As much as I love Rothbard and MES, from my own experience with some of his sources he wasn’t above fudging/twisting some of the facts to support his theories. From an earlier thread about the money supply statistics during the boom of the 1860s/1870s, Rothbard deliberately seemed to miscontrue the data as to suggest the U.S was undergoing severe monetary inflation.
Well I got the book, 1957 and all. I felt an air of history as I pulled it off the shelf and sifted through its yellow and fading pages.
From what I can tell, there is good news and bad news.
The good news is that Rothbard’s money supply statistics add up, at least according to this book. All of his Civil War totals are obtained by adding total bank deposits, state bank notes, gold coins, silver susidiaries, fractional currencies, other U.S currency, greenbacks, and national bank notes.
The b…
Hello,
I’m starting to research into the Panic of 1873 for a college project I have. Among other economic literature, I reviewed Rothbard’s “A History of Money and Banking in the United States”. Upon scrutinizing his money supply statistics, I’ve noticed either a vague (i.e, not explicitly distinguished) or downright false money aggregate of his.
At the beginning of his talk about the Civil War, Rothbard mentions that “over the entire war, the money supply rose from $745.4 [sic] million to**$1.773 billion**, an increase of 137.9 percent, or 27.9 percent per annum.” (p.130).
However, on page 153, Rothbard writes that “Total state and national bank notes and deposits rose from $835 million in 1865 to $1.964 billion in 1873, an increase of 135.2 percent or an increase of 16.9 percent per year.” (p.153)
So what happened here? At first I suspected that Rothbard was being ambiguous by referring to the later statistic as “bank money”, but later Rothbard seems to use it as his total statistic of "money supply”. Even if this wasn’t the true money supply, then that means Rothbard was lobbing off roughly $1billion (and more as currency increased) in all of his subsequent monetary calculations.
Did the total money supply drop by a “cataclysmic” 50% from 1865 to 1867, was Rothbard wrong on his money supply statistic for the Civil war or his later money supply statistic, or am I missing something here?
Note that if we treat $1.964 as the money supply as he seems to do, then using his earlier estimate (1.773) the expansion over nearly ten (8) years increased by a paltry10.77%, or 1.34% per year. In a similar statistic (though with different money aggregates), Friedman states that the money stock from 1867 to 1873 increased by 1.3% per year. Although this is inflationary, one wonders how such a small increase in the money supply could have caused a very serious banking panic/business cycle in 1873 (say what you will about the subsequent recession, the actual panic was very supposedly severe).
Although still optimistic theres a way to make sense of this, I’m a little disgruntled by this mistake/ambiguity made by Rothbard. Either he just wanted to calculate a “total money supply only for the Civil War” and then proceeded to concentrate solely on bank deposits, or there is a large error in his statistics. I know he gets his money sources from the historical statistics, which I plan on consulting, but that doesn’t seem to answer his ambiguity/incorrectness.
Any thoughts on these money supply statistics? Any help is appreciated.
I later did go to the library and got the exact book edition Rothbard was using.
Well I got the book, 1957 and all. I felt an air of history as I pulled it off the shelf and sifted through its yellow and fading pages.
From what I can tell, there is good news and bad news.
The good news is that Rothbard’s money supply statistics add up, at least according to this book. All of his Civil War totals are obtained by adding total bank deposits, state bank notes, gold coins, silver susidiaries, fractional currencies, other U.S currency, greenbacks, and national bank notes.
The bank news is that judging by this book, some of the statistics are questionable, and Rothbard should be severely criticized for his misleading interpretations. The most obvious is his 1865-1873, state and bank deposits and notes increased about 16.9% per annum. From the book, this is correct, but using highly suspect statistics. It is true that state and national bank notes and deposits increased from 1865 (roughly $869) to $1.964 in 1873, an increase of 16.9% per annum. However careful inspection reveals that according to the statistics, the number of deposits did not increase really increase 16.9% per annum, but rather 50% between last two reported years (1872-1332 and 1873-1964)! My guess is that the bank money (and to a greater extent total money supply) did not explode in one year, but rather the amount of banks voluntarily reported their deposits to the state banking authoritiy. It even says in the forward to the particular section Rothbard used that “Prior to 1896, figures shown here include all national banks and all State banks that voluntarily reported to Statebanking departments in the United States..”. My guess is that with the Panic in 1873 and more banks under distrress, they contacted the state authorities moreso than before.
Taking out 1873, and just taking the totals from 1865 to 1872 (for whatever they are worth, considering that they are probably low due to faulty reports), the annual percentage increase was much lower, roughly 4% per year! For Rothbard to report these statistics that bank money increased 17% per annum when it reality it seems to have come only from 1)the last year 2)more likely bad statistics is downright sloppy and poor research.
Regardless of the factual accuracy of the Historical Statistics (I’m extremely hesistant to see bank totals increasing by 50% in one year), even with the statistics he is using they clearly did not increase 17% per year, as Rothbard is claiming.
The problem is he isn’t really stating that the annual expansion in bank deposits wasn’t 16.9%. It’d be one thing if the yearly averages were 10, 20, 12, 15, etc etc, which averaged out to 16.9%. But in the last year when you have a 50% increase lifting an otherwise 7-8 year statistical average of 4%, and then claiming that there was an average of 17% bank credit expansion,it is very misleading and resembles an outlier. In addition, it seems likely that the overall expansion wasn’t that great and there were less banks reporting in the late 1860s/early 1870s their financial conditions, which means the bank deposit figures for that time period (1860s) was abnormally low, giving the illusion of great bank credit growth than what actually occured. Either the statistics are 1) Entirely truthful,which would give great doubt as to why no one has written about one of the U.S’ greatest yearly MS expansions 2)Not accurate, and Rothbard was misleading to use these aggregates and conducted poor research. Even if he wanted to use these numbers, he should have at least written in a footnote that the totals weren’t accurate, especially the 16.9% figure he was using.
The thread (and my criticisms of Rothbard) were never really responded to. Based on my gathering of the facts, Rothbard did fudge some numbers.