Liveblogging Wood's The Idea of America: Rothbard Vindicated?
Imagine a situation in which the people, or, we might say, the market, had chosen a particular medium for money. But a central state is established with the purpose of shoving its own preferred money down the people's throats, whether they want it or not. Nevertheless, the people manage to circumvent the central government's attempt to impose its money on them, and use their preferred form anyway.
Who are these Rothbardian heroes? Well, they were the ordinary people of the new United States, who, when the central government attempted to thwart their desire for paper money, by imposing gold and silver money upon them, ran an end run around the Feds:
Who are these Rothbardian heroes? Well, they were the ordinary people of the new United States, who, when the central government attempted to thwart their desire for paper money, by imposing gold and silver money upon them, ran an end run around the Feds:
Article I, Section 10 of the Constitution had prohibited the states from printing bills of credit, but the needs and desires of all the protobusinessmen and domestic traders were too great to be stymied by a paper restriction. So the states, under popular pressure, got around the constitutional prohibition by chartering banks, hundreds upon hundreds of them, which in turn issues the paper money people wanted. -- p. 26
I'm only a wannabe amateur economist, but my understanding is that the paper currencies of the charter banks were still redeemable in specie, which would be the money the market chose. Is that incorrect?
ReplyDeleteI assumed fractional reserve, however, which would mean the market chose partially backed paper money, while the feds were trying to enforce specie-only money. Prompted by your query, I have double-checked my assumption and will be back to you soon.
DeleteSamuel, I have checked with my expert, and he says, yes, fractional reserves "at most."
DeleteInteresting, thanks for that. That's one of Rothbard's positions which still doesn't make sense to me. His insistence of a 100% reserve requirements regardless of what the market might choose seems to be counter to a lot of his other principles.
DeleteIn a free market I can imagine some banks being the 100% reserve "warehouses" of Rothbard's vision, but at the same time certainly there would be fractional reserve banks that people could freely invest in with the understanding that it is indeed fractional and they could only withdraw their money, say, after some specified time period.