Here’s a reply I just wrote to an email asking me where a certain person got the idea that the economy was in recession 40% of the time in the nineteenth century.  I am calling the person X, because he’s about the most uncharitable (and uncomprehending) antagonist I’ve ever faced — yes, even a genial guy like me has antagonists — and I’m all done dealing with him.

“I’d tell you where he gets it from, but my answer would be too crude.  X is a real estate agent who knows as much about nineteenth-century economic history as any other real estate agent.  (I am not saying real estate agents are ignorant, you understand, but that they tend not to be experts in this highly specialized area.) Yes, there were recessions, but contemporaries correctly blamed them on excessive issue of bank credit, often pushed by federally chartered national banks.  Austrians oppose this kind of activity in the first place, so X proves nothing by citing these panics.  Rothbard shows in his book The Panic of 1819 (Columbia University Press, 1962) that many people decided, in the wake of that panic, that the best policy was 100% reserve banking in a completely private system.  We never got that.  That system, say many Austrians, is the only one that would put a stop to the boom-bust cycle.

“X probably still believes in the ‘Long Depression’ of the 1870s.  He and everyone else who hasn’t kept up with the literature.  No professional economic historian believes that fable any longer.  Heck, even the New York Times admits it was bogus. Rothbard nailed that one, too, way ahead of the rest of the profession (as usual), but we are not allowed to mention the wicked Rothbard except for purposes of distortion and ridicule.  (The relevant material can be found in Rothbard’s posthumously released book A History of Money and Banking in the United States: The Colonial Era to World War II, which collects some of his writings on such subjects from over the years.)

“Yes, there were bank panics, but naturally X doesn’t consider (because he probably doesn’t know) how rare those panics were in other countries.  Bank panics, says one historian, were a ‘curiosity’ elsewhere in the world after the Civil War, but fairly regular in the U.S.  This is because of the free market, X probably thinks, though I’d love to hear his theory.  In fact, it’s because of precisely the unit banking laws that his distributism would demand.  To keep banks small and local — an effort that warms X’s heart — many states made it illegal for any bank to have more than one office.  That made them all extremely fragile and undiversified.  During the Great Depression, 9000 U.S. banks failed.  In Canada, which had no unit banking laws, zero banks failed.

“Thus it was precisely the kind of ‘small is beautiful’ legislation X would fasten upon us that caused the problem in the first place.

“Funny, too, that X supports the Fed!  He thinks the Fed has been a great stabilizer.  This is because he knows nothing about nineteenth-century American economic history.  The statistics that allegedly show greater economic instability in the 19th century are, as competent economists know, not worth a hill of beans.  Christina Romer has shown this again and again.  When you isolate how much of the instability was caused by monetary factors and how much by supply factors in an agricultural economy, it’s overwhelmingly the latter that’s the culprit in the 19th century.  In the 20th century, on the other hand, the instability is overwhelmingly attributable to monetary factors.

“I say it’s funny that X supports the Fed because as a distributist shouldn’t he be against a nationwide banking cartel directed monopolistically by one institution?  Just wondering.”

cross-posted from

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