A History of Money and Banking in the United States: The Colonial Era to World War II by Murray N. Rothbard Page A
Authors: Murray N. Rothbard
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The Financial Revolution, Government and the World Monetary System, Kevin Dowd and Richard H. Timberlake, Jr., eds. (New Brunswick, N.J.: Transactions Publishers, 1998), pp. 105–63.
Introduction
43
time in its original and unexpurgated version. Rothbard elucidates the reasons why the British and U.S. governments in the 1920s so eagerly sought to reconstruct the international monetary system on the basis of this profoundly flawed and inflationary caricature of the classical gold standard. Rothbard also analyzes the “inner contradictions” of the gold-exchange-standard system that led inexorably to its demise in the early 1930s.
Part 5, “The New Deal and the International Monetary System” is the topic of the fifth and concluding part of the book and was previously published in an edited book of essays on New Deal foreign policy.72 Rothbard argues that an abrupt shift occurred in the international monetary policy of the New Deal just prior to U.S. entry into World War II. He analyzes the economic interests that promoted and benefited from the radical transformation of New Deal policy, from “dollar nationalism” during the 1930s to the aggressive “dollar imperialism” that prevailed during the war and culminated in the Bretton Woods Agreement of 1944.
— Joseph T. Salerno
Pace University
72Murray N. Rothbard, “The New Deal and the International Monetary System,” in Watershed of Empire: Essays on New Deal Foreign Policy, Leonard P. Liggio and James J. Martin, eds. (Colorado Springs, Colo.: Ralph Myles, 1976), p. 19.
Part 1
A HISTORY OF MONEY AND BANKING
IN THE UNITED STATES
BEFORE THE TWENTIETH CENTURY
A HISTORY OF MONEY AND BANKING
IN THE UNITED STATES
BEFORE THE TWENTIETH CENTURY
As an outpost of Great Britain, colonial America of course used British pounds, pence, and shillings as its money.
Great Britain was officially on a silver standard, with the shilling defined as equal to 86 pure Troy grains of silver, and with silver as so-defined legal tender for all debts (that is, creditors were compelled to accept silver at that rate).
However, Britain also coined gold and maintained a bimetallic standard by fixing the gold guinea, weighing 129.4 grains of gold, as equal in value to a certain weight of silver. In that way, gold became, in effect, legal tender as well. Unfortunately, by establishing bimetallism, Britain became perpetually subject to the evil known as Gresham’s Law, which states that when government compulsorily overvalues one money and undervalues another, the undervalued money will leave the country or disappear into hoards, while the overvalued money will flood into circulation. Hence, the popular catchphrase of Gresham’s Law: “Bad money drives out good.” But the important point to note is that the triumph of “bad” money is the result, not of perverse free-market competition, but of government using the
[ Previously published in a volume edited by U.S. Representative Ron Paul (R-Texas) and Lewis Lehrman, The Case for Gold: A Minority Report of the U.S.
Gold Commission (Washington, D.C.: Cato Institute, 1983), pp. 17–118. —
Ed.]
47
48
A History of Money and Banking in the United States: The Colonial Era to World War II
compulsory legal tender power to privilege one money above another.
In seventeenth- and eighteenth-century Britain, the government maintained a mint ratio between gold and silver that consistently overvalued gold and undervalued silver in relation to world market prices, with the resultant disappearance and outflow of full-bodied silver coins, and an influx of gold, and the maintenance in circulation of only eroded and “lightweight” silver coins. Attempts to rectify the fixed bimetallic ratios were always too little and too late.1
In the sparsely settled American colonies, money, as it always does, arose in the market as a useful and scarce commodity and began to serve as a general medium of exchange. Thus, beaver fur and wampum were
Introduction
43
time in its original and unexpurgated version. Rothbard elucidates the reasons why the British and U.S. governments in the 1920s so eagerly sought to reconstruct the international monetary system on the basis of this profoundly flawed and inflationary caricature of the classical gold standard. Rothbard also analyzes the “inner contradictions” of the gold-exchange-standard system that led inexorably to its demise in the early 1930s.
Part 5, “The New Deal and the International Monetary System” is the topic of the fifth and concluding part of the book and was previously published in an edited book of essays on New Deal foreign policy.72 Rothbard argues that an abrupt shift occurred in the international monetary policy of the New Deal just prior to U.S. entry into World War II. He analyzes the economic interests that promoted and benefited from the radical transformation of New Deal policy, from “dollar nationalism” during the 1930s to the aggressive “dollar imperialism” that prevailed during the war and culminated in the Bretton Woods Agreement of 1944.
— Joseph T. Salerno
Pace University
72Murray N. Rothbard, “The New Deal and the International Monetary System,” in Watershed of Empire: Essays on New Deal Foreign Policy, Leonard P. Liggio and James J. Martin, eds. (Colorado Springs, Colo.: Ralph Myles, 1976), p. 19.
Part 1
A HISTORY OF MONEY AND BANKING
IN THE UNITED STATES
BEFORE THE TWENTIETH CENTURY
A HISTORY OF MONEY AND BANKING
IN THE UNITED STATES
BEFORE THE TWENTIETH CENTURY
As an outpost of Great Britain, colonial America of course used British pounds, pence, and shillings as its money.
Great Britain was officially on a silver standard, with the shilling defined as equal to 86 pure Troy grains of silver, and with silver as so-defined legal tender for all debts (that is, creditors were compelled to accept silver at that rate).
However, Britain also coined gold and maintained a bimetallic standard by fixing the gold guinea, weighing 129.4 grains of gold, as equal in value to a certain weight of silver. In that way, gold became, in effect, legal tender as well. Unfortunately, by establishing bimetallism, Britain became perpetually subject to the evil known as Gresham’s Law, which states that when government compulsorily overvalues one money and undervalues another, the undervalued money will leave the country or disappear into hoards, while the overvalued money will flood into circulation. Hence, the popular catchphrase of Gresham’s Law: “Bad money drives out good.” But the important point to note is that the triumph of “bad” money is the result, not of perverse free-market competition, but of government using the
[ Previously published in a volume edited by U.S. Representative Ron Paul (R-Texas) and Lewis Lehrman, The Case for Gold: A Minority Report of the U.S.
Gold Commission (Washington, D.C.: Cato Institute, 1983), pp. 17–118. —
Ed.]
47
48
A History of Money and Banking in the United States: The Colonial Era to World War II
compulsory legal tender power to privilege one money above another.
In seventeenth- and eighteenth-century Britain, the government maintained a mint ratio between gold and silver that consistently overvalued gold and undervalued silver in relation to world market prices, with the resultant disappearance and outflow of full-bodied silver coins, and an influx of gold, and the maintenance in circulation of only eroded and “lightweight” silver coins. Attempts to rectify the fixed bimetallic ratios were always too little and too late.1
In the sparsely settled American colonies, money, as it always does, arose in the market as a useful and scarce commodity and began to serve as a general medium of exchange. Thus, beaver fur and wampum were
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