Rothbard fudging money supply statistics?

Economics Economics Questions
1

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.

2

I had to look at this a couple of times myself. On page 130 Rothbard is taking the total supply of money in the country. This includes gold coin, state bank notes, subsidiary silver, and U.S. curency including fractional and greenbacks. He states that this was 745.4 million. He then continues by saying that by the end of the war the total supply of money, which now included national bank notes and deposits, totalled 1.773 billion, which was the total at the end of the war. On page 153 he is just taking the total of national bank notes and deposits, nothing else. So in 1865 the total money supply was 1.773 billion, 835 million of which was bank notes and deposits, and bank notes and deposits-and only bank notes and deposits-rose to 1.964 billion by 1873

3

This is what I thought originally, but I’m not entirely convinced.

With regards to his "total money supply statistic, I’m still not seeing it add up. Working backwards, on page 130 Rothbard says the total money supply was $745.4 million. A page ago he said that state bank note/deposits were $510 million in 1860. That means that in 1860, total currency must have totaled 745.4-510=235.4. During the war, state and national bank deposits/notes increased to $833, an increase of $323 million. Add in greenbacks, which Rothbard says totaled $415 million, and you have a grand total of roughly $1.5 billion dollars. I’m not sure where the other $200 million increase in his money supply (if this is the way he calculated it) is coming from.

Confusingly enough, later on he refers to his calculation added to $1.964 (see his referece to the bank money expansion during 1873-1878 on page 154) as the money supply on page 159.

I’m going to try and find a copy of the Historical statistics circa 1957, mainly because I’m interested in the veracity of Rothbard’s MS statistics for my paper. On a similiar note, how can Rothbard and Friedman have such different MS aggregates? During the same period that Friedman writes of a 1.3% increase in the money stock per annum, Rothbard tells a much different tale, one of 16.9% per annum increase in bank money! Even in the Roaring Twenties/Great Depression their aggregates vary widely. Does anyone know of any theoreticaldifferences/deviations in statistical pratices between Rothbard and Friedman’s calculations in the MS?

Thank you for your response btw.

4

“I’m not sure where the other $200 million increase in his money supply (if this is the way he calculated it) is coming from.”

I would imagine the other $200 million was a combination of gold coin and silver. As far as the difference in calculation between Rothbard and Friedman my limited knowledge tells me its the difference in what they consider money that adds to the money supply.

5

Why would gold and silver coins increase during a time the nation was off the gold standard? And certainly their money supply statistics vary, but I was talking more about how Friedman can say the MS increased by 1% per year while Rothbard says bank deposits increased by 16.9% per annum.

I got class in an hour or so, and after I’ll go to the library and see if I can snag a copy of the Historical Statistics circa 1957.

6

Perhaps I should have rephrased what I said. I’m not saying that gold and silver increased (at least not at any significance) but that that is what made up the other 200 mil that you were missing which had you stuck at 1.5 billion instead of Rothbard’s stated total of 1.773 billion. I hope you can find something though, because i’m intrigued :slight_smile:

7

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.

8

To give a yearly average based off the total for the given time period isn’t misleading or sloppy and I’m not sure how one could take his statement either implicitly or explicitly to mean that supply rose exactly 16.9% each year. As you have pointed out, it’s unlikely that the last year saw a 50% increase and the preceding years probably saw a higher increase than the reported 4%…since one can only ‘guess’ as to the actual increases at each year, stating the total increase for the time period and the average yearly increase based on this total is about all one can do.

If he wanted to be misleading to further his own ideological viewpoint he could have used the same stats and said ‘my god, the money supply increased by 50% in the year leading to the panic!’. His actual presentation seems pretty balanced given the nature of the statistics and all of the other complex factors affecting the money supply during that time period.

9

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.

10

Interesting thread!