice of Central Banking (New York: Harper and Brothers, 1936), pp. 90–91; and Chandler, Benjamin Strong, p. 105. The massive U.S. deficits to pay for the war, were financed by Liberty Bond drives headed by a Wall Street lawyer who was a neighbor of McAdoo’s in Yonkers, New York. This man, Russell C. Leffingwell, would become a leading Morgan partner after the war. Chernow, House of Morgan, p. 203.

²⁹Rothbard, “The Federal Reserve,” p. 114; Chandler, Benjamin Strong, pp. 93–98. While some members of the Federal Reserve Board had heavy Morgan connections, its complexion was scarcely as Morgan-dominated as Benjamin Strong. Of the five Federal Reserve Board members, Paul M. Warburg was a leading partner of Kuhn, Loeb, an investment bank rival of Morgan, and during the war suspected of being pro-German; Governor William P.G. Harding was an Alabama banker whose father-in-law’s iron manufacturing company had prominent Morgan as well as rival Rockefeller men on its board; Frederic A. Delano, uncle of Franklin D. Roosevelt, was president of the Rockefeller-controlled Wabash Railway; Charles S. Hamlin, an assistant secretary to McAdoo, was a Boston attorney married into a family long connected with the Morgan-dominated New York Central Railroad and an assistant secretary to McAdoo. Finally, economist Adolph C. Miller, professor at Berkeley, had married into the wealthy, Morgan-connected Sprague family of Chicago. At that period, Secretary of Treasury McAdoo and his longtime associate, John Skelton Williams, comptroller of the currency, were automatically Federal Reserve Board members, but only ex officio. Thus, setting aside the two ex officio members, the Federal Reserve Board began its existence with one Kuhn, Loeb member, one Morgan man, one Rockefeller person, a prominent Alabama banker with both Morgan and Rockefeller connections, and an economist with family ties to Morgan interests. When we realize that the Rockefeller and Kuhn, Loeb interests were allied during this era, we can see that the Federal Reserve Board scarcely could be considered under firm Morgan control. Rothbard, “The Federal Reserve,” p. 108.

³⁰Clay, Lord Norman, p. 487; and Andrew Boyle, Montagu Norman (London: Cassell, 1967), p. 198.

³¹Chernow, House of Morgan, pp. 246, 244.

³²Too much has been made of the fact that this discovery of the inflationary power of open market purchases by the Fed was the accidental result of a desire to increase Fed earnings. The result was not wholly unexpected. Thus, Strong, in April 1922, wrote to Undersecretary of the Treasury S. Parker Gilbert that one of his major reasons for these open market purchases was “to establish a level of interest rates... which would facilitate foreign borrowing in this country... and facilitate business improvement.” Strong to Gilbert, April 18, 1922. Gilbert went on to become a leading partner of the House of Morgan. See Murray N. Rothbard, America’s Great Depression, 4th ed. (New York: Richardson and Snyder, [1963] 1983), p. 321, n. 2. See also ibid., pp. 123–24, 135; Chandler, Benjamin Strong, pp. 210–11; and Harold L. Reed, Federal Reserve Policy, 1921–1930 (New York: McGraw-Hill, 1930), pp. 14–41.

³³In terms of currency plus total adjusted deposits. If savings and loan shares are added, the money supply rose by 9 percent during 1924. Rothbard, America’s Great Depression, pp. 88, 102–05.

³⁴Strong to Pierre Jay, April 23 and April 28, 1924. Strong to Andrew Mellon, May 27, 1924. Moggridge, British Monetary Policy, pp. 51–53; Rothbard, America’s Great Depression, pp. 133–34; Chandler, Benjamin Strong, pp. 283–84, 293ff.

³⁵Rothbard, America’s Great Depression, p. 133; Chandler, Benjamin Strong, pp. 284, 308 ff., 312 ff.; and Moggridge, British Monetary Policy, pp. 60–62.

³⁶Robbins, Great Depression, p. 80; Rothbard, America’s Great Depression, p. 133; and Benjamin H. Beckhard, “Federal Reserve Policy and the Money Market, 1923–1931,” in The New York Money Market, Beckhart, et al. (New York: Columbia University Press, 1931), 4, p. 45.

³⁷Grenfell to J.P. Morgan, Jr., March 23, 1925; Chernow, House of Morgan, pp. 274–75.

³⁸Hughes was both attorney and chief foreign policy adviser to Rockefellers’ Standard Oil of New Jersey. On Hughes’s close ties to the Rockefeller complex and their being overlooked even by Hughes’s biographers, see the important but neglected article by Thomas Ferguson, “From Normalcy to New Deal: Industrial Structure, Party Competition, and American Public Policy in the Great Depression,” International Organization 38 (Winter 1984): 67.

³⁹“Morrow and Thomas Cochran, although moving spirits in the whole drive, remained in the background. The foreground was filled by the large, the devoted, the imperturbable figure of Frank Stearns.” Harold Nicolson, Dwight Morrow (New York: Harcourt, Brace, 1935), p. 232. Cochran, a leading Morgan partner, and board member of Bankers Trust Company, Chase Securities Corporation, and Texas Gulf Sulphur Company, was, by the way, a Midwesterner and not an Amherst graduate and therefore had no reasons of friendship to work strongly for Coolidge. Stearns, incidentally, had not met Coolidge before being introduced to him by Morrow. Philip H. Burch, Jr., Elites in American History, vol. 2, The Civil War to the New Deal (New York Holmes and Meier, 1981), pp. 274–75, 302–03.

⁴⁰In addition to being a director of the Merchants National Bank of St. Paul, Kellogg had been general counsel for the Morgan-dominated U.S. Steel Corporation for the Minnesota region, and most importantly, the top lawyer for the railroad magnate James J. Hill, long closely allied with Morgan interests.

⁴¹Morgan partner Dwight Morrow became ambassador to Mexico that year, and Nicaraguan affairs came under the direction of Henry L. Stimson, Wall Street lawyer and longtime leading disciple of Elihu Root, and a partner in Root’s law firm. Burch, Elites, pp. 277, 305.

⁴²Chernow, House of Morgan, pp. 254–55.

⁴³The latter phrase is in a letter from Sir Otto Niemeyer to Winston Churchill, February 25, 1925. Moggridge, British Monetary Policy, p. 83.

⁴⁴Ibid., pp. 79–83.

⁴⁵Clay, Lord Norman, pp. 153–54; and Palyi, Twilight of Gold, pp. 121–23.

⁴⁶Contrast to Norman these insights of pro-gold-coin-standard economist Walter Spahr:

A gold-coin standard provides the people with direct control over the government’s use and abuse of the public purse.... When governments or banks issue money or other promises to pay in a manner that raises doubts as to their value as compared with gold, those people entertaining such doubts will demand gold in lieu of... paper money, or bank deposits.... The gold-coin standard thus places in the hands of every individual who uses money some power to express his approval or disapproval of the government’s management of the people’s monetary and fiscal affairs. (Walter E. Spahr, Monetary Notes [December 1, 1947], p. 5, cited in Palyi, Twilight of Gold, p. 122)

⁴⁷Williams Adams Brown, Jr., The International Gold Standard Reinterpreted, 1914–1934 (New York: National Bureau of Economic Research, 1940), 1, p. 355.

⁴⁸When the gold-exchange standard broke down in 1931, the economist H. Parker Willis noted that “the ease with which the gold-exchange standard can be instituted, especially with borrowed money, has led a good many nations during the past decade to ‘stabilize’... at too high a rate.” H. Parker Willis, “The Breakdown of the Gold Exchange Standard and its Financial Imperialism,” The Annalist (October 16, 1931): 626 ff.

⁴⁹Palyi, Twilight of Gold, pp. 73–74. See also p. 185.

⁵⁰Robert Skidelsky, John Maynard Keynes, vol. 1, 1883–1920 (New York: Viking Press, 1986), p. 275. See also ibid., pp 272–74; and Palyi, Twilight of Gold, pp. 155–57. While Keynes’s book was largely an apologia for the existing system in India, he also gently chided the British government for not going far enough in managed inflation by failing to establish a central bank. Skidelsky, Keynes, pp. 276–77.

⁵¹Skidelsky, Keynes, pp. 374–83. Meanwhile, in the United States, the government, investment bankers, and economists such as Charles A. Conant, Jeremiah W. Jenks, and Jacob Hollander, collaborated in imposing or attempting to impose gold-exchange standards and central banks in Latin America and Asia, beginning with the U.S. acquisition of a colonial empire after the Spanish-American War. During the 1920s, Edwin W. Kemmerer, the “money doctor,” a student of Jenks and disciple of Conant, continued this task throughout the Third World. See Edward T. Silva and Sheila Slaughter, Serving Power: The Making of the Academic Social Science Expert (Westport, Conn.: Greenwood Press, 1984), pp. 103–38; Emily S. Rosenberg, “Foundations of United States International Financial Power: Gold Standard Diplomacy, 1900–1905,” Business History Review 59 (Summer 1985): 172–98; and Robert N. Seidel, “American Reformers Abroad: The Kemmerer Missions in South America, 1923–1931,” Journal of Economic History 32 (June 1972): 520–45.

⁵²Eric G. Davis, “R.G. Hawtrey, 1879–1975,” in Pioneers of Modern Economics in Britain, D.P. O’Brien and J.R. Presley, eds. (Totowa, N.J.: Barnes and Noble, 1981), p. 219. Hawtrey’s speech was published as “The Gold Standard,” Economic Journal 29 (1919): 428–42. Fisher’s proposal was in Irving Fisher, The Purchasing Power of Money (New York: Macmillan, 1911), pp. 332–46.

⁵³Rothbard, America’s Great Depression, p. 161. See also Paul Einzig, Montagu Norman (London: Kegan Paul, 1932), pp. 67, 78; Clay, Lord Norman, p. 138; and Anne Orde, British Policy and European Reconstruction After the First World War (Cambridge: Cambridge University Press, 1990), pp. 105–18.

⁵⁴Davis, “R.G. Hawtrey,” pp. 219–20, 232; Carole Fink, The Genoa Conference: European Diplomacy, 1921–1922 (Chapel Hill: University of North Carolina Press, 1984), pp. 158, 232; and Dan P. Silverman, Reconstructing Europe After the Great War (Cambridge, Mass.: Harvard University Press, 1982), pp. 282ff.

⁵⁵See Ralph G. Hawtrey, “The Genoa Resolutions on Currency,” Economic Journal 32 (1922): 290–304, included in Ralph G. Hawtrey, Monetary Reconstruction (London: Longmans, Green, 1923), pp. 131–47. The text of the Genoa resolutions themselves can be found in the Federal Reserve Bulletin (June 1922): 678–79, reprinted in Joseph Stagg Lawrence, Stabilization of Prices (New York: Macmillan, 1928), pp. 162–65.

⁵⁶Lawrence, Stabilization of Prices, p. 164.

⁵⁷Hawtrey, Monetary Reconstruction, pp. 134–35.

⁵⁸Thus, see the illuminating work by S.B. Saul, The Myth of the Great Depression, 1873–1896 (London: Macmillan, 1969).

⁵⁹Hawtrey, Monetary Reconstruction, p. 136.

⁶⁰Ibid., p. 147.

⁶¹For contemporaneous critiques of Hawtrey’s stabilizationism as a mask for inflationism, see Lawrence, Stabilization of Prices, pp. 326, 432–33; and Patrick Deutscher, R.G. Hawtrey and the Development of Macroeconomics (Ann Arbor: University of Michigan Press, 1990), pp. 211–15.

⁶²Michael J. Hogan, Informal Entente: The Private Structure of Cooperation in Anglo-American Economic Diplomacy, 1918–1928 (Columbia: University of Missouri Press, 1977). On Strong’s misgivings on the gold-exchange system, see Stephen V.O. Clarke, Central Bank Cooperation, 1924–31 (New York: Federal Reserve Bank of New York, 1967), pp. 36–40.

⁶³Clarke, Central Bank Cooperation, pp. 40–41.

⁶⁴Ibid., p. 36.

⁶⁵Davis, “R.G. Hawtrey,” p. 232, n. 74.

⁶⁶Palyi, Twilight of Gold, pp. 116–17, 107.

⁶⁷Finland acted on the advice of the great classical liberal Swedish economic historian, Professor Eli Heckscher of the University of Stockholm. See Richard A. Lester, “The Gold Parity Depression in Norway and Denmark, 1924–1928,” Journal of Political Economy (August 1937): 433–67; and Palyi, Twilight of Gold, pp. 73, 107.

⁶⁸Judith L. Kooker, “French Financial Diplomacy: The Interwar Years,” in Rowland, Balance of Power, pp. 86–90.

⁶⁹Entry of February 6, 1928. Chandler, Benjamin Strong, pp. 379–80. Rothbard, America’s Great Depression, p. 139. See also the entry in October 1926, in which Moreau comments on a report of Pierre Quesnay, general manager of the Bank of France, on the “doctrinaire, and without doubt somewhat Utopian or even Machiavellian” schemes of Montagu Norman and his financier associates such as Sir Otto Niemeyer, Sir Arthur Salter, and Sir Henry Strakosch, aided and abetted by Benjamin Strong, to establish and dominate the “economic and financial organization of the world by Norman and his fellow-central bankers.” Palyi, Twilight of Gold, pp. 134–45.

⁷⁰Peter Clarke, “The Treasury’s Analytical Model of the British Economy Between the Wars,” in The State and Economic Knowledge: The American and British Experiences, Mary Furner and Barry Supple, eds. (Cambridge: Cambridge University Press, 1990), p. 177. See also Palyi, Twilight of Gold, p. 109.

⁷¹Anderson, Economics and Public Welfare, p. 166; Moggridge, British Monetary Policy, p. 117.

⁷²Moggridge, British Monetary Policy, pp. 117–25.

⁷³Draft memorandum to Chancellor of Exchequer Churchill, April 1929. Clarke, “Treasury’s Analytical Model,” p. 186. See also ibid., pp. 179–80, 184–87.

⁷⁴Palyi, Twilight of Gold, p. 79. Frederic C. Benham, British Monetary Policy (London: P.S. King, 1932), pp. 27 f. A manifestation of this obstructive and restrictive trade-union spirit circulated to the members of the union of Building Trade Workers in 1926: “You should keep a keen control of overtime. Adopt a militant policy against all forms of piece work; be watchful and limit apprentices; remember the power you now occupy is conditioned by the scarcity of your labor.”

⁷⁵Palyi, Twilight of Gold, pp. 102–04.

⁷⁶Anderson, Economics and Public Welfare, p. 167.

⁷⁷Dr. Anderson estimates that it would have been “safer” for France to have gone back at 3.5¢ (which it could have done at the market rate in November). Anderson, Economics and Public Welfare, p. 158. On the saga of France and the French franc in this period, see ibid., pp. 154–61, 168–73; and Palyi, Twilight of Gold, pp. 185–90. For the influence of Moreau and Rist, see Kooker, “French Financial Diplomacy,” pp. 91–93.

⁷⁸See the lucid exposition in Anderson, Economics and Public Welfare, pp. 168–70.

⁷⁹The open market discount rate in Paris fell from 7 percent in August 1926 to 2 percent in August of the following year. Ibid., p. 172.

⁸⁰Kooker, “French Financial Diplomacy,” p. 100.

⁸¹Anderson, Economics and Public Welfare, pp. 172–73.

⁸²Thus, in 1925, the last full year of the hyperinflation, French exports were 103.8 percent of imports; the surplus was concentrated in manufactured goods, which had an export surplus of 23.8 billion francs, partially offset by a net import deficit of 5.4 billion in food and 16.8 billion in industrial raw materials. Palyi, Twilight of Gold, p. 185.

⁸³Ibid., p. 187. The recycling of pounds and francs was pointed out by a leading French banker, Raymont Philippe, Le’Drame Financier de 1924–1928, 4th ed. (Paris: Gallimard, 1931), p. 134; cited in Palyi, Twilight of Gold, p. 194.

⁸⁴Moreau did resist Norman’s pressure to inflate the franc further, and he repeatedly urged Norman to meet Britain’s gold losses by tightening money and raising interest rates in England, thereby checking British purchase of francs and attracting capital at home. All this urging was to no avail, Norman being committed to a cheap-money policy. Rothbard, America’s Great Depression, p. 141.

⁸⁵Ibid.

⁸⁶Anderson, Economics and Public Welfare, p. 181. Schacht had stabilized the German mark in a new Rentenmark after the old mark had been destroyed by a horrendous runaway inflation by the end of 1923. The following year, he put the mark on the gold-exchange standard.

⁸⁷Charles Rist, “Notice Biographique,” Revue d’Economie Politique (November–December, 1955): 1006ff.

⁸⁸Anderson, Economics and Public Welfare, pp. 182–83. See also Rothbard, America’s Great Depression, pp. 140–42; Beckhard, “Federal Reserve Policy,” pp. 67ff.; and Lawrence E. Clark, Central Banking Under the Federal Reserve System (New York: Macmillan, 1935), p. 314.

⁸⁹Clark, Central Banking Under the Federal Reserve, p. 198.

⁹⁰Unfortunately, Hoover shortsightedly attacked only credit expansion in the stock market rather than credit expansion per se. Rothbard, America’s Great Depression, pp. 142–43; Anderson, Economics and Public Welfare, p. 182; Ralph W. Robey, “The Capeadores of Wall Street,” Atlantic Monthly (September 1928); and Harold L. Reed, Federal Reserve Policy, 1921–1930 (New York: McGraw-Hill, 1930), p. 32.

⁹¹O. Ernest Moore to Sir Arthur Salter, May 25, 1928. In Chandler, Benjamin Strong, pp. 280–81.

⁹²Willis was a leading and highly perceptive critic of America’s inflationary policies in the interwar period. H. Parker Willis, “The Failure of the Federal Reserve,” North American Review (May 1929): 553. Clark’s study was written as a doctoral thesis under Willis. Clarke, Central Banking Under the Federal Reserve, p. 344.

⁹³Page was the Anglophile ambassador to Great Britain under Wilson and played a large role in getting the United States in the war. Clark, Central Banking Under the Federal Reserve, p. 315.

⁹⁴Chernow, House of Morgan, p. 313.

⁹⁵Rothbard, America’s Great Depression, p. 116; Clarke, Central Banking Under the Federal Reserve, p. 382; Adolph C. Miller, “Responsibilities for Federal Reserve Policies, 1927–1929,” American Economic Review (September 1935).

⁹⁶On the real estate boom of the 1920s, see Homer Hoyt, “The Effect of Cyclical Fluctuations upon Real Estate Finance,” Journal of Finance (April 1947): 57.

⁹⁷On the unfortunate Fed acceptance policy of the 1920s, see Rothbard, America’s Great Depression, pp. 117–23.

⁹⁸Rothbard, America’s Great Depression, p. 148. See also ibid., pp. 116–17; and Robey, “Capeadores.” The leading “bull” speculator of the era, former General Motors magnate William Crapo Durant, who was to get wiped out in the crash, hailed Coolidge and Mellon as the leaders of the boom. Commercial and Financial Chronicle (April 20, 1929): 2557ff.

⁹⁹Some of Strong’s apologists claim that, if Strong had been at the helm, he would have imposed tight money in 1928. For an example, see Carl Snyder, Capitalism, the Creator: The Economic Foundations of Modern Industrial Society (New York: Macmillan, 1940), pp. 227–28. Snyder worked under Strong as head of the statistical department of the New York Fed. But we now know the contrary: that Strong protested against even the feeble restrictive measures during 1928 as being too severe, in a letter from Strong to Walter W. Stewart, August 3, 1928. Stewart, formerly head of the Fed’s research division, had a few years earlier shifted to become economic adviser of the Bank of England, and had written to Strong warning of unduly tight restriction on American bank credit. Chandler, Benjamin Strong, pp. 459–65.

¹⁰⁰Palyi, Twilight of Gold, pp. 187, 194.

¹⁰¹Anderson, Economic and Public Welfare, p. 201.

¹⁰²Undersecretary of the Treasury Ogden Mills, Jr., who was to replace Mellon in 1931 and who was close to Hoover, was a New York corporate lawyer from a family long associated with the Morgan interests. Hoover’s secretary of the Navy was Charles F. Adams, from a Boston Brahmin family long associated with the Morgans, and whose daughter married J.P. Morgan, Jr.

¹⁰³Burch, Elites in American History, p. 280. For the important but private influence on President Hoover by Morgan partner Thomas W. Lamont, including Lamont’s inducing Hoover to conceal his influence by faking entries in a diary that Hoover left to historians, see Ferguson, “From Normalcy to New Deal,” p. 79.

The Morgans, in the 1928 Republican presidential race, were torn three ways: between inducing, unsuccessfully, President Coolidge to run for a third term; Vice President Charles G. Dawes, who had been a Morgan railroad lawyer and who dropped out of the 1928 race; and Herbert Hoover. On Hoover’s worries before the nomination about the position of the Morgans, and on Lamont’s assurances to him, see the illuminating letter from Thomas W. Lamont to Dwight Morrow, December 16, 1927, in Ferguson, “From Normalcy to New Deal,” p. 77.

¹⁰⁴Beckhart, “Federal Reserve Policy,” pp. 142ff. See also ibid., p. 127.

¹⁰⁵A. Wilfred May, “Inflation in Securities,” in The Economics of Inflation, H. Parker Willis and John M. Chapman, eds. (New York: Columbia University Press, 1935), pp. 292–93; Charles O. Hardy, Credit Policies of the Federal Reserve System (Washington, D.C.: Brookings Institution, 1932), pp. 124–77; Oskar Morgenstern, “Developments in the Federal Reserve System,” Harvard Business Review (October 1930): 2–3; and Rothbard, America’s Great Depression, pp. 151–52.

¹⁰⁶Chernow, House of Morgan, p. 319.

¹⁰⁷Business Week (October 22, 1930); Commercial and Financial Chronicle 131 (August 2, 1930): 690–91. In addition, Albert Wiggin, head of the Chase National Bank, then clearly reflecting the views of the bank’s chief economist, Dr. Benjamin M. Anderson, denounced the new Hoover policies of propping up wage rates and prices in depressions, and of pursuing cheap money. “When wages are kept higher than the market situation justifies,” wrote Wiggin in the Chase annual report for January 1931, “employment and the buying power of labor fall off.... Our depression has been prolonged and not alleviated by delay in making necessary readjustments.” Commercial and Financial Chronicle 132 (January 17, 1931): 428–29; Rothbard, America’s Great Depression, pp. 191–93, 212–13, 217, 220–21.

¹⁰⁸Anderson, Economics and Public Welfare, p. 248. See also ibid., pp. 245–50; Benham, British Monetary Policy, pp. 9–10.

¹⁰⁹Anderson, Economics and Public Welfare, pp. 246–47, 253.

¹¹⁰Palyi, Twilight of Gold, pp. 276–78.

¹¹¹Ibid., pp. 187–90. Kooker, “French Financial Diplomacy,” pp. 105–06, 113–17.

¹¹²Moritz J. Bonn, Wandering Scholar (New York: John Day, 1948) p. 278.

¹¹³For an overview of the monetary struggles and policies of the New Deal, see Murray N. Rothbard, “The New Deal and the International Monetary System,” in The Great Depression and New Deal Monetary Policy (San Francisco: Cato Institute, [1976] 1980), pp. 79–129. Some of the details in this account of the economic and financial interests involved have been superseded by Ferguson, “From Normalcy to New Deal,” pp. 41–93; Thomas Ferguson, “Industrial Conflict and the Coming of the New Deal: The Triumph of Multinational Liberalism in America,” in The Rise and Fall of the New Deal Order, 1930–1980, Steve Fraser and Gary Gerstle, eds. (Princeton, N.J.: Princeton University Press, 1989), pp. 3–31. On the road to Bretton Woods, see G. William Domhoff, The Power Elite and the State (New York: Aldine de Gruyter, 1990), pp. 114–81. On the Harriman influence in the New Deal, see Philip H. Burch, Jr., Elites in American History, vol. 3, The New Deal to the Carter Administration (New York: Holmes and Meier, 1980), pp. 20–31.

Part 5

[Originally published in Watershed of Empire: Essays on New Deal Foreign Policy, Leonard P. Liggio and James J. Martin, eds. (Colorado Springs, Colo.: Ralph Myles, 1976).—Ed.]

¹H. Parker Willis, The Theory and Practice of Central Banking (New York: Harper and Bros., 1936), p. 379.

²See Murray N. Rothbard, America’s Great Depression, 3rd ed. (Kansas City, Mo.: Sheed and Ward, 1975), pp. 159ff.

³Émile Moreau diary entry of February 6, 1928. Lester V. Chandler, Benjamin Strong, Central Banker (Washington, D.C.: Brookings Institution, 1958) pp. 379–80. On the gold-exchange standard and European countries being induced to overvalue their currencies, see H. Parker Willis, “The Breakdown of the Gold Exchange Standard and its Financial Imperialism,” The Annalist (October 16, 1931): 626 ff.; and William Adams Brown, Jr., The International Gold Standard Reinterpreted, 1914–1934 (New York: National Bureau of Economic Research, 1940), 2, pp. 732–49.

⁴On the coup de whiskey, see Charles Rist, “Notice Biographique,” Revue d’Economie Politique (November–December, 1955): 1005; translation mine. On the Strong-Norman collaboration, see also Lawrence E. Clark, Central Banking Under the Federal Reserve System (New York: Macmillan, 1935), pp. 307–21; and Benjamin M. Anderson, Economics and the Public Welfare: Financial and Economic History of the United States, 1914–1946 (New York: D. Van Nostrand, 1949).

⁵The Banker, June 1, 1926, and November 1928. In Clark, Central Banking Under the Federal Reserve, pp. 315–16. See also Anderson, pp. 182–83; Benjamin H. Beckhart, “Federal Reserve Policy and the Money Market, 1923–1931,” in The New York Money Market (New York; Columbia University Press, 1931), 4, pp. 67ff. In the autumn of 1926, a leading American banker admitted that bad consequences would follow Strong’s cheap-money policy, but added, “that cannot be helped. It is the price we must pay for helping Europe.” H. Parker Willis, “The Failure of the Federal Reserve,” North American Review (1929): 553.

⁶See Rothbard, America’s Great Depression, p. 138; and Chandler, Benjamin Strong, pp. 356ff.

⁷Charles Callan Tansill, America Goes to War (Boston: Little, Brown, 1938), pp. 70–134. On the aid given by Benjamin Strong to the House of Morgan and the loans to England and France, see ibid., pp. 87–88, 96–101, 106–08, 118–32.

⁸Clark, Central Banking Under the Federal Reserve System, p. 343.

⁹For examples of businessmen and bankers in favor of cheap money and inflation in American history, and particularly on the inflationary role of Paul M. Warburg of Kuhn, Loeb and Company during the 1920s, see Murray N. Rothbard, “Money, the State, and Modern Mercantilism,” in Central Planning and Neo-Mercantilism, Helmut Schoeck and James W. Wiggins, eds. (Princeton, N.J.: D. Van Nostrand, 1964), pp. 146–54.

¹⁰Irving Fisher, Stabilised Money (London: George Allen and Unwin, 1935), pp. 104–13, 375–89, 411–12.

¹¹Fisher was also a partner of James H. Rand, Jr., in a card-index manufacturing firm. Fisher, pp. 387–88; Irving Norton Fisher, My Father Irving Fisher (New York: Comet Press, 1956), pp. 220ff.

¹²See Anderson, Economics and the Public Welfare, pp. 232ff.

¹³See Lionel Robbins, The Great Depression (New York: Macmillan, 1934), pp. 89–99. See also Anderson, Economics and the Public Welfare, pp. 244 ff.; and Frederic C. Benham, British Monetary Policy (London: P.S. King and Son, 1932), pp. 1–45.

¹⁴Robbins, The Great Depression, pp. 100–21.

¹⁵See Rothbard, America’s Great Depression, pp. 284–99; H. Parker Willis, “A Crisis in American Banking,” in The Banking Situation, H.P. Willis and J.M. Chapman, eds. (New York: Columbia University Press, 1934), pp. 3–120.

¹⁶Fisher, Stabilised Money, pp. 108–09, 118–22, 413–14; and Jordan Schwarz, ed., 1933: Roosevelt’s Decision, the United States Leaves the Gold Standard, (New York: Chelsea House, 1969), pp. 44–60, 116–20.

¹⁷Schwarz, 1933: Roosevelt’s Decision, pp. 27–35.

¹⁸Fisher, My Father Irving Fisher, pp. 273–76.

¹⁹Herbert Feis, “1933: Characters in Crisis,” in Schwarz, ed., 1933: Roosevelt’s Decision, pp. 150–51. Feis was a leading economist for the State Department.

²⁰Arthur M. Schlesinger, Jr., The Coming of the New Deal (Boston: Houghton Mifflin, 1959), p. 202.

²¹New York Times, April 19, 1933; quoted in Joseph E. Reeve, Monetary Reform Movements (Washington, D.C.: American Council on Public Affairs, 1943), p. 275.

²²Schwarz, ed., 1933: Roosevelt’s Decision, p. xx.

²³Fisher, Stabilised Money, pp. 355–56.

²⁴On Douglas, see Schwarz, ed., 1933: Roosevelt’s Decision, pp. 135–36, 143–44, 154–58; and Schlesinger, Coming of the New Deal, pp. 196–97, and passim. Douglas resigned as budget director in 1934; his critical assessment of the New Deal can be found in his Lewis W. Douglas, The Liberal Tradition: A Free People and Free Economy (New York: D. Van Nostrand, 1935).

²⁵Robbins, The Great Depression, p. 123; and Schwarz ed., 1933: Roosevelt’s Decision, p. 144.

²⁶Leo Pasvolsky, Current Monetary Issues (Washington, D.C.: Brookings Institution, 1933), p. 14.

²⁷Ibid, p. 59.

²⁸Robert H. Ferrell, American Diplomacy in the Great Depression (New York: W.W. Norton, 1957), pp. 263–64.

²⁹Pasvolsky, Current Monetary Issues, p. 70. See also Schlesinger, Coming of the New Deal, pp. 213–16; and Ferrell, American Diplomacy, p. 266.

³⁰Pasvolsky, Current Monetary Issues, pp. 71–72.

³¹Ibid., pp. 72–74.

³²Ibid., pp. 74–76, 158–60, 163–66.

³³Schlesinger, Coming of the New Deal, pp. 218–21; Pasvolsky, Current Monetary Issues, pp. 80–82.

³⁴The full text of Roosevelt’s message can be found in Pasvolsky, Current Monetary Issues, pp. 83–84, or Ferrell, American Diplomacy, pp. 270–72.

³⁵Schlesinger, Coming of the New Deal, p. 224. For Baruch’s private views, see Margaret Coit, Mr. Baruch (Boston: Houghton Mifflin, 1957), pp. 432–34.

³⁶Schlesinger, Coming of the New Deal, p. 224; Ferrell, American Diplomacy in the Great Depression, pp. 273ff.

³⁷On the Tripartite Agreement, see Raymond F. Mikesell, United States Economic Policy and International Relations (New York: McGraw-Hill, 1952), pp. 55–59; W.H. Steiner and E. Shapiro, Money and Banking (New York: Henry Holt, 1941), pp. 85–87, 91–93; and Anderson, Economics and the Public Welfare, pp. 414–20.

³⁸Lloyd C. Gardner, Economic Aspects of New Deal Diplomacy (Madison: University of Wisconsin Press, 1964), p. 107.

³⁹For revisionist emphasis on this economic basis for the American drive toward war with Germany, see ibid., pp. 98–108; Lloyd C. Gardner, “The New Deal, New Frontiers, and the Cold War: A Re-examination of American Expansion, 1933–1945,” in Corporations and the Cold War, David Horowitz, ed. (New York: Monthly Review Press, 1969), pp. 105–41; William Appleman Williams, The Tragedy of American Diplomacy (Cleveland, Ohio: World Publishing, 1959), pp. 127–47; Robert Freeman Smith, “American Foreign Relations, 1920–1942,” in Towards a New Past, Barton J. Bernstein, ed. (New York: Pantheon Books, 1968), pp. 245–62; and Charles Callan Tansill, Back Door to War (Chicago: Henry Regnery, 1952), pp. 441–42.

⁴⁰Thus, see Douglas Miller, You Can’t Do Business With Hitler (Boston, 1941), esp. pp. 73–77; and Michael A. Heilperin, The Trade of Nations (New York: Alfred Knopf, 1947), pp. 114–17. Miller was commercial attaché at the U.S. Embassy in Berlin throughout the 1930s.

⁴¹For an explanation of the workings of the German barter agreements, see Ludwig von Mises, Human Action (New Haven, Conn.: Yale University Press, 1949), pp. 796–99. Also on the agreements, see Hjalmar Schacht, Confessions of “The Old Wizard” (Boston: Houghton Mifflin, 1956), pp. 302–05.

⁴²Lloyd Gardner, New Deal Diplomacy, p. 98.

⁴³Smith, “American Foreign Relations, 1920–1942,” p. 247; Lloyd Gardner, New Deal Diplomacy, p. 99.

⁴⁴Lloyd Gardner, “New Deal, New Frontiers,” p. 118.

⁴⁵Tansill, Back Door to War, p. 441.

⁴⁶Smith, “American Foreign Relations, 1920–1942,” p. 247.

⁴⁷Lloyd Gardner, New Deal Diplomacy, pp. 59–60.

⁴⁸Ibid., p. 103. It might be noted that in the spring of 1936, Secretary Hull refused to settle for a bilateral deal to sell Germany a large store of American cotton; Hull denounced the idea as “blackmail.” The predictable result was that in the next couple of years the sources of raw cotton imported into Germany shifted sharply from the United States to Brazil and Egypt, which had been willing to make barter sales of cotton. Ibid., p. 104; Arthur Schweitzer, Big Business in the Third Reich (Bloomington: Indiana University Press, 1964), p. 316.

⁴⁹Francis Neilson, The Tragedy of Europe (Appleton, Wis.: C.C. Nelson, 1946), 5, p. 289. For a brief but illuminating study of German-American trade and currency hostility in the 1930s leading to World War II, see Thomas H. Etzold, Why America Fought Germany in World War II (St. Louis: Forums in History, Forum Press, 1973).

⁵⁰Cordell Hull, Memoirs of Cordell Hull (New York, 1948), 1, p. 81.

⁵¹Richard N. Gardner, Sterling-Dollar Diplomacy (Oxford: Clarendon Press, 1956), p. 141.

⁵²The Times (London), October 11, 1940; quoted in Neilson, Tragedy of Europe, 5, p. 286.

⁵³Richard Gardner, Sterling-Dollar Diplomacy, p. 76.

⁵⁴Smith, “American Foreign Relations, 1920–1942,” p. 252; Gabriel Kolko, The Politics of War: The World and United States Foreign Policy, 1943–1945 (New York: Random House, 1968), pp. 243–44.

⁵⁵Kolko, The Politics of War, pp. 264, 485ff.; Lloyd C. Gardner, Architects of Illusion: Men and Ideas in American Foreign Policy, 1941–1949 (Chicago: Quadrangle Books, 1970), pp. 113–38.

⁵⁶Lloyd Gardner, “New Deal, New Frontiers,” p. 120.

⁵⁷Richard Gardner, Sterling-Dollar Diplomacy, pp. 42ff.; Lloyd Gardner, New Deal Diplomacy, pp. 275-80.

⁵⁸Smith, “American Foreign Relations, 1920–1942,” p. 252; Kolko, The Politics of War, pp. 248-49.

⁵⁹Ibid., pp. 249–51.

⁶⁰Richard Gardner, Sterling-Dollar Diplomacy, pp. 71ff., 95–99.

⁶¹We do not deal here with the other institution established at Bretton Woods—the International Bank for Reconstruction and Development— which, in contrast to the International Monetary Fund, comes under commercial and financial, rather than monetary, policy.

⁶²John G. Winant to Hull, April 12, 1944; in Richard Gardner, Sterling-Dollar Diplomacy, p. 123. See also ibid., pp. 110–21.

⁶³An elaboration of the banker-oriented criticisms of the International Monetary Fund may be found in Anderson, Economics and the Public Welfare, pp. 578–89.

⁶⁴Henry W. Berger, “Senator Robert A. Taft Dissents from Military Escalation,” in Cold War Critics: Alternatives to American Foreign Policy in the Truman Years, Thomas G. Paterson, ed. (Chicago: Quadrangle Books, 1971), pp. 174–75, 198. Taft also strongly opposed the government’s guaranteeing of private foreign investments, such as were involved in the International Bank program. Ibid. See also Kolko, Politics of War, pp. 256–57; Lloyd Gardner, New Deal Diplomacy, p. 287; and Mikesell, United States Economic Policy, pp. 199f.

⁶⁵Richard Gardner, Sterling-Dollar Diplomacy, pp. 136–37; Mikesell, United States Economic Policy, pp. 134ff.

⁶⁶On the American debate over Bretton Woods, see Richard Gardner, Sterling-Dollar Diplomacy, pp. 129–43; on Bretton Woods, see also Mikesell, United States Economic Policy, pp. 129–35, 138ff., 142ff., 149–52, 155-58, 163–70.

⁶⁷Kolko, Politics of War, p. 294.

⁶⁸The removal of such classical pro-gold-standard economists as Henry Hazlitt from his post as editorial writer for the New York Times and Dr. Benjamin M. Anderson from the Chase National Bank, coincided with the accommodation of the financial community to the new system.

⁶⁹We might mention the influence of such economists as Ludwig Erhard, Alfred Müller-Armack, and Wilhelm Röpke in Germany; President Luigi Einaudi in Italy; and Jacques Rueff in France, who had played a similar hard-money role in the 1920s and early 1930s.