A History of Money and Banking in the United States: The Colonial Era to World War II

by Murray N. Rothbard

  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 alle
viated 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: Univ
ersity 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.