Notes

1 Thus, Armistead Dobie writes: “a transfer of the warehouse receipt, in general, confers the same measure of title that an actual delivery of the goods which it represents would confer.” Armistead M. Dobie, Handbook on the Law of Bailments and Carriers (St. Paul, Minn.: West Publishing, p. 163.

2 W. Stanley Jevons, Money and the Mechanism of Exchange, 15th ed. (London: Kegan Paul, [1875] 1905), pp. 206–12.

3 See Murray N. Rothbard, The Mystery of Banking (New York: Richard-son & Snyder, 1983), p. 94. On these decisions, see J. Milnes Holden, The Law and Practice of Banking, vol. 1, Banker and Customer (London: Pitman Publishing, 1970), pp. 31–32.

4 A. Hewson Michie, Michie on Banks and Banking, rev. ed. (Charlottes-ville, Va.: Michie, 1973), 5A, pp. 1–31; and ibid., 2979 Cumulative Supplement, pp. 3–9. See Rothbard, The Mystery of Banking, p. 275.

5 The Bank of Amsterdam, which kept faithfully to 100-percent reserve banking from its opening in 1609 until it yielded to the temptation of financing Dutch wars in the late eighteenth century, financed itself by requiring depositors to renew their notes at the end of, say, a year, and then charging a fee for the renewal. See Arthur Nussbaum, Money in the Law: National and International (Brooklyn: Foundation Press, 1950), p. 105.

6 I owe this point to Dr. David Gordon. See Murray N. Rothbard, The Present State of Austrian Economics (Auburn, Ala.: Ludwig von Mises Institute Working Paper, November 1992), p. 36.

7 This holocaust could only be stopped by the Federal Reserve and Treasury simply printing all the cash demanded and giving it to the banks—but that would precipitate a firestorm of runaway inflation.

8 An example of a successful cartel for bank credit expansion occurred in Florence in the second half of the sixteenth century. There, the Ricci bank was the dominant bank among a half dozen or so others, and was able to lead a tight cartel of banks that took in and paid out each other's receipts without bothering to redeem in specie. The result was a large expansion and an ensuing long-time bank crisis. Carlo M. Cipolla, Money in Sixteenth-Century Florence (Berkeley and Los Angeles: University of California Press, 1987), pp. 101–13.

It is likely that the establishment of the Bank of Amsterdam in 1609, followed by other 100 percent reserve banks in Europe, was a reaction against such bank credit-generated booms and busts as had occurred in Florence not many years earlier.

9 For more on business cycles, see Murray N. Rothbard, “The Positive Theory of the Cycle,” in America's Great Depression, 4th ed. (New York: Richardson & Snyder, 1983), pp. 11–38.

10 A minor exception: when admirably small governments such as Monaco or Liechtenstein issue beautiful stamps to be purchased by collectors. Sometimes, of course, governments will seize and monopolize a service or resource and sell their products (e.g., a forest) or sell the monopoly rights to its production, but these are scarcely exceptions to the eternal coercive search for revenue by government.

11 Printing was first developed in ancient China, and so it should come as no surprise that the first government paper money arrived in mid-eighth century China. See Gordon Tullock, 'Taper Money—A Cycle in Cathay,” Economic History Review 9, no. 3 (1957): 396.

12 It is a commonly accepted myth that the “state banks” (the state-chartered private commercial banks) strongly supported Andrew Jackson's abolition of the Second Bank of the United States—the Central Bank of that time. However (apart from the fact that this was a pre-Peel Act Central Bank that did not have a monopoly on bank notes and hence competed with commercial banks as well as providing reserves for their expansion) this view is sheer legend, based on the faulty view of historians that since the state banks were supposedly “restrained” in their expansion by the Bank of the United States, they must have favored its abolition. On the contrary, as later historians have shown, the overwhelming majority of the banks supported retention of the Bank of the United States, as our analysis would lead us to predict. See John M. McFaul, The Politics of Jacksonian Finance (Ithaca, N.Y.: Cornell University Press, 1972), pp. 16–57; and Jean Alexander Wilburn, Biddle's Bank: The Crucial Years (New York: University Press, 1970), pp. 118–19.

13 When Morris failed to raise the specie capital legally required to launch the BNA, he simply appropriated specie loaned to the U.S. Treasury by France and invested it for the U.S. government in his own bank. On this episode, and on the history of the war over a Central Bank in America from then through the nineteenth century, see “The Minority Report of the U.S. Gold Commission of 1981,” in the latest edition, The Ron Paul Money Book (Clute, Texas: Plantation Publishing, 1991), pp. 44–136.

14 Strictly, this prohibition was accomplished by a prohibitive 10-percent tax on state bank notes, levied by Congress in the spring of 1865 when the state banks disappointed Republican hopes by failing to rush to join the National Banking structure as set up in the two previous years.

15 See Gabriel Kolko, The Triumph of Conservatism: A Reinterpretation of American History, 1890–1916 (New York: Free Press, 1963), pp. 140–42.

16 See Gabriel Kolko, Railroads and Regulation, 1877–1916 (Princeton: Princeton University Press, 1965).

17 See Kolko, Triumph of Conservatism, pp. 1–56; Naomi Lamoureaux, The Great Merger Movement in American Business, 1895–104 (New Cambridge University Press, 1985); Arthur S. Dewing, Corporate Promotions and Reorganizations (Cambridge, Mass.: Harvard University Press, 1914); and idem, The Financial Policy of Corporations, 2 vols., 5th ed. York: Ronald Press, 1953).

18 On meatpacking, see Kolko, Triumph of Conservatism, pp. 98–108.

19 On the National Civic Federation, see James Weinstein, The Corporate Ideal in the Liberal State, 1890–1918 (Boston: Beacon Press, 1968). Also see David Eakins, “The Development of Corporate Liberal Policy Research in the United States 1885–1965” (doctoral dissertation, Department of History, University of Wisconsin, 1966).

20 See, among others, Paul Kleppner, The Third Electoral System, 1853–1892: Parties, Voters, and Political Cultures (Chapel Hill: University of North Carolina Press, 1979).

21 Thus, see Philip H. Burch, Jr., Elites in American History, Vol. 2: From the Civil War to the New Deal (New York: Holmes & Meier, 1981).

22 J. P. Morgan's fondness for a central bank was heightened by the memory of the fact that the bank of which his father Junius was junior partner—the London firm of George Peabody and Company—was saved from bankruptcy in the Panic of 1857 by an emergency credit from the Bank of England. The elder Morgan took over the firm upon Peabody's retirement, and its name was changed to J. S. Morgan and Company See Ron Chernow, The House of Morgan (New York: Atlantic Monthly Press, 1990), pp. 11–12.

23 For the memorandum, see by far the best book on the movement culminating in the Federal Reserve System, James Livingston, Origins of the Federal Reserve System: Money, Class, and Corporate Capitalism, 1890–1913 (Ithaca, N.Y.: Cornell University Press, 1986).

24 When Theodore Roosevelt became president he made Bacon Assistant Secretary of State, while Henry Payne took the top political job of Postmaster General of the United States.

25 Some examples: Former Secretary of the Treasury (under Cleveland) Charles S. Fairchild, a leading New York banker, former partner in the Boston Brahmin, Morgan-oriented investment banking firm of Lee, Higginson & Company. Fairchild's father, Sidney T., had been a leading attorney for the Morgan-controlled New York Central Railroad. Another member of the Commission was Stuyvesant Fish, scion of two long-time aristocratic New York families, partner of the Morgan-dominated New York investment bank of Morton, Bliss & Company, and president of the Illinois Central Railroad. A third member was William B. Dean, merchant from St. Paul, Minnesota, and a director of the St. Paul-based transcontinental railroad, Great Northern, owned by James J. Hill, a powerful ally of Morgan in his titanic battle with Harriman, Rockefeller, and Kuhn, Loeb for control of the Northern Pacific Railroad.

26 Livingston, Origins, pp. 109–10.

27 Joseph Dorfman, The Economic Mind in American Civilization York: Viking Press, 1949), vol. 3, pp. xxxviii, 269, 392–93.

28 The Final Report, including the recommendation for a Central Bank, was hailed by Convention delegate F. M. Taylor in Laughlin's economic journal, the Journal of Political Economy. Taylor also exulted that Convention had been “one of the most notable movements of our time—the first thoroughly organized movement of the business classes in the whole country directed to the bringing about of a radical change in national legislation.” F. M. Taylor, 'The Final Report to the Indianapolis Monetary Commission,” Journal of Political Economy 6 (June 1898): 322.

29 Taylor was an Indiana attorney for General Electric Company.

30 Frank W. Taussig, “The Currency Act of 1900,” Quarterly Journal of Economics 14 (May 1900): 415.

31 Joseph French Johnson, “The Currency Act of March 14, 1900,” Political Science Quarterly 15 (1900): 482–507.

32 Gage became president of the Rockefeller-controlled U.S. Trust Company; Vanderlip became vice-president at the flagship commercial bank of the Rockefeller interests, the National City Bank of New York; and Conant became Treasurer of the Morgan-controlled Morton Trust Company.

33 Kolko, Triumph of Conservatism, p. 186.

34 Ibid., p. 235.

35 Because of the peculiarities of banking history, “Governor'' is considered a far more exalted title than “President,” a status stemming from the august title of “Governor” as head of the original and most prestigious Central Bank, the Bank of England. Part of the downgrading of the regional Federal Reserve Banks and upgrading of power of the Washington Board in the 1930s was reflected in the change of the title of head of each regional Bank from “Governor” to 'President,” matched by the change of title of the Washington board from 'Tederal Reserve Board” to “Board of Governors of the Federal Reserve System.”

36 Miller's father-in-law, Otho S. A. Sprague, had served as a director of the Morgan-dominated Pullman Company, while Otho's brother Albert A. Sprague, was a director of the Chicago Telephone Company, a subsidiary of the mighty Morgan-controlled monopoly American Telephone & Telegraph Company.

It should be noted that while the Oyster Bay-Manhattan branch of the Roosevelt family (including President Theodore Roosevelt) had long been in the Morgan ambit, the Hyde Park branch (which of course included F.D.R.) was long affiliated with their wealthy and influential Hudson Valley neighbors, the Astors and the Harrimans.

37 On the personnel of the original Fed, see Murray N. Rothbard, “The Federal Reserve as a Cartelization Device: The Early Years, 1913–1939,” in Money in Crisis, Barry Siegel, ed. (San Francisco: Pacific Institute for Public Policy Research, 1984), pp. 94–115.

38 On Benjamin Strong's seizure of supreme power in the Fed and its being aided by wartime measures, see Lawrence E. Clark, Central Banking Under the Federal Reserve System (New York: Macmillan, 1935), pp. 64–102–5; Lester V. Chandler, Benjamin Strong: Central Banker (Washington, D.C.: Brookings Institution, 1958), pp. 23–41, 68–78, 105–7; and Henry Parker Willis, The Theory and Practice of Central Banking (New York: Harper & Brothers, 1936), pp. 90–91.

39 On the Morgans, their ties to the British, and their influence on America's entry into the war, see Charles Callan Tansill, America Goes to War (Boston: Little, Brown, 1938).

40 See, in particular, Thomas Ferguson, “Industrial Conflict and the Coming of the New Deal: the Triumph of Multinational Liberalism in America,” in The Rise and Fall of the New Deal Order, 1930–1980, Steve Fraser and Gary Gerstle, eds. (Princeton: Princeton University Press, 1989), pp. 3–31. Also see the longer article by Ferguson, “From Normalcy to New Deal: Industrial Structure, Party Competition, and American Public Policy in the Great Depression,” Industrial Organization 38, no. 1 (Winter 1984).

41 See G. William Domhoff, The Power Elite and the State: How Policy is Made in America (New York: Aldine de Gruyter, 1990), pp. 113–41; 159–81.

42 This crucial difference was precisely the most important insight of the classic work by Frank H. Knight, Risk, Uncertainty and Profit, 3rd ed. (London: London School of Economics, [1921] 1940).

43 Traditionally, money and banking textbooks list three forms of Fed control over the reserves, and hence the credit, of the commercial banks: in addition to reserve requirements and open market operations, there is the Fed's “discount” rate, interest rate charged on its loans to the banks. Always of far more symbolic than substantive importance, this control instrument has become trivial, now that banks almost never borrow from the Fed. Instead, they borrow reserves from each other in the overnight “federal funds” market.

44 Some champions of the free market advocate “privatizing” deposit insurance instead of abolishing it. As we have seen above, however, fractional-reserve bank deposits are in no sense “insurable.” How does one “insure” an inherently insolvent industry? Indeed, it is no accident that the first collapse of Saving and Loan deposit insurance schemes in the mid-1980s took place in the privately-run systems of Ohio and Maryland. Privatizing governmental functions, while generally an admirable idea, can become an unreflective and absurd fetish, if the alternative of abolition is neglected. Some government activities, in short, shouldn't exist at all. Take, for example, the government “function,” prevalent in the old Soviet Union, of putting dissenters into slave labor camps. Presumably we would want such an activity not privatized, and thereby made more efficient, but eliminated altogether.