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Authors: Murray N. Rothbard
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opposition, much higher level analysis was elaborated. Many hard money writers formulated a monetary explanation of the business cycle—seeing the cause of depression in an expansion of bank credit and money supply, a subsequent rise in prices, specie drain abroad, and finally contraction and depression. Monetary expansion would only renew this process and prolong the contraction necessary to liquidate unsound banks and reverse the specie drain. The only cure for the depression, they concluded, was a rigid enforcement of specie payment. Sound moneywriters conceded that monetary contraction would bring temporary disturbances, but declared that any legislative intervention would only aggravate the situation.
Much of the discussion concerned the procedure to best maintain confidence . The inflationists urged that new money would bolster confidence and induce money to leave idle hoards, thereby restoring prosperity. Their opponents, on the other hand, maintained that confidence could only be achieved by strict adherence to specie payment.
Believing that excessive bank credit was primarily responsible for the depression, restrictionists generally advocated various controls over credit as a method of relieving the present depression and preventing future ones. Various plans were offered (in addition to insistence on strict adherence to specie payments): for example, banks should be allowed only in cities; prohibition of small denomination notes; and the prohibition of interbank borrowing. Hostility to banks was widespread throughout the nation, and many influential figures went so far as to advocate abolition of banking, or virtual abolition through imposing 100 percent reserves. In practice, however, they were often willing to accept more immediately attainable proposals for restricting bank credit. Leading Virginia statesmen were particularly prominent in the hard money ranks.
Thus, America had quite a few exponents of the “Currency principle”—100 percent reserve banking and the idea that fiduciary bank credit causes a business cycle—several years before Thomas Joplin first gave it prominence in England. Perhaps one reason for this precedence was that Americans, while benefiting from the famous English bullionist discussions on problems of an inconvertible currency, were forced to grapple with inflation under a mostly convertible currency several years before the English—who did not complete their return to specie payments until 1821.
Hostility was also engendered toward the Second Bank of the United States, which had touched off the monetary contraction at the onset of the panic. Legislatures passed resolutions urging the elimination of the bank, and some states levied taxes on it or sanctioned suspension of specie payment to the bank only. Little wasdone in Congress to curb the bank, however. The depression intensified a longstanding political controversy concerning the power of the bank. It is often overlooked, however, that hostility to the bank on economic grounds came from two opposing directions: from those who attacked it as too restrictive, and from the hard money ultras who considered it a nationwide engine of monetary expansion. Such ultra hard money leaders as the Virginia group had little use for either state or federal banking.
Much of the discussion between the hard and soft money forces was on a highly sophisticated level. Some inflationists welcomed the prospect of a limitless flood of money and even advocated depreciation as helping to build up a home market, but wiser ones countered the opposition with the thesis that an inconvertible currency could be more stable in value than specie. Specie was subject to fluctuations of supply and demand, but paper could be regulated by the government so as to provide a stable value of the dollar. Hard money men were generally content to grant this in theory but to deny its practicality, asserting that the government would always tend to inflate the currency.
Much of the discussion concerned the procedure to best maintain confidence . The inflationists urged that new money would bolster confidence and induce money to leave idle hoards, thereby restoring prosperity. Their opponents, on the other hand, maintained that confidence could only be achieved by strict adherence to specie payment.
Believing that excessive bank credit was primarily responsible for the depression, restrictionists generally advocated various controls over credit as a method of relieving the present depression and preventing future ones. Various plans were offered (in addition to insistence on strict adherence to specie payments): for example, banks should be allowed only in cities; prohibition of small denomination notes; and the prohibition of interbank borrowing. Hostility to banks was widespread throughout the nation, and many influential figures went so far as to advocate abolition of banking, or virtual abolition through imposing 100 percent reserves. In practice, however, they were often willing to accept more immediately attainable proposals for restricting bank credit. Leading Virginia statesmen were particularly prominent in the hard money ranks.
Thus, America had quite a few exponents of the “Currency principle”—100 percent reserve banking and the idea that fiduciary bank credit causes a business cycle—several years before Thomas Joplin first gave it prominence in England. Perhaps one reason for this precedence was that Americans, while benefiting from the famous English bullionist discussions on problems of an inconvertible currency, were forced to grapple with inflation under a mostly convertible currency several years before the English—who did not complete their return to specie payments until 1821.
Hostility was also engendered toward the Second Bank of the United States, which had touched off the monetary contraction at the onset of the panic. Legislatures passed resolutions urging the elimination of the bank, and some states levied taxes on it or sanctioned suspension of specie payment to the bank only. Little wasdone in Congress to curb the bank, however. The depression intensified a longstanding political controversy concerning the power of the bank. It is often overlooked, however, that hostility to the bank on economic grounds came from two opposing directions: from those who attacked it as too restrictive, and from the hard money ultras who considered it a nationwide engine of monetary expansion. Such ultra hard money leaders as the Virginia group had little use for either state or federal banking.
Much of the discussion between the hard and soft money forces was on a highly sophisticated level. Some inflationists welcomed the prospect of a limitless flood of money and even advocated depreciation as helping to build up a home market, but wiser ones countered the opposition with the thesis that an inconvertible currency could be more stable in value than specie. Specie was subject to fluctuations of supply and demand, but paper could be regulated by the government so as to provide a stable value of the dollar. Hard money men were generally content to grant this in theory but to deny its practicality, asserting that the government would always tend to inflate the currency.
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