AGD

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Jon Irenicus Posted: Tue, Jan 13 2009 11:32 AM

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Hmm a friend stumbled on this review of AGD today on the Mises store:

America's Great Depression
The best review I've seen on this book, and a very fact detailed criticism of it, is at Amazon.com. Rutner puts his finrger directly the problem by quoting Rothbard: "(xxxix f.): "... I make no pretense of using the historical facts to "test" the theory. On the contrary, I contend that economic theories cannot be 'tested' by historical or statistical fact. ... The only test of a theory is the correctness of the premises and the logical chain of reasoning." How can you analyze a factuial event without analyzing the facts that constitute the run-up to the event? Rutner's review goes through each of the faulty facts presumed by Rothbard as being true and shows which ones were true and which ones were false. I've reprinted Rutner's critique below in full. Until somebody refute's Rutner's analysis of Rothbard's book with an analysis as detailed and meticulous as Rutner's, I can only accept Rutner as the last word. Can anyone at the von Mises Institute refute this for us?

By Jack L. Rutner (Silver Spring, MD USA) - See all my reviews Murray Rothbard's book, America's Great Depression, is really two books in one. One is a very bad book. It purports to use economic tools to explain how the Great Depression came to be. The other is a potentially very good book. What is suggests is that Herbert Hoover, although well intended, engineered a bad situation into a catastrophe. Overall, I do not recommend the book to the general public as having a good explanation of why events of the 1920s led to the Great Depression, nor would I recommend it to the general public as an exemplar of good economic thinking. But I do recommend it to my fellow economists as an exemplar of how not to do economics. The bad book occupies the introductions to each of Rothbard's five editions of the book (the last published posthumously, and with an introduction by Paul Johnson), and then the first six chapters. From those introductions, it is apparent that Rothbard was a follower of Ludwig von Mises' Austrian school of economic "thinking," a school that apparently believes, economics can be a fact-free science. That can be seen in Rothbard's Introduction to the First Edition where he wrote (xxxix f.): "... I make no pretense of using the historical facts to "test" the theory. On the contrary, I contend that economic theories cannot be 'tested' by historical or statistical fact. ... The only test of a theory is the correctness of the premises and the logical chain of reasoning." If that is indeed the Misesian-school's thinking, I question what kind of theory and what kind of economics can be produced by its fact-free science. Unlike Athena and Zeus, truth cannot spring from von Mises' head unvarnished by observation, and it cannot do so from anyone else's head for that matter. After all, how did von Mises first get to the theory he proposed, and Rothbard used, without actually having observed facts on the ground. In the end, truth needs recourse to facts and observations, and to refutable hypotheses. It is the scientist's task to tease the evidence, or lack thereof, from recalcitrant facts and observations for the hypothesis or theory being proposed. Absent that, all one is left with is fact-free science, which is no science at all. It is simply assertion papered over by an ideological just-so story. In that regard, the Misesian-school appears to be no better than the Marxian school (although ideologically, the polar opposite).

If Rothbard represented the Misesian-school accurately, I would dismiss that school's approach as being theory without measurement, in the same way, as in my graduate days, that we dismissed measurement without theory. To show how misleading fact-free science can be, I recall a famous story about Albert Einstein and quantum mechanics. Einstein, using a thought experiment in 1935 (the so-called EPR paradox) had proposed a seemingly irrefutable test about particles in quantum mechanics. The paradox was impossible to test with the equipment available at the time, and so stood for quite a while. Only in the 1970s and later, with the advent of high-energy cyclotrons, did the paradox become testable and indeed was refuted. Of course, Rothbard's book is not entirely fact-free. He did use some historical facts to 'test' the theory, or at a minimum, to demonstrate its validity. He did that despite his contention that economic theories cannot be "tested" by historical or statistical fact. I find the difference between what he said he would not do and what he did to be most puzzling.

Rothbard's book, in its first part, contains much that was ill defined, seemingly inconsistently defined, or downright misleading. Also, there seems to have been too narrow a focus on component parts, coupled with a unwillingness to look at larger and possibly more pertinent aggregates. The book has other areas of confusion as well, but those are of less import, and I will skip them in the interest of brevity. In Chapter 1 of the book, we come across the first of Rothbard's confusing and ill-defined terms. It is in the context of the hypothesis he sets as to the economic theory behind what caused the Great Depression. According to Rothbard, the hypothesis depends on von Mises' view that bank credit expansion will lead to a series of investment errors that turn out to be "malinvestment in higher-orders of production." One can ask, what are "higher-order of production"? Rothbard definition was: investment in capital-goods "most remote from the consumer"(10). What does that mean? Can one consider investment in farmland, a form of capital, as investment in a higher-order of production, insofar as farmland can be pretty remote from the consumer? I doubt that is what Rothbard had in mind. The next question is, what is "malinvestment," and how does it lead to a downturn in the economy? As to the question's first part, what is the definition of malinvestment, frankly, it was never clear to me, being based on the already ill-defined notion of "higher-orders of production." As to the question's second part, Rothbard's reasoning there seems to fail his "logical chain of reasoning." Rothbard's reasoning was that the decline in demand for higher-orders of production is accompanied by an increase in demand for lower-orders of production (whatever that means) and that is what leads to an economic downturn. But that is not logical. When one component of demand is increasing while another is decreasing, why should demand in the aggregate decline? Only a decline in aggregate demand will lead to an overall decline in profits and employment. Otherwise, all we are talking about is a change in the composition of demand, not a change in its total. Rothbard's focus on that component of demand he called, "malinvestment," to the exclusion of other components does not logically explain why the total should decline. If the Misesian hypothesis is that a single component's decline reduces total demand, the burden of proof is on Rothbard, or members of the Misesian-school, to provide first, a tight definitions of terms and then observable evidence to support the hypothesis. Otherwise, all they have done is engage in just-so fables.

Another definition Rothbard used, one that I think is highly misleading, was his definition of "inflation." When I first skimmed through the book, I thought Rothbard had used it as it has been historically used, to mean price inflation. So, I then wondered, what inflation was he talking about? That's because the 1920s was a period of mild deflation in most prices, except for farm land prices, which declined significantly, and for stock prices, which increased significantly. Only upon reading the book carefully did I discover the peculiar meaning Rothbard attached to the term, "inflation." It can be found on p. 12, n.8: " 'Inflation' is here defined as an increase in the money supply not consisting of an increase in the money metal." So, any increase in non-metallic money was for Rothbard, by definition, "inflation." (Some of the reviewers, I observed, do not seem to have noticed Rothbard's odd definition of the term.) Rothbard's terminology was and is downright confusing. The term, inflation, first came into use in the US in the late 1830s when it meant what it means today. (The precise definition is in: Online Etymology Dictionary, © 2001 Douglas Harper: "Monetary sense of, enlargement of prices - originally by an increase in the amount of money in circulation.") In contemporary terminology, it means an increase in the price of good in services. In the 1920s and 1930s, it seemed to have meant an increase in stock prices. (See Amity Shlaes' The Forgotten Man, p. 4.) No twentieth-century economist I know of has ever used the term as Rothbard did. The meaning Rothbard assigned to the term "inflation" may have in part stemmed from the Misesian thought that bank credit expansion leads to business cycles.

But I think the primary reason he used the term was his animus to fractional-reserve banking in general, and to central banks in particular. Specifically, Rothbard saw fractional-reserve banking as being "fraudulent" (25). He would have had the government outlaw fractional-reserve banking by imposing 100% gold reserves on deposits. I find it odd that Rothbard, who professed to be a libertarian, saw no contradiction here between his recommending the use of the heavy-hand of the government to override the people's own decision-making and his own libertarian principles. What I have to conclude is that he viewed depositors as incapable of making decisions in their own best interests. Of course, one can ask, why stop with having government imposing its will in this area? Go the whole hog and become a true Marxist. Have government impose its will in all areas by making all the decisions for the public. I, though, take the opposite view. People have to be considered as capable of making their own decisions and as having responsibility for them. In the field of banking, depositors have to be considered as knowing what's going on, and as being willing participants in fractional-reserve banking. That's because they benefit immensely from fractional reserve banking, with the primary benefit being the reduction in the costs of holding and using money. As a contrafactual, suppose depositors don't want to use fractional-reserve banking. They could always hold cash balances in a vault in their homes or offices or factories. For transactions needing checks, they could go to the bank for cashiers' checks. All that, though, is expensive and inconvenient, which is why depositors use banks whose reserves are just a fraction of deposits. I would also have to conclude here that, not only was Rothbard apparently an ideologue, he was an elitist. Because he thought he knew better, he wanted to make people toe the line for what is good for them. Again, that is not very different from Marxism wherein the leaders supposedly know just the right kind of goods and services to produce for the people (who, though, never seem to concur).

Chapter 4, titled, "The Inflationary Factors," is the heart of the bad part of the book. Rothbard opened the chapter by describing what he thought would happen in the absence of fractional-reserve banking. Specifically, he said (86): "For a hallmark of the inflationary boom is that prices are higher than they would have been in a free and unhampered market." (He of course revealed there that he misunderstood the difference between the level, and the rate of increase of prices. Interpreting a free and unhampered market to mean a market with 100 percent gold reserves for deposits, prices would indeed be higher with fractional-reserve banking, but in an inflationary boom - meaning one where the money supply increases rapidly and relative to gold reserves - prices would not only be higher, they would be increasing faster than they otherwise would have.) But even before the advent of the US current central bank, the Federal Reserve, there never was a period in US history without fractional-reserve banking and with the market being totally free and unhampered. Below I will compare the period 1899-1912, when the market was more free and less hampered, with the period of the 1920s. That is because the first period was prior to the Federal Reserve's establishment, and the second was afterwards when the market was, supposedly, less free and more hampered. The inflation (of the money supply) of the 1920s on which Rothbard dwelled can be found in Table 1 of chapter 4 (p. 92). To measure inflation of the money supply, Rothbard used a very broad definition of money that included life insurance net policy reserves. While I have seen many definitions of money, I have never seen one like that. Of course, one is free to use any definition one wants, but it has to be grounded in some observable relationship. But Rothbard's approach, that hypotheses and definitions "cannot be 'tested' by historical or statistical fact," precluded his doing so. If we stick with the usual definitions of money for that period, either M2 or M2 + S&L deposits, we find that the money supply grew respectively by 45 to 43 percent in the 1920s. (Rothbard's inclusion of life insurance net policy reserves and S&L capital rather than deposits, increases that number to about 63 percent.) Of course, one could ask, what was the increase in the period 1899-1912, prior to the Federal Reserve's establishment? The respective increases turn out to be, 149 and 132 percent. At a compound annual rate, the numbers for the 1920s are respectively, 4.5 and 4.8 percent, while for the period 1899-1912, they are, respectively, 7.3 and 6.7 percent. (For consistency, I would have compared Rothbard's definition that included life insurance but I did not have data on life insurance for the earlier period; also, again, for purposes of consistency, the data I used were from Table A-1 pp. 704-711 of Friedman and Schwartz's, A Monetary History of the United States, 1867-1960.)

Clearly, there is nothing outlandishly large about the money supply growth of the 1920s to get very exercised about. Again Rothbard's narrow focus on a particular datum for a short period turns out, on the surface, not to have any explanatory power. In both periods, one contributing factor to money supply growth was that both banks and depositors chose to increase the ratio of deposits to reserve money each held (currency plus bank reserves, also called, high-powered money or the monetary base). The difference in the two periods is that reserve money grew more rapidly in the first period than in the second period. In the first period, reserve money grew at a 4.8% annual compound rate while in the second period, it grew at a compound annual rate of slightly more than 1%. Not surprisingly, prices in the first period rose faster in than in the 1920s. (Specifically, from 1899 to 1912 wholesale prices rose 32 percent while from 1921 through 1929 they fell 2.5%!) What we see here is that the 1920s, being less free and more hampered can, sometimes bring about a modest deflation compared to a period that was more free and less hampered. One can see what happens when fact-free science comes to face to face with pesky little facts. If chapter 4 is the heart of the bad book, Table 7 on p. 109 is the heart of chapter 4. It was from the data in that table, that Rothbard argued (108): "...the inflation [in money] was clearly precipitated deliberately by the Federal Reserve. The plea that the 1920s was simply a 'gold inflation' that the Federal Reserve did not counter actively is finally exploded." His reasoning was that "controlled reserves increased by $1.79 billion for the entire period and that exceeded the monetary gold stock's increase of $1 billion." The problematic aspect with the 'controlled reserves' in Table 7 is that Rothbard's never provided a definition for controlled reserves. While he did provide some computations pertinent to controlled reserves on p. 113, when those computations are applied consistently throughout Table 7, the figures do not add to the amounts he termed there, controlled reserves. Another way of looking at what Rothbard was describing can be found Chart 25 on p. 282 of Friedman and Schwartz's Monetary History. The chart demonstrates the opposite of Rothbard's claim. It makes it quite clear that what the Fed was attempting to do was to use Federal Reserve credit to offset changes in monetary gold stocks that were occurring at the time. Based on the modest growth of reserve money, we would have to say they were somewhat successful.

Another problematic aspect raised by Table 7 is its narrow focus on reserves held at the Federal Reserve by banks that are members of the Federal Reserve system. He did not account for the vault cash of the members or the reserves of the non-members. By focusing just on those reserves, he gave a skewed accounting of the increase in bank reserves. By Rothbard's accounting, reserves increased by 47.5 percent from June 1921 through June 1929. (See his Table 6, 102.) When all bank reserves are taken into account, though, the increase comes to 27.5%; and when all reserve money is taken into account, the increase is just 8.4 percent. (See, respectively, Table A-2, 738f., and Table B-3, 802f., of the Monetary History.) Again Rothbard's focus on a specific component, rather than on the total, presents results that can be viewed as misleading. A slightly different explanation of what happened is that individuals had a greater preference for bank money than currency in the 1920s, and so they converted their currency into bank money. Comparably, the banks had a greater preference for reserves at the Federal Reserve then they did for vault cash, so they, in effect, transferred any new funds received from the public into reserves at the Federal Reserve. The increase, than, in reserves held at the Federal Reserve was not so much an increase engendered by the Federal Reserve, but simply the workings of banks and depositors preferring one form of money to another. After chapter 6, we enter into Rothbard's discussion of Hoover's actions. Although he did occasionally discuss actions by the Federal Reserve in those chapters, his primary focus was on Hoover. This part of the book is potentially very good. It provided me with a good deal more insight into what could have made the Great Depression, great. Unfortunately, Rothbard, in accordance with his school's thinking, did not do a full analysis of Hoover. More statistical work would have been necessary, and that is why this part remains only potentially very good.

Rothbard's description of Hoover painted him as an interventionist, a Roosevelt-lite character. According to Rothbard, Hoover attempted to prevent prices and wages from falling. When demand declines, though, both attempts are futile and just stave off the day of reckoning. Hoover may have been partially successful in preventing prices from falling far enough and fast enough. From 1929 to 1933, wholesale prices fell by about 25%. By comparison, in the previous recession in 1920, wholesale prices fell by 37% in the course of one year. Hoover's success on keeping wages from declining is less clear (especially because good wage indexes do not exist for that time). From 1929 to 1933, average hourly earnings in all industries fell by 25% while in the two years from 1920 to 1922 they fell by 15%. For both periods, the compound annual decline is amazingly close, about 7% per year. Hoover's intentions may have been noble, but all he did was to engineer the economy so it could not adjust to the decline in demand What about the Smoot-Hawley tariff, which many today blame for the Great Depression? The ostensible reason for the tariff was to help farmers, but if US imports are reduced, it becomes harder for farmers to sell products overseas. (Foreign importers won't have the foreign exchange available to buy the farm products.) Rothbard thought it contributed mightily to the Depression. His evidence was the opposition of almost all the economists and the fact that the market broke after the tariff was signed into law (241f.).

That though does not constitute evidence. The market's having sunk is by itself not evidence. The old saw of, correlation is not causation is at work here. The fact that many economists opposed the tariff is also not evidence. Indeed, Rothbard did not accept stable prices as being a beneficial goal of monetary policy despite many economists having recommended it as policy. Moreover, there was an earlier tariff, the Fordney-McCumber Tariff, which went into effect in 1922, and was just as onerous as Smoot-Hawley. Yet, it seems not to have caused any lasting real effects. Rothbard, without having done any of the heavy lifting with regard to analyzing the costs of the Smoot-Hawley, then stated (241)" ... it was at a precarious time of depression that the Hoover administration chose to hobble international trade, injure the American consumer, and cripple the American farmers' export markets by raising tariffs higher than their already high levels." This is economics by assertion. It proves nothing.

Anyone willing to dissect it? I noticed it's very weak on epistemology from the get-go (just a typical slightly educated person thinking they've suddenly gained the expertise to comment on things outside their purview, with little to no understanding of what they're criticizing.) It's a wall of text unfortunately (so I've not bothered reading most of it.)

Source.

PS: Formatted it a bit.

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wombatron replied on Tue, Jan 13 2009 11:44 AM

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I stopped reading when he (Rutner) implied that praxeology is a "fact-free" science.  I suppose that logic and mathematics are also fact-free, then?

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Jon Irenicus replied on Tue, Jan 13 2009 11:49 AM

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It's pure ignorance. I find it funny that the reviewer takes this as "decisive" in absence to a response as "meticulous" as it is. If he can't post a review of his own, how does he know he could even judge it to be an adequate "last word"? Anyone can write up walls of text.

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nibbler491 replied on Tue, Jan 13 2009 7:43 PM

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I can see quite a few problems already...like him not knowing what an a priori theory is, but I do not have the economic expertise to go through and refute the whole thing point by point.

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nibbler491 replied on Tue, Jan 13 2009 11:37 PM

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Would someone be willing to write up a refutation of this? I'd really appreciate it.

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wombatron replied on Tue, Jan 13 2009 11:48 PM

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Ugh.  His epistemology fails, he doesn't understand why history cannot "prove" theory in the case of economics, he doesn't understand why "inflation" is the increase in money supply, he seems to think that a 100% gold standard is evidence of statism in Rothbard's thought (!), and he ascribes Rothbard's dislike of FRB to elitism and blind ideology.  I don't even think he read the whole thing, to be honest.  Not a rigorous refutation, but it really doesn't merit it.

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BlackNumero replied on Wed, Jan 14 2009 4:12 PM

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Hmm a friend stumbled on this review of AGD today on the Mises store:

By Jack L. Rutner (Silver Spring, MD USA) - See all my reviews Murray Rothbard's book, America's Great Depression, is really two books in one. One is a very bad book. It purports to use economic tools to explain how the Great Depression came to be. The other is a potentially very good book. What is suggests is that Herbert Hoover, although well intended, engineered a bad situation into a catastrophe. Overall, I do not recommend the book to the general public as having a good explanation of why events of the 1920s led to the Great Depression, nor would I recommend it to the general public as an exemplar of good economic thinking. But I do recommend it to my fellow economists as an exemplar of how not to do economics. The bad book occupies the introductions to each of Rothbard's five editions of the book (the last published posthumously, and with an introduction by Paul Johnson), and then the first six chapters. From those introductions, it is apparent that Rothbard was a follower of Ludwig von Mises' Austrian school of economic "thinking," a school that apparently believes, economics can be a fact-free science. That can be seen in Rothbard's Introduction to the First Edition where he wrote (xxxix f.): "... I make no pretense of using the historical facts to "test" the theory. On the contrary, I contend that economic theories cannot be 'tested' by historical or statistical fact. ... The only test of a theory is the correctness of the premises and the logical chain of reasoning." If that is indeed the Misesian-school's thinking, I question what kind of theory and what kind of economics can be produced by its fact-free science. Unlike Athena and Zeus, truth cannot spring from von Mises' head unvarnished by observation, and it cannot do so from anyone else's head for that matter. After all, how did von Mises first get to the theory he proposed, and Rothbard used, without actually having observed facts on the ground. In the end, truth needs recourse to facts and observations, and to refutable hypotheses. It is the scientist's task to tease the evidence, or lack thereof, from recalcitrant facts and observations for the hypothesis or theory being proposed. Absent that, all one is left with is fact-free science, which is no science at all. It is simply assertion papered over by an ideological just-so story. In that regard, the Misesian-school appears to be no better than the Marxian school (although ideologically, the polar opposite).    

If Rothbard represented the Misesian-school accurately, I would dismiss that school's approach as being theory without measurement, in the same way, as in my graduate days, that we dismissed measurement without theory. To show how misleading fact-free science can be, I recall a famous story about Albert Einstein and quantum mechanics. Einstein, using a thought experiment in 1935 (the so-called EPR paradox) had proposed a seemingly irrefutable test about particles in quantum mechanics. The paradox was impossible to test with the equipment available at the time, and so stood for quite a while. Only in the 1970s and later, with the advent of high-energy cyclotrons, did the paradox become testable and indeed was refuted. Of course, Rothbard's book is not entirely fact-free. He did use some historical facts to 'test' the theory, or at a minimum, to demonstrate its validity. He did that despite his contention that economic theories cannot be "tested" by historical or statistical fact. I find the difference between what he said he would not do and what he did to be most puzzling.

I think this guy is confusing the meaning of what Rothbard and Mises meant. By "Fact-free science", as he calls it, Rothbard and Mises meant that one cannot simply look at statistics as correlation does not equal causation. Rothbard also states in the book that other factors can and sometimes always will be present as well.

 

Rothbard's book, in its first part, contains much that was ill defined, seemingly inconsistently defined, or downright misleading. Also, there seems to have been too narrow a focus on component parts, coupled with a unwillingness to look at larger and possibly more pertinent aggregates. The book has other areas of confusion as well, but those are of less import, and I will skip them in the interest of brevity. In Chapter 1 of the book, we come across the first of Rothbard's confusing and ill-defined terms. It is in the context of the hypothesis he sets as to the economic theory behind what caused the Great Depression. According to Rothbard, the hypothesis depends on von Mises' view that bank credit expansion will lead to a series of investment errors that turn out to be "malinvestment in higher-orders of production." One can ask, what are "higher-order of production"? Rothbard definition was: investment in capital-goods "most remote from the consumer"(10). What does that mean? Can one consider investment in farmland, a form of capital, as investment in a higher-order of production, insofar as farmland can be pretty remote from the consumer? I doubt that is what Rothbard had in mind. The next question is, what is "malinvestment," and how does it lead to a downturn in the economy? As to the question's first part, what is the definition of malinvestment, frankly, it was never clear to me, being based on the already ill-defined notion of "higher-orders of production." As to the question's second part, Rothbard's reasoning there seems to fail his "logical chain of reasoning." Rothbard's reasoning was that the decline in demand for higher-orders of production is accompanied by an increase in demand for lower-orders of production (whatever that means) and that is what leads to an economic downturn. But that is not logical. When one component of demand is increasing while another is decreasing, why should demand in the aggregate decline? Only a decline in aggregate demand will lead to an overall decline in profits and employment. Otherwise, all we are talking about is a change in the composition of demand, not a change in its total. Rothbard's focus on that component of demand he called, "malinvestment," to the exclusion of other components does not logically explain why the total should decline. If the Misesian hypothesis is that a single component's decline reduces total demand, the burden of proof is on Rothbard, or members of the Misesian-school, to provide first, a tight definitions of terms and then observable evidence to support the hypothesis. Otherwise, all they have done is engage in just-so fables.

Another definition Rothbard used, one that I think is highly misleading, was his definition of "inflation." When I first skimmed through the book, I thought Rothbard had used it as it has been historically used, to mean price inflation. So, I then wondered, what inflation was he talking about? That's because the 1920s was a period of mild deflation in most prices, except for farm land prices, which declined significantly, and for stock prices, which increased significantly. Only upon reading the book carefully did I discover the peculiar meaning Rothbard attached to the term, "inflation." It can be found on p. 12, n.8: " 'Inflation' is here defined as an increase in the money supply not consisting of an increase in the money metal." So, any increase in non-metallic money was for Rothbard, by definition, "inflation." (Some of the reviewers, I observed, do not seem to have noticed Rothbard's odd definition of the term.) Rothbard's terminology was and is downright confusing. The term, inflation, first came into use in the US in the late 1830s when it meant what it means today. (The precise definition is in: Online Etymology Dictionary, © 2001 Douglas Harper: "Monetary sense of, enlargement of prices - originally by an increase in the amount of money in circulation.") In contemporary terminology, it means an increase in the price of good in services. In the 1920s and 1930s, it seemed to have meant an increase in stock prices. (See Amity Shlaes' The Forgotten Man, p. 4.) No twentieth-century economist I know of has ever used the term as Rothbard did. The meaning Rothbard assigned to the term "inflation" may have in part stemmed from the Misesian thought that bank credit expansion leads to business cycles.

I don't think he really understands the business cycle very well. While Rothbard's term of inflation might seem a little weird concerning (non metal), we all know that inflation of prices is always somehow liked to an increase in the money supply. I guess he is stuck in the Keynesian world.

But I think the primary reason he used the term was his animus to fractional-reserve banking in general, and to central banks in particular. Specifically, Rothbard saw fractional-reserve banking as being "fraudulent" (25). He would have had the government outlaw fractional-reserve banking by imposing 100% gold reserves on deposits. I find it odd that Rothbard, who professed to be a libertarian, saw no contradiction here between his recommending the use of the heavy-hand of the government to override the people's own decision-making and his own libertarian principles. What I have to conclude is that he viewed depositors as incapable of making decisions in their own best interests. Of course, one can ask, why stop with having government imposing its will in this area? Go the whole hog and become a true Marxist. Have government impose its will in all areas by making all the decisions for the public. I, though, take the opposite view. People have to be considered as capable of making their own decisions and as having responsibility for them. In the field of banking, depositors have to be considered as knowing what's going on, and as being willing participants in fractional-reserve banking. That's because they benefit immensely from fractional reserve banking, with the primary benefit being the reduction in the costs of holding and using money. As a contrafactual, suppose depositors don't want to use fractional-reserve banking. They could always hold cash balances in a vault in their homes or offices or factories. For transactions needing checks, they could go to the bank for cashiers' checks. All that, though, is expensive and inconvenient, which is why depositors use banks whose reserves are just a fraction of deposits. I would also have to conclude here that, not only was Rothbard apparently an ideologue, he was an elitist. Because he thought he knew better, he wanted to make people toe the line for what is good for them. Again, that is not very different from Marxism wherein the leaders supposedly know just the right kind of goods and services to produce for the people (who, though, never seem to concur).

Here is where he makes some big bo boos. First, he misunderstands what Rothbard wanted. I don't think Rothbard wanted government to enforce strict deposits in a regulatory sense, but to create that through charging bankers with fraud and embellzement if they commit FRB. Secondly, he assumes that everyone knows exactly how the banking system of today works, which I find to be incredibly short sighted and stupid, as some people who work in the banking industry have no idea how the system runs. (he seems like the elitist here). Thirdly, except for holding precious metals or such that we do not want to keep in a bank, in today's environment it is stupid to keep cash in your house. When banks can give you interest, why not? And in today's world, if a bank run would occur, the government would allow the banks to suspend payment or something. Not that I agree with that though.

This is all I can do for now. But we should definately tackle this as to prevent more people from picking this information up.

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BlackNumero replied on Wed, Jan 14 2009 4:18 PM

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I think it would also be good for people to comment on his 1900-1912 stuff...that seems like a killer to this. I can't do this now, but thats probably the most important thing to tackle...

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Smiling Dave replied on Thu, Aug 5 2010 10:08 AM

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We'll get to the gist of the arguments, ignoring the unsupported statements ["it's a bad book"] and the personal attacks. Each paragraph gets its own post.

First paragraph. 1. Rothbard claims that if your premises are correct, and your chain of reasoning is correct then your conclusions MUST be true. This is not some crank notion of Rothbard's. Anyone who has studied logic or math or is possesed of enough common sense knows this to be indisputable.

To understand what Rutner is doing if he is challenging this statement as a whole, imagine that Euclid has just published his book on geometry. Rutner would dismiss it out of hand. "How can you tell me that without going out there measuring the hypotenuse of a triangle, you can know it's length from the other two sides? Who do you think you are, Athena and Zeus, popping stuff out of your head?

Luckyily for Rutner, he is quite vague about the specifics of his criticism. He doesn't come right out totally explicitly and disagree with this [though I suspect it's what he really means], which would prove him to posess the intellectual level of a jungle savage. 

Instead one can be generoous and interpret his criticism to be a challenge to Rothbard's premises. How can one have true premises without getting out there in the real world and counting and measuring? It is impossible! Sorry, Charlie, expressing generalized incredulity is not the way to disprove a premise. You have to state the specific premise, and show us why is it is untrue, or at least questionable. Of course he did not do this, because the premises are indeed rock solid. Things like "People try to get what they want." "All other things being equal, people would prefer to pay less for what they buy than more."

He then asks "How did you discover this, if not from facts on the ground?" Mr Rutner, just because you do not know HOW they came up with this, you are not disproving what they say. Show us where the premises are faulty, where the chain of reasoning of faulty, and then you can dismiss the book. Nothing else is relevant.

He continues "In the end, truth needs recourse to facts and observations, and to refutable hypotheses." What are the facts and observations and refutable hypotheses that led you to this truth, Mr Rutner? You have none. Does your criticism apply to the truths of Geometry or Abstract Mathemetics or Logic? I didn't think so.

"But Abstract Math has nothing to do with the real world. It's just some nonsense in someone's head." Really? So Probability Theory has no application to the real world? OK.

He goes on "It is the scientist's task to tease the evidence, or lack thereof, from recalcitrant facts and observations for the hypothesis or theory being proposed. Absent that, all one is left with is fact-free science, which is no science at all. It is simply assertion papered over by an ideological just-so story."

Way to go, Mr Rutner, you have just destroyed Euclidian geometry. HAHAHA, fool.

OK, next post and next paragraph:

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Smiling Dave replied on Thu, Aug 5 2010 10:33 AM

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Second paragraph:

1. Just as measurement without theory is bad science, so is theory without measurement. Have you studied logic, Mr Rutner? That's like saying "Just as mayonaisse without tuna fish contains no protein, so tuna fish without mayonaisse contains no protein."

2. There follows some irrelevant mumbo jumbo about the EPR experiment, where Mr Rutner proves he does not know what he studied in grad school. There was no refutation of the EPR paradox from cyclotrons in the 1970's. As proof, check this link out, and note that there is no mention of cyclotrons in the 1970's disproving anything, or at any other time. Also note the dates of the sources cited, some as late as 2001.

3. Mr Rutner then fails to understand why Rothbard "did use some historical facts to 'test' the theory, or at a minimum, to demonstrate its validity. He did that despite his contention that economic theories cannot be "tested" by historical or statistical fact." Mr Rutner is very puzzled by this.

Let me explain. It is a peculiarity of the human race that we "feel better" somehow when we see verification of an abstract theory with concrete instances. That's all Mr Rothbard was doing, helping us accept the abstract argument, even though the theory does NOT depend on verification. We know [or should know] that Euclid was right about triangles without measuring them. But we feel better if we go out there and try a few traingles and see he is right.

Next post: paragraph 3.

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Jonathan M. F. Catalán replied on Thu, Aug 5 2010 10:53 AM

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I wrote a reply to this, but I lost it when the original server my blog was hosted on was hacked.  I just want to clarify on Rothbard's use of history and theory.  Rothbard is not validating Austrian business cycle theory by applying it to the Great Depresion, he is only illustrating it.  He is interpreting historic events through the use of history.  By itself, the Great Depression does not and cannot prove Austrian business cycle theory correct.

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Smiling Dave replied on Thu, Aug 5 2010 6:49 PM

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Paragraph 3.

After an introductory statement about how Rothbard was out to confuse us with ill defined terms, ignoring the all important aggregates that really count [an unsupported assertion, btw], we get down to the nitty gritty. Here are the most important places where Rothbard blew it, according to Mr Rutner.

1. Rothbard left us in the dark about the meaning of "higher-order of production", saying only that it is investment in capital-goods "most remote from the consumer"(10).

OK. I read the book, especially page 10. And I will be up front, that I know what "higher order goods" and "most remote from the consumer" mean from Grayson Lilburne's Human Action Comic Books. They didn't exist in Rothbard's day, but he does insert a footnote, and I quote, "7 On the structure of production, and its relation to investment and bank credit, see F.A. Hayek, Prices and Production (2nd ed., London: Routledge and Kegan
Paul, 1935); Mises,  Human Action;  and Eugen von Böhm-Bawerk, “Positive Theory of Capital,” in Capital and Interest (South Holland, Ill.: Libertarian Press, 1959), vol. 2." So you can find it out from there.

But even without that footnote, he makes it pretty clear that the boom makes people invest more in capital goods and less in consumer goods. That's what really counts. And Mr Rutner should have been able to follow the discussion just from that. Here is the relevant paragraph, on page 11:

"Businessmen take their newly acquired funds and bid up the prices
of capital and other producers’ goods, and this stimulates a shift of
investment from the “lower” (near the consumer) to the “higher”
orders of production (furthest from the consumer)—from con-
sumer goods to capital goods industries."

And even if we grant that Rothbard could have been clearer, dear reader, that is no reason for you not to buy the book. Read the short, free, entertaining Human Action Comics, and in five minutes you will know what Rothbard is talking about and be able to benefit form his wisdom.

2. The next concept under attack is malinvestment. Mr Rutner doesn't know what it means. OK guys. Here's a little quiz. What does "malinvestment" mean, based on this quote from from page 31?

"The essence of the credit-expansion boom is not overinvest-
ment, but investment in wrong lines, i.e., malinvestment."

How about this one, page 11?

" Higher orders of production have turned out to be
wasteful, and the malinvestment must be liquidated."

Wikipedia on "malinvestment" calls it investment in "hopelessly unproductive works". Well said, John Mills.

3. OK, now comes the biggy, where Rothbard blew it totally, even on his own terms of using logical thinking to arrive at conclusions. I mean, he just threw logic totally out the window here, according to Mr Rutner.

The question is, how does malinvestment cause a downturn in the economy?

Let's examine Rothbard's decline and fall step by step:

A. A downturn in the economy is the result of diminished aggregate demand. There is no other reason. [Rutner's unproven assertion].

B. Rothbard states that malinvestments cause a decline in demand for capital goods, but admits there is a corresponding increase in demand for consumer goods. Thus total aggregate demand is, according to Rothbard, unchanged.

C. Instead of using his noodle and putting A and B together to conclude there will be no downturn, Rothbard states illogically that the decline in demand for capital goods, just one little section of aggregate demand, is the one that counts, and is in and of itself enough to cause a downturn.

So Rothbard has been hoisted on his own petard here. Except that....

A. Rothbard destroys Rutner's unproven assertion that lack of aggregate demand causes a downturn, from page 56 on.

B. First of all, now that A is proven false, B is irrelevant. Second, I don't see Rothbard saying there is a corresponding increase in consumer demand. Only that it stays the same.

C. Once A and B fall apart, so does their invalid conclusion C.

So back to Rutner's question. How do malinvestments cause a downturn in the economy? The answer is very simple. Let's say half of everything in the United Staes was thrown into the sea. Would that cause a downturn in the economy? Of course it would. The standard of living would go down because the physical things that make a high standard possible just aren't there anymore.

Malinvestments are the same thing as throwing resouces into the sea. The resources are WASTED on making things nobody wants, so there are less resources left for making the things people do want. Duh. Plus, once people grasp they are wasting their time making useless stuff, they will fire all the workers who are making it. So that malinvestments create unemployment.

Stay tuned for the 4th paragraph next time.

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Smiling Dave replied on Thu, Aug 5 2010 7:06 PM

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Parargraph 4.

Here Rothbard is accused of distorting the meanings of words. He sneakily defines "inflation" as "an increase in the money supply not consisting of an increase in the money metal, as opposed to it's historical definition of  "price inflation". In fact, "No twentieth-century economist I know of has ever used the term as Rothbard did."

Sigh. Here's what Henry Hazlitt has to say on this subject in his book What You Should Know About Inflation, published in 1960, meaning about the time Rothbard published his book:

"Inflation, always and everywhere, is primarily caused by
an increase in the supply of money and credit. In fact,
inflation is the increase in the supply of money and credit.
If you turn to the American College Dictionary, for example,
you will find the first definition of inflation given as follows:
"Undue expansion or increase of the currency of a country,
esp. by the issuing of paper money not redeemable in specie."
In recent years, however, the term has come to be used
in a radically different sense. This is recognized in the
second definition given by the American College Dictionary:

"A substantial rise of prices caused by an undue expansion
in paper money or bank credit." Now obviously a rise of
prices caused by an expansion of the money supply is not
the same thing as the expansion of the money supply itself.
A cause or condition is clearly not identical with one of
its consequences. The use of the word "inflation" with these
two quite different meanings leads to endless confusion.
The word "inflation" originally applied solely to the
quantity of money. It meant that the volume of money was
inflated, blown up, overextended. It is not mere pedantry
to insist that the word should be used only in its original
meaning. To use it to mean "a rise in prices" is to deflect
attention away from the real cause of inflation and the real
cure for it."

So there you have it. A dictionary contemporary with the writing of Rothbard's book defines inflation exactly as he does.

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Smiling Dave replied on Thu, Aug 5 2010 7:35 PM

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Paragraph 5.

Here Rothbard's views on fractional reserve banking are attacked.

Firstly, Rothbard is contradicting his very own libertarian philosophy by having Big Brother insist that no one can use Fractional Reserve Banking, despite the fact that people want it. How elitist, presuming to know better than the common man what is good for him! Why not just be a Marxist altogether, and have the govt decide everything, chuckle chuckle.

I guess Rutner's copy of the book had page 27 ripped out, where Rothbard addresses precisely these objections. I reproduce part of the "missing" page here:

" Professor Mises, while recognizing the supe-
rior economic merits of 100 percent gold money to free banking,
prefers the latter because 100 percent reserves would concede to
the government control over banking, and government could eas-
ily change these requirements to conform to its inflationist bias.

But a 100 percent gold reserve requirement would not be just
another administrative control by government; it would be part
and parcel of the general libertarian legal prohibition against
fraud. Everyone except absolute pacifists concedes that violence
against person and property should be outlawed, and that agencies,
operating under this general law, should defend person and prop-
erty against attack. Libertarians, advocates of laissez-faire, believe
that “governments” should confine themselves to being defense
agencies only. Fraud is equivalent to theft, for fraud is committed
when one part of an exchange contract is deliberately not fulfilled
after the other’s property has been taken. Banks that issue receipts
to non-existent gold are really committing fraud, because it is then
impossible for all property owners (of claims to gold) to claim their
rightful property. Therefore, prohibition of such practices would
not be an act of government  intervention in the free market; it
would be part of the general legal defenseof property against attack
which a free market requires"

Since all this was apparently missing from Mr Rutner's copy of the book, he does not address it, but instead explains to us the great benefits of fractional reserve banking:

"...the primary benefit being the reduction in the costs of holding and using money. As a contrafactual, suppose depositors don't want to use fractional-reserve banking. They could always hold cash balances in a vault in their homes or offices or factories. For transactions needing checks, they could go to the bank for cashiers' checks. All that, though, is expensive and inconvenient, which is why depositors use banks whose reserves are just a fraction of deposits."

So you see , in Mr Rutner's world, there are only two choices: Either hide the money under your pillow and go to the bank for cashiers' checks, or put it in your friendly neighborhood fractional reserve bank for safety and security from theft, and get a nice checkbook to boot.

And this is supposed to be "the best review I've seen on this book, and a very fact detailed criticism of it.' Have people forgotten how to think?

Must I spell it out? OK I will. There is a third option. Put your money in a 100% reserve bank, and get a checkbook. Sheesh.

OK guys, that's it for paragraph 5. Paragraph 6 is going to be hard work. Till now this was a pushover. But paragraph 6 claims to have facts and figures directly contradicting Rothbard's assertions. Let's hope I can do it.

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Smiling Dave replied on Thu, Aug 5 2010 8:59 PM

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OK, a biggy, Paragraph 6.

First attack: Rothbard has no clue about "the difference between the level, and the rate of increase of prices" Let's see why:

Rothbard writes that "For a hallmark of the inflationary boom is that prices are higher than they would have been in a free and unhampered market."

Well, that was a pretty dumb thing to say, according to Mr Rutner.

But before we continue, let's quote the full trainwreck of Mr Rutner's criticism that begins this paragraph. Then things will become clearer.

"Chapter 4, titled, "The Inflationary Factors," is the heart of the bad part of the book. Rothbard opened the chapter by describing what he thought would happen in the absence of fractional-reserve banking. Specifically, he said (86): "For a hallmark of the inflationary boom is that prices are higher than they would have been in a free and unhampered market." (He of course revealed there that he misunderstood the difference between the level, and the rate of increase of prices. Interpreting a free and unhampered market to mean a market with 100 percent gold reserves for deposits, prices would indeed be higher with fractional-reserve banking, but in an inflationary boom - meaning one where the money supply increases rapidly and relative to gold reserves - prices would not only be higher, they would be increasing faster than they otherwise would have.)"

Here's the full quote from Rothbard:

"Similarly, the designation of the 1920s as a period of inflation-
ary boom may trouble those who think of inflation as a rise in
prices. Prices generally remained stable and even fell slightly over
the period. But we must realize that two great forces were at work
on prices during the 1920s—the monetary inflation which pro-
pelled prices upward and the increase in productivity which low-
ered costs and prices. In a purely free-market society, increasing
productivity will increase the supply of goods and lower costs and
prices, spreading the fruits of a higher standard of living to all con-
sumers. But this tendency was offset by the monetary inflation
which served to stabilize prices. Such stabilization was and is a goal
desired by many, but it (a) prevented the fruits of a higher standard
of living from being diffused as widely as it would have been in a
free market; and (b) generated the boom and depression of the
business cycle. For a hallmark of the inflationary boom is that
prices are higher than they would have been in a free and unham-
pered market. Once again, statistics cannot discover the causal
process at work. "

 "He of course revealed there that he misunderstood the difference between the level, and the rate of increase of prices" Oh, of course. But please explain why, Mr Rutner.

OK, I will, he answers us graciously. Because "Interpreting a free and unhampered market to mean a market with 100 percent gold reserves for deposits, prices would indeed be higher with fractional-reserve banking, but in an inflationary boom - meaning one where the money supply increases rapidly and relative to gold reserves - prices would not only be higher, they would be increasing faster than they otherwise would have."

Oh, now I understand. You admit that Rothbard is right when he says in an inflationary boom prices are higher. But that silly goose Rothbard didn't understand that not only are they higher, but they will be increasing faster, too.

Ermm. He also forgot to mention that Columbus discovered America, that E=mc squared, and lots of other important stuff. We really got him now.

Read the paragraph again, Mr Rutner [or maybe it's for the first time]. The topic under discussion is "How can I, Mr Rothbard, claim that there was inflation in the twenties, when prices did not go up?" And the gist of the answer is that that they should have gone DOWN, due to an increase in productivity. And inflation [=money printing] kept them from going down. That Columbus discovered America, that E=mc squared, that in an inflationary boom prices are increasing at a faster rate, are all irrelevant. They key point is that inflation forces prices up, or keeps them from going down when they should.

OK analysis of paragraph 6 continues in the next post, hopefully.

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Smiling Dave replied on Fri, Aug 6 2010 12:01 AM

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Parargraph 6, continued.

Second attack: "But even before the advent of the US current central bank, the Federal Reserve, there never was a period in US history without fractional-reserve banking and with the market being totally free and unhampered."

Who said there was? Rothbard is comparing what happened with monetary inflation in the 20's to WHAT WOULD HAVE HAPPENED in the 20's absent monetary inflation. The fact that there was never a period of US history with out fractional reserve banking is irrelevant, clearly.

Third attack: "Below I will compare the period 1899-1912, when the market was more free and less hampered, with the period of the 1920s. That is because the first period was prior to the Federal Reserve's establishment, and the second was afterwards when the market was, supposedly, less free and more hampered."

And what do you find, Mr Rutner? "If we stick with the usual definitions of money for that period, either M2 or M2 + S&L deposits, we find that the money supply grew respectively by 45 to 43 percent in the 1920s...Of course, one could ask, what was the increase in the period 1899-1912, prior to the Federal Reserve's establishment? The respective increases turn out to be, 149 and 132 percent. At a compound annual rate, the numbers for the 1920s are respectively, 4.5 and 4.8 percent, while for the period 1899-1912, they are, respectively, 7.3 and 6.7 percent. (... for purposes of consistency, the data I used were from Table A-1 pp. 704-711 of Friedman and Schwartz's, A Monetary History of the United States, 1867-1960.)

Bottom line, a less free market, one suffering under the iron boot of the Federal Reserve, had less inflation than a more free market! take that Mr Rothbard. You can't weasel out of this one.

Here are a few lines from that table Mr Rutner quotes:

TABLE A-I
CURRENCY HELD BY THE PUBLIC AND DEPOSITS, SEASONALLY ADJUSTED, 1867-1960
(millions of dollars)

1899
June 1,068  4,966  1,999   0   6,034   8,033

1912

Dec. 1,817  13,513 3,658 28 15,330 19,016

1920
Jan. 4,179  19,077   10,365   29,442   4,963   159   23,256   33,621   38,743

1929

Dec. 3,800  22,634  19,433   42,067   8,820   163   26,434    45,867   54,850

I don't know how to copy this onto the post, but those numbers are of currency held in cash by the public, various types of deposits in banks, and some columns are the sum of earlier ones.

Looks like he's right, doesn't it. Any column you choose, things doubled or tripled between 1899 and 1912, but the changes were more modest from 1920 to 1929. Guess the Fed isn't such an ogre after all. And the numbers are not that much different before 1929 when the crash happened, like say 1928.

But here comes the cavalry, led by, of all people, Milton Friedman! here he is, on page 137 of his Monetary History of the United States:

" ...the tremendous
outpouring of gold after 1890 that resulted from discoveries in South
Africa, Alaska, and Colorado and from the development of improved
methods of mining and refining. The gold stock of the world is estimated
to have more than doubled from 1890 to 1914, growing at an average
rate of 3% a year. By contrast, it rose about 40 per cent during
the preceding twenty-four years, or at an average rate of 1[ and a half] per cent
per year. "

There's more: "...once the gold stock started to rise, it rose
much faster in the United States than in the rest of the world-at an
average rate of 6.8 per cent per year. By 1914 it was $1,891 million or
more than triple its 1897 level. In 1897, the United States held 14
per cent of the world's gold stock; by 1914, it held nearly one-quarter."

And let's remember guys, in those days, gold was money. We were on a gold standard.

Bottom line: It wasn't the doomed to fail free market that increased the supply of money. It was the discovery of huge amounts of gold.

The Fed, on the other hand, did not discover any gold. The defense rests.

There's a lot to say about the difference between more gold being discovered and the Fed meddling, but that's another topic.

OK not sure where to go from here. There was a post that this 1899-1912 thing was the real killer, so maybe I will rest on my laurels having slain this dragon.

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Smiling Dave replied on Fri, Aug 6 2010 10:37 AM

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Welcome back. Last attack on Rothbard from paragraph 6:

"The inflation (of the money supply) of the 1920s on which Rothbard dwelled can be found in Table 1 of chapter 4 (p. 92). To measure inflation of the money supply, Rothbard used a very broad definition of money that included life insurance net policy reserves. While I have seen many definitions of money, I have never seen one like that. Of course, one is free to use any definition one wants, but it has to be grounded in some observable relationship. But Rothbard's approach, that hypotheses and definitions "cannot be 'tested' by historical or statistical fact," precluded his doing so."

I'm not sure exactly what observable relationship would be needed to prove or disprove the validity of including life insurance policy reserves in the money supply. Perhaps if Mr Rutner had told us, and then shown that the observable relationship disproved Rothbard's thesis, my eyes will be opened.

Until then, let's let Mr Rothbard do the talking. It begins with a little chat about time deposits on page 87:

"In recent years, more and more economists have begun to
include time deposits in banks in their definition of the money supply.

For a time deposit is also convertible into money at par on
demand, and is therefore worthy of the status of money."

We may omit Rothbard's defense of these economists, for by now their views have been accepted. M2 includes time deposits, according to Wikipedia on money supply, and Mr Rutner has no problem with M2, as clearly seen from reading this paragraph.

OK, now that time deposits not only have a foot in the door, but are respected guests, let's consider insurance reserves. Here is Mr Rothbard discussing them on page 90:

"But if we concede the inclusion of time deposits in the money
supply, even broader vistas are opened to view. For then all claims
convertible into cash on demand constitute a part of the money
supply, and swell the money supply whenever cash reserves are less
than 100 percent. In that case, the shares of savings-and-loan asso-
ciations (known in the 1920s as building-and-loan associations),
the shares and savings deposits of credit unions, and the cash sur-
render liabilities of life insurance companies must also form part of
the total supply of money.

...Life insurance surrender liabilities are our most controversial
suggestion. It cannot be doubted, however, that they can suppos-
edly be redeemed at par on demand, and must therefore, accord-
ing to our principles, be included in the total supply of money.

The
chief differences, for our purposes, between these liabilities and
others listed above are that the policyholder is discouraged by all
manner of propaganda from cashing in his claims, and that the life

insurance company keeps almost none of its assets in cash—
roughly between one and two percent. The cash surrender liabili-
ties may be approximated statistically by the total policy reserves of
life insurance companies, less policy loans outstanding, for policies
on which money has been borrowed from the insurance company
by the policyholder are not subject to immediate withdrawal.7
Cash surrender values of life insurance companies grew rapidly
during the 1920s.
It is true that, of these constituents of the money supply,
demand deposits are the most easily transferred and therefore are
the ones most readily used to make payments. But this is a ques-
tion of form; just as gold bars were no less money than gold coins,
yet were used for fewer transactions. People keep their more active
accounts in demand deposits, and their less active balances in time,
savings, etc. accounts; yet they may always shift quickly, and on
demand, from one such account to another."

Well, there ya go. Mr Rothbard stated his case quite clearly. One may raise objections to it, of course. But please say what they are. Dismissing this argument with an  "I insist you show me an observable relationship" is just plain lame.

OK, off we go in the next post to paragraph 7.

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Smiling Dave replied on Fri, Aug 6 2010 3:32 PM

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Welcome to paragraph 7.

It seems to be gathering the fruits of paragraph 6, where the increase in the money supply in the 20's is shown to be less by far than the increase in from 1899-1912. Rutner starts with a one line salvo:

"Clearly, there is nothing outlandishly large about the money supply growth of the 1920s to get very exercised about."

There is a factual and a logical mistake in there. The logical one can be best understood by considering a man who murdered 30 people one year, and only 10 the next. Mr Rutner would argue in his defense "Clearly, there is nothing oulandlishly large about a mere ten murders to get very exercised about."

The factual mistake is of course what we have shown earlier, that the increase in money supply at the turn of the century came from the discovery of gold. The increase in the 20's came from the Fed.

Is it indeed nothing to get very exercised about? let's see those stats again [from paragraph 6]:

"If we stick with the usual definitions of money for that period, either M2 or M2 + S&L deposits, we find that the money supply grew respectively by 45 to 43 percent in the 1920s. (Rothbard's inclusion of life insurance net policy reserves and S&L capital rather than deposits, increases that number to about 63 percent.)...At a compound annual rate, the numbers for the 1920s are respectively, 4.5 and 4.8 percent."

Inflation of 4.5% [to use the lowest number] a year is nothing to get exercised about? Well, Mr Rutner, in that case please give me 4.5 percent of your income this year, then next year compound that, so that after ten years you will have given me 45% in all of your money. Why? No reason, I just want it. Nothing for you to get exercised about.

By the way, how does ten years compounded at 4.8% wind up with 43% total? Something is wrong here. Which means all your numbers are suspect. I wish I had the exact lines from Friedman's table you were using, so I could check your math. Just saying.

OK, next attack: "Again Rothbard's narrow focus on a particular datum for a short period turns out, on the surface, not to have any explanatory power."

I suppose this means that had Rothbard been smart enough to compare the 20's with 1899-1912, instead of focusing only on the great depression and a mere ten years before, he would have been able to explain something to us. But we have shown, or rather Milton Freidman has shown, in the very book Rutner uses as his source of info, that 1899-1912 was a whole nuther story. There was gold in them thar hills back then, as we have mentioned in earler posts.

Oddly enough, Mr Rutner chose 1899-1912, an era described by Milton Friedman as "unique in the history of the United States" as far as price inflation. And says very clearly that it's because of the discovery of gold.

Here's the full quote:

"PRICES in the United States rose between 40 and 50 per cent from 1897
to 1914: nearly 50 per cent or at the average rate of 2% per cent per
year according to the wholesale price index, 40 per cent or at the average
rate of 2 per cent per year according to the implicit index used to de-
flate net national product (see Chart 13). The rise brought prices in
1914 just about back to the level reached in 1882 at the peak of the im-
mediate postresumption expansion.
This price behavior is probably unique in the history of the United
States. So far as we can judge from available data, no other peacetime
period of equal or greater length has been characterized by a persistent
upward trend in prices, though if the 1948-60 trend is not reversed the
post-World War II period will in time provide another example.1 Price
rises of larger total magnitude have occurred in U.S. history, but all
have been during or immediately after wars-the rough doubling of
prices in the RevolutionaryWar, the Civil War, and the two world wars.
The only peacetime rise comparable in total magnitude followed the Cali-
fornia gold discoveries in the early 1850's, when prices rose at a faster
rate than from 1897 to 1914, but for less than half as long."

And what did it, says Mr Friedman? "The proximate cause of the world price rise was clearly the tremendous
outpouring of gold after 1890 that resulted from discoveries in South
Africa, Alaska, and Colorado and from the development of improved
methods of mining and refining." See earlier quotes for more quotes.

So Rothbard should have compared the 20's to a period unique in the history of the United States, where the circs were totally different. OK.

But wait! I have it wrong. It wasn't the tripling of the amount of gold in the US that tripled the money supply. It was something totally different, says Mr Rutner:

"In both periods, one contributing factor to money supply growth was that both banks and depositors chose to increase the ratio of deposits to reserve money each held (currency plus bank reserves, also called, high-powered money or the monetary base)."

Damm. Time to lug out the Milton Friedman again. Don't get me wrong. I really like him, now that he has given support to my argument. But it's hard for me to find stuff in that vast ocean of info. OK, here's what I found [anything in bold is from me]:

"The total stock of money in the United States rose at only a slightly
higher rate than the gold stock (7%per cent per year) despite sizable
rises in both the deposit-currency [=people putting more money in banks, so the banks had more to build on when using fractional reserve banking] and the deposit-reserve ratios [=the banks keeping less cash around compared to the amount of nonexistent money they lent](see
Chart 14, below), both of which might be expected to produce a more
rapid rate of rise in themoney stock than in gold. The explanation is that
almost the entire increase in high-powered money came in the form of
gold and national bank notes. The other chief components of high-
powered money [=real money like gold and silver]-silver and silver certificates, Treasury notes of 1890, and U.S. notes-grew hardly at all (see Chart 15, below). Gold and
national bank notes comprised only 44 per cent of high-powered
money in 1897, 68 percent in 1914."

Now, I confess that I don't get why "The explanation" Friedman offers explains anything. This is not mocking him, it is a confession of my ignorance. But note what we can take away from here. Friedman, Nobel prize winner and non Austrian though he is, seems to have risen from the grave for the especial purpose of disagreeing with Mr Rutner. He seems to be saying that the contributing factor Mr Rutner mentions was NOT a contributing factor. But like I say, I feel shrouded in ignorance here, not sue I get the whole paragraph. I'll be glad if someone can help me out.

Let's go on with Mr Rutner's devastating rebuttal of Rothbard:

"The difference in the two periods is that reserve money grew more rapidly in the first period than in the second period. In the first period, reserve money grew at a 4.8% annual compound rate while in the second period, it grew at a compound annual rate of slightly more than 1%. Not surprisingly, prices in the first period rose faster in than in the 1920s. (Specifically, from 1899 to 1912 wholesale prices rose 32 percent while from 1921 through 1929 they fell 2.5%!) What we see here is that the 1920s, being less free and more hampered can, sometimes bring about a modest deflation compared to a period that was more free and less hampered. One can see what happens when fact-free science comes to face to face with pesky little facts."

No, no, no. That is not the difference at all. The difference is, as we have twice quoted Mr Friedman, that all that gold came pouring into the USA like never before or since. The amount of gold tripled, yes TRIPLED, in the era we are talking about. This in a time when the only money around was gold. We were on a gold standard exclusively. Not only does Friedman say that's what happened, he also says, that "clearly" that's what accounts for the rise in prices. It has nothing to do with the fact that markets were freer.

Not that the period under question was as free as Mr Rutner makes it out ot be. Mr Fiedman once again:

"... the grow-
ing tendency on the part of the Treasury to intervene frequently and
regularly in the money market. The central-banking activities of the
Treasury were being converted from emergency measures to a fairly
regular and predictable operating function.
Treasury intervention occurred in the period of monetary stringency
at the end of 1899; again in mid-1901, after the collapse of the stock
market that followed the separate attempts of the Morgan and Harriman
interests to corner Northern Pacific stock and the discovery onMay 9 that
more shares had been sold than were in existence; and again in the fall
of 1901, when a stock market panic was feared as a result of the assassi-
nation of President McKinley.
Treasury intervention reached its peak after Leslie M. Shaw was ap-
pointed Secretary of the Treasury in 1902. He was a vigorous and explicit
advocate of using Treasury powers to control the money market and had
great confidence in theTreasury's ability to do so... The Treasury's mone-
tary powers were very great indeed."

OK, time to take a break. More on paragraph 7 next post.

Reply

Smiling Dave replied on Fri, Aug 6 2010 7:12 PM

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paragraph 7 continueth

"If chapter 4 is the heart of the bad book, Table 7 on p. 109 is the heart of chapter 4. It was from the data in that table, that Rothbard argued (108): "...the inflation [in money] was clearly precipitated deliberately by the Federal Reserve. The plea that the 1920s was simply a 'gold inflation' that the Federal Reserve did not counter actively is finally exploded." His reasoning was that "controlled reserves increased by $1.79 billion for the entire period and that exceeded the monetary gold stock's increase of $1 billion." The problematic aspect with the 'controlled reserves' in Table 7 is that Rothbard's never provided a definition for controlled reserves. While he did provide some computations pertinent to controlled reserves on p. 113, when those computations are applied consistently throughout Table 7, the figures do not add to the amounts he termed there, controlled reserves."

Oh dear. Another page is missing from Mr Rutner's copy of the book. Not only does Rothbard explain explicitly what controlled reserves mean, he enumerates them in a list.

From page 103 [emphasis mine]:

"What then caused the increase in total reserves? The answer to
this question must be the chief object of our quest for factors
responsible for the inflationary boom. We may list the well-known
“factors of increase and decrease” of total reserves, but with special
attention to whether or not they can be controlled or must be uncon-
trolled by the Federal Reserve or Treasury authorities. The uncon-
trolled forces emanate from the public at large, the controlled stem
from the government. "

Then he enumerates them:

"There are ten factors of increase and decrease of bank reserves.
1.  Monetary Gold Stock. This is, actually, the only uncontrolled
factor of increase...

2.  Federal Reserve Assets Purchased. This is the preeminent con-
trolled factor of increase and is wholly under the control of the Fed-
eral Reserve authorities..."

and so on, through all ten.

Then, as if that wasn't enough for the meanest intelligence, to make good and sure everyone is on the same page, he then has a summary:

"Summing up, the following are the factors of change of mem-
ber bank reserves:15
Factors of Increase
Monetary Gold Stock...................................................uncontrolled
Federal Reserve Assets Purchased....................................controlled
Bills Bought
U.S. Government Securities
New Bills Discounted.......................................................controlled
Other Federal Reserve Credit..........................................controlled
Treasury Currency Outstanding.......................................controlled
Factors of Decrease
Outside Money in Circulation......................................uncontrolled
Treasury Cash Holdings...................................................controlled
Treasury Deposits at the Federal Reserve........................controlled
Unexpended Capital Funds of the Federal Reserve........controlled
Non-member Bank Deposits at the Federal                              
Reserve......................................................................uncontrolled
Bills Repaid...................................................................uncontrolled"

OK guys. Is it still fair to say "The problematic aspect with the 'controlled reserves' in Table 7 is that Rothbard's never provided a definition for controlled reserves"? I mean really. Is there one thing here in Rutner's long review that has at least SOME validity? There is not much time left to find one. We have done 7 and a half out of 10 paragraphs.

Maybe this one will be better than the others: "While he did provide some computations pertinent to controlled reserves on p. 113, when those computations are applied consistently throughout Table 7, the figures do not add to the amounts he termed there, controlled reserves."

Dam, I hate math. As Rothbard explains on Page 108 and 111, to get total control reserves in a column, just add items 2 through 9 in each column. [Item one is merely the sum of items 2 3 4 and 5, items 10 11 and 12 are uncontrolled].

UH oh. Looks like Mr Rutner is right. The table is a real mish mash. Column 1 is in error, column 2 is OK. column 3 is ok, 4 is in error, as is 5. 6 is ok, 7 is OK, 8 is in error, 9 is OK. 10 is OK, 11 is OK, 12 is OK. Total OK columns: Eight. Total Erroneous columns: 4.

Uh oh.  In column 1 Total Controlled should be -883, given the other numbers [not 462, a huge huge error] , and uncontrolled should be a whopping 1042 [not -303, another huge error] . Note that1043-883 is 159, so that the bottom line of 157 is fine, given that there are rounding errors, as Rothbard notes. But that doesn't help us with Rothbard's thesis. The positive numbers are supposed to come from controlled reserves [proving the Fed is inflating], and the uncontrolled numbers are supposed to be negative in this column, showing the gold supply was not inflating the money supply, since banks were offsetting that by paying off debt, as Rothbard writes on page 113. Hmm.

Hey. Here there is indeed a valid criticism! 4 deeply flawed columns. I mean simple arithmetic. I guess it must be typos.

[EDIT: The guys on the forum have come through and taken care of this one here. Special thanks to Black Numero.]

Somewhat sobered, let's get to the next point. He quotes Rothbard as saying on page 108: "...the inflation [in money] was clearly precipitated deliberately by the Federal Reserve. The plea that the 1920s was simply a 'gold inflation' that the Federal Reserve did not counter actively is finally exploded." His reasoning was that "controlled reserves increased by $1.79 billion for the entire period and that exceeded the monetary gold stock's increase of $1 billion." But since this conclusion is based on the error filled Table 7, Rothbard has no evidence. Hmmm. Sounds pretty valid. So yes, score one, and a serious one, attacking the very heart of the book, for Mr Rutner. I need help here.

To go on: Indeed, once we get the REAL numbers, continues Mr Rutner, we'll see that just the opposite is true. Just have a look at page 282 of Friedman's book, he says, and You'll see just how wrong Rothbard is.

To quote him in full "Another way of looking at what Rothbard was describing can be found Chart 25 on p. 282 of Friedman and Schwartz's Monetary History. The chart demonstrates the opposite of Rothbard's claim. It makes it quite clear that what the Fed was attempting to do was to use Federal Reserve credit to offset changes in monetary gold stocks that were occurring at the time. Based on the modest growth of reserve money, we would have to say they were somewhat successful."

OK, let's have a look. Hmm. That Chart and the accompanying explanation is very partial. It only has two elements, gold and fed credit [Items 10 and I suppose 1 in Rothbard's table 7]. [One interesting side note is that for the interval covered by the flawed column 1, Friedman admits that the Fed was trying, and succeeding, in inflating as much as they could!]

At any rate, Since Friedman's Chart only takes into account a small amount of the variables Rothbard discusses, it clearly cannot serve as a refutation. That's like saying a chart describing the trend of events happening worldwide is refuted by a chart describing only two countries.

OK, next post will tackle paragraph 8. But it looks like we need serious help with that Table 7 in Rothbard's book. Any experts out there listening who have something to contribute? [EDIT: as I said above, the answer is here, in Black Numero's post].

Reply

Smiling Dave replied on Fri, Aug 6 2010 10:47 PM

rated by 0 users

Welcome, paragraph 8.

Straight to the jugular: "Another problematic aspect raised by Table 7 is its narrow focus on reserves held at the Federal Reserve by banks that are members of the Federal Reserve system. He did not account for the vault cash of the members or the reserves of the non-members. By focusing just on those reserves, he gave a skewed accounting of the increase in bank reserves."

Mr Rutner continues: "By Rothbard's accounting, reserves increased by 47.5 percent from June 1921 through June 1929. (See his Table 6, 102.) When all bank reserves are taken into account, though, the increase comes to 27.5%; and when all reserve money is taken into account, the increase is just 8.4 percent. (See, respectively, Table A-2, 738f., and Table B-3, 802f., of the Monetary History.) Again Rothbard's focus on a specific component, rather than on the total, presents results that can be viewed as misleading."

Here are the relevant lines from Table A-2, all numbers in billions of dollars:

June 1921: Vault cash: .905   Bank Deposits at Federal Reserve Banks: 1.597   Bank reserves [meaning Item 1 plus Item 2]: 2.502

June 1929: Vault cash: .865   Bank Deposits at Federal Reserve Banks: 2.326   Bank reserves [meaning Item 1 plus Item 2]: 3.191

OK. let's analyze what's going on here. First, there seems to be a difference of opinion about vault cash between the two respected authors. Rothbard put it at a constant half a billion [footnote on page 102], Friedman roughly doubles that. I don't know how to account for this. Maybe Rothbard is counting member banks, and Friedman is counting all banks. But notice they agree it was roughly constant. Also, we will show that it doesn't matter.

Another thing to notice is that Rothbard puts 1929 Bank Deposits at 2.6 billion, and Friedman at 2.326 billion, a difference of 280 million dollars. I don't know how to account for this either. Notice that they agree on the number for 1921, Rothbard putting it at 1.6 and Friedman at 1.597.

OK, lets take1.6, multiply it by 147.5%, and you get 2.6. This is what Rothbard calls a 47.5% increase.

Rutner says, no, multiply 2.502, multiply it by 127.5%, and get 3.1901, which he calls a 27.5% increase. [Note that he underestimated a bit, because we have to get to 3.191, not the lower 3.1901]. So that Bank reserves didn't go up as much as Rothbard claims.

Really a zinger, no? After all, money in the vault can also be used as a basis for fractional reserve banking.

But I think there's a huge fallacy here. Rothbard is saying that member banks of the Fed [which is the same as the Fed itself] did ALL THAT WAS IN THEIR POWER to inflate.But banks have no way of increasing the amount of money [=gold, remember? This is the 20's] in their vaults. That's up to the public. In other words, it is an UNCONTOLLED reserve, over which they have no power. So of course when we discuss "By what percent did the feds increase whatever they could?", money in their vaults doesn't count.

Here's El Rothbard, on page 103:"1.  Monetary Gold Stock. This is, actually, the only uncontrolled
factor of increase—an increase in this factor increases total reserves
to the same extent. When someone deposits gold in a commercial
bank (as he could freely do in the 1920s), the bank deposits it at the
Federal Reserve Bank and adds to its reserves there by that
amount. While some gold inflows and outflows were domestic, the
vast bulk were foreign transactions. A decrease in monetary gold
stock causes an equivalent decrease in bank reserves. Its behavior
is uncontrolled—decided by the public—although in the long run,
Federal policies influence its movement. "

Well, word for word, the same goes for money that non member banks put into member banks. It is UNCONTROLLED. The fed guys increased the amount of reserve money THAT THEY COULD. They could not make non member banks deposit more or less than the non member banks wanted. So when we try and figure out what percent did the fed increase the amount of reserves THAT IT COULD, obviously deposits of non memebr banks arent in the picture.

Here's Rothbard on the subject, page 106:

"9.  Non-member Bank Deposits at the Federal Reserve. This factor
acts very similarly to Treasury deposits at the Federal Reserve. An
increase in non-member bank deposits lowers member bank
reserves, for they represent shifts from member banks to these
other accounts. A decline will increase member bank reserves.
These deposits are mainly made by non-member banks, and by
foreign governments and banks. They are a factor of decrease, but
uncontrolled by the government. "

But we have shown in earlier posts that Mr Rutner had all those pages missing from his copy of the book, else he would not have made some earlier foolish comments.

Mr Rutner proceeds to give an alternate explanation of what happened: "A slightly different explanation of what happened is that individuals had a greater preference for bank money than currency in the 1920s, and so they converted their currency into bank money. Comparably, the banks had a greater preference for reserves at the Federal Reserve then they did for vault cash, so they, in effect, transferred any new funds received from the public into reserves at the Federal Reserve. The increase, than, in reserves held at the Federal Reserve was not so much an increase engendered by the Federal Reserve, but simply the workings of banks and depositors preferring one form of money to another."

The amount of money outside banks remained more or less the same all through the 20's [page 92, first column]. This did not happen, we are told, because they wanted as much gold as they could get, but on the contrary, suddenly people preferred bank money [=checks?] more than currency. So what they did was, as soon as they had more gold than they had before, they ran to the bank with it. Please get rid of these ugly gold coins for me. "What about the three and a half billion you are keeping for yourself? Why not give me some of those?" "No, that I want." "Why?" "I don't know. Animal spirits, I suppose."

The bank also hated gold, hated it. As soon as they got some, they ran with it to the federal reserve. Please take this. I dont want it in my vault, ugh. "Why not give me some of the 500 million [or a billion according to Friedman] that you already have in your vault?" "No, that I want."

Here I think someone who knows more than me will come up with a better refutation. All I'm saying is that it sounds very fishy.

The rest of paragraph 8 is faint praise for Rothbard on Hoover. The only quibble is he should have piled up more statistics. Nu.

Reply

Smiling Dave replied on Fri, Aug 6 2010 11:58 PM

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Welcome to paragraph 9, which we will tackle together with paragraph 10. So this will be it. Final post.

The topic is the Smoot Hawley Tariff. Rutner loves it. And that fool Rothbard just confuses correlation with causation, appeals to authorities that he has rejected in other places, forgets that other tarrifs did no damage to the United States, and just makes silly assertions while actually proving nothing.

OK, a pause while I read up. Here are Mr Rutner's reservations:

1. Rothbard takes the fact that the market broke after the tariff was signed into law as proof that the Smoot Hawley tariff contributed mightily to the Great Depression. But this is a big mistake. "The market's having sunk is by itself not evidence. The old saw of, correlation is not causation is at work here."

My rebuttal. Mr Rutner is setting up a straw man. Rothbard does not say what Rutner attributes to him. Here is the full quote on page 242: "The stock market broke sharply on the day that Hoover agreed to sign the Smoot–Hawley Bill. " That's it. Mr Rothbard was writing a history in Part 3, of which this chapter is a part. The theory he dealt with in the other parts. No where does he mention that Smoot Hawley caused the market. Of course it might possibly have been a cause for the market to break sharply in 1930 [not 1929] when it was passed. But Rothbard does NOT claim it.

2. "The fact that many economists opposed the tariff is also not evidence." Same straw man. Rothbard does not say it is, although it's certainly curious, to say the least.

3. "Indeed, Rothbard did not accept stable prices as being a beneficial goal of monetary policy despite many economists having recommended it as policy."

Firstly, in point 2 we showed how this is irrelevant. Second, there is a difference between many and all. " Hoover was urged to veto the
Smoot–Hawley Tariff by almost all the nation’s economists, in a remarkable display of consensus, by the leading bankers, and by
many other leaders. " [page 241].

4. "Moreover, there was an earlier tariff, the Fordney-McCumber Tariff, which went into effect in 1922, and was just as onerous as Smoot-Hawley. Yet, it seems not to have caused any lasting real effects."

Really? Here is Rothbard on that tariff, page 139:

" a mild
recession ensued, continuing until the middle of 1924. Bond yields
rose slightly, and foreign lending slumped considerably, falling
below a rate of one hundred million dollars per quarter during
1923. Particularly depressed were American agricultural exports to
Europe. Certainly part of this slump was caused by the Fordney–
McCumber Tariff of September 1922, which turned sharply away
from the fairly low Democratic tariff and toward a steeply protec-
tionist policy.3 Increased protection against European manufac-
tured goods delivered a blow to European industry, and also served
to keep European demand for American exports below what it
would have been without governmental interference.
To supply foreign countries with the dollars needed to purchase
American exports, the United States government decided, not sen-
sibly to lower tariffs, but instead to promote cheap money at home,
thus stimulating foreign borrowing and checking the gold inflow
from abroad. Consequently, the resumption of American inflation
on a grand scale in 1924 set off a foreign lending boom, which
reached a peak in mid-1928. It also established American trade,
not on a solid foundation of reciprocal and productive exchange,
but on a feverish promotion of loans later revealed to be unsound.4
Foreign countries were hampered in trying to sell their goods to
the United States, but were encouraged to borrow dollars. But
afterward, they could not sell goods to repay; they could only try
to borrow more at an accelerated pace to repay the loans. Thus, in
an indirect but nonetheless clear manner, American protectionist
policy must shoulder some of the responsibility for our inflationist
policy of the 1920s.

Who benefitted, and who was injured, by the policy of protec-
tion cum inflation as against the rational alternative of free trade
and hard money? Certainly, the bulk of the American population
was injured, both as consumers of imports and as victims of infla-
tion and poor foreign credit and later depression. Benefitted were
the industries protected by the tariff, the export industries uneco-
nomically subsidized by foreign loans, and the investment bankers
who floated the foreign bonds at handsome commissions."

5. And finally, the last of Mr Rutner's sallies, begins by quoting Rothbard: "it was at a precarious time of depression that the Hoover administration chose to hobble international trade, injure the American consumer, and cripple the American farmers' export markets by raising tariffs higher than their already high levels."

Mr Rutner is not pleased.

"This is economics by assertion. It proves nothing."

To which I say: Huh? If there is a tariff, THE WHOLE POINT OF IT is to hobble international trade. This is to obvious to even talk about. Why are Americans forced to pay more for foreign products than local products, if not to stop them from buying the foreign stuff?

But it goes further. Them furriners are not going to take it lying down. They are going to set up tariffs of their own, sure as night follows day.

As for injuring the American consumer being a mere assertion, I don't get it. If I have to pay double for sugar or whatever because of a tariff, is it mere "assertion" to say I have been injured? The mind boggles.

Last one, crippling the farmers' export markets. Rothbard says on page 241, "Whereas we have seen that a policy of high tariffs cum foreign
loans was bound to hurt the farmers’ export markets when the
loans tapered off, Hoover’s answer was to raise tariffs still further,
on agricultural and on manufactured products. A generation later,
Hoover was still to maintain that a high tariff helps the farmer by
building up his domestic market and lessening his “dependence”
on export markets, which means, in fact, that it hurts him griev-
ously by destroying his export markets."

When he says "we have seen", he is referring to his discussion of the harmless [according to Rutner] Fordney McCumber Tariff, which I quoted a little bit earlier.

OK, that's it folks. What a long strange trip it's been. Once again, anyone who can help out with Table 7's botched arithmetic, please do. [EDIT: Black Numero came up with the answer here.]

Also with the alternate explanation of the increase in reserves, that everyone started hating gold for ten straight years, the common man and the banks.