The Panic of 1819 by Murray N. Rothbard

Author:Murray N. Rothbard [Murray N. Rothbard]
Language: eng
Format: epub, pdf
ISBN: 978-1-93355-008-4
Publisher: Ludwig von Mises Institute
Published: 2007-03-26T16:00:00+00:00

IV

PROPOSALS FOR NATIONAL

MONETARY EXPANSION

Since state banks were a state responsibility, the discussion of monetary remedies for the depression took place mainly on a state level. Some people, however, envisioned inconvertible paper currency on a national scale, and put forward proposals to that effect.

The simplest method of attaining a national inconvertible paper currency, given the existing situation, was a general suspension of specie payments, including suspension by the Bank of the United States. The bank’s inconvertible notes would then have been the basic national currency—a less radical course than the governmental creation of a new type of inconvertible paper. Some suggestions for this relatively moderate approach appeared. “A Mercantile Correspondent” advanced a cautious plan for a five-year suspension, with the bank to purchase one to two million of specie per annum, so that the bank would own five to ten million in specie at the end of five years, a sum which the writer deemed ample to resume payment.1 The writer advocated a quasi legal tender plan, through an enforced stay of execution should the creditor refuse to accept the notes. “Mercantile Correspondent” proposed a maximum limit of $35 million on outstanding sums of United States Bank notes, which would function as standard money. The other banks would need no statutory limitation, since each bank would be required to pay its obligations daily to every other bank, this interbank competition acting as a check on their respective issues.

Emergency suspension of specie payments by the bank was advocated by the highly influential Oliver Wolcott of Connecticut, formerly Secretary of the Treasury. Wolcott offered no detailed plan.2

Another writer more boldly advocated permanent abandonment of specie payments and use of the bank notes as standard currency.3 “One of the People—A Farmer” asserted that the credit of the bank and confidence in its notes depended on its capital and skill rather than on the quantity of its coin. A critic calling himself “Agricola” attacked this position, asserting that the credit of a bank is determined precisely by the quantity of its specie.4 Confidence in a bank, declared “Agricola” shrewdly, is dependent on public opinion concerning the amount of specie that the bank possesses. Specie, after all, was the means for banks to pay their debts. The writer decried excessive, and therefore depreciating, note issue. Banks, he stated, could not add to the national wealth or capital. Their sole legitimate object was to furnish facilities for exchange and to transfer money from one place to another.

One of the most detailed proposals for an inconvertible paper based on the existing Bank of the United States was put forward by “An Anti-Bullionist” in a pamphlet.5 The author attributed the crisis to the external drain of specie, particularly to the East Indies, which had caused a deficiency of the currency supply within the country. The solution was to substitute for specie a “well-regulated” paper money. This purely domestic money would enable development of the nation without danger from foreign competition or influence. Notable in “Anti-Bullionist’s” approach was his attempt to guard against excessive issue of the notes and subsequent depreciation.

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