6. Monetary and Banking Thought, II: The Bullion Report and the Return to Gold (continued)

0:004. Questioning Fractional Reserve Banking, Britain and the United States Great Britain had now experienced the pain and deprivation of what would become a classic business cycle, that is, the expansion of money, the rise in prices, the euphoric boom, all fueled by the monetary inflation of a fractional reserve banking system, succeeded by a Monetary Contraction with Attendant Depression, Fall in Prices, Bankruptcies, Unemployment and Dislocations. And behind this boom and bust, guiding, organizing, centralizing and directing the monetary expansion and contraction was the powerful central bank, created and privileged by the central government.

0:54In short, it was forcefully impressed upon the public that fractional reserve banks, especially when organized under a central bank, can and do create and then destroy money, distorting and impoverishing the public and the economy in their wake. It is no wonder that severe critics of fractional reserve banking quickly arose, Indicating the Bank's actions and the system itself, and noting their responsibility for the boom-bust cycle. Professor Frank W. Fetter notes the ground swell of criticism of all banks, but he describes the invective against banks as exploiters of the common people with an air of bemusement at the public's irrationality.

1:44But surely this populist invective was well justified. The banks were, indeed, privileged by the government, enabled to inflate, and thus to set in motion a two-fold great injury upon the public, an inflationary boom dislocating production and investment and wiping out the savings of the thrifty, followed by a painful contractionary bust necessary to correcting the distortions of the boom. All of this could properly be laid to the door of the privileged central bank run fractional reserve banking system. Looked at in that light, the radical denunciations of banks without benefit of economic analysis look more like a deeper level of analysis than Fetter realizes.

2:35Fetter describes these opponents of banking as follows. The idea appeared increasingly that banks deprived the public of its natural metallic money and had created paper money as an instrument of oppression. Men who were far apart on most points were in agreement that somebody was making too much money from the paper money system. The restrained criticism of Ricardo under James Mill's urgings of the bank's profits, The strictures of obscure pamphleteers that bankers appear to be infinitely more mischievous than the coiners of base money, that is, counterfeiters of coin, and that both the Bank of England and the country banks had made unfair gains from the restriction measure, the wholesale invective of cobbit against bankers as a class, and the denunciations in Jonathan Wooler's In 1819, when parliament was considering resumption, Sherwin's political register offered this advice.

3:57Let our tyrants turn their infamous paper into coin of the same weight and fineness as that of which the people have been deprived. Fetter indicts the radical hard-money journalist William Cobbett for alleged inconsistency in bitterly denouncing the restriction and the bank's inflation and then attacking the bank for deflating after the war and causing further distress. Yet there is no real inconsistency in attacking the central bank and the fractional reserve banks for first inflating and then contracting, for that is precisely what they had done, and the entire distress of the boom-bust cycle can thus be laid at their doors.

4:46Knowingly or not, these radical critics of fractional reserve banking were simply revising and applying the great tradition of hostility to fractional reserve banking and devotion to 100% reserve in 18th century Britain, for example, Hume, Harris, Vanderlint, a tradition that had been unfortunately derailed by Adam Smith's apologetics for bank paper. In France, the 100% reserve anti-bank tradition had already been revived, as we have seen, by J.B. Say and Destut de Tracille. In the United States, meanwhile, similar conditions were bringing about similar results.

5:33The United States, too, had entered the Napoleonic Wars in 1812 and subsequently experienced wartime boom, in Convertible Bank Notes and Comparable Grievous Inflation. The difference was that the United States had managed to get rid of its central bank, the first bank of the United States, in 1811. So it achieved inflationary results by the Federal governments permitting the private banks to suspend specie payments in August 1814, allowing them to continue in operation and expand credit without having to redeem their notes or deposits. This intolerable situation was allowed to continue for two years after the end of the war until February 1817, at which point the Madison administration made an inflationary compact with the nation's banks.

6:32The compact provided that the United States would re-establish a privileged second bank Bank of the United States, which would then proceed to inflate credit by at least an agreed upon amount, in return for the banks graciously consenting to resume meeting their contractual obligations to pay their debts in specie. An inflationary boom, fueled by an expanding second bank, ensued, to be followed by the The Catastrophic Panic of 1819 in which the second bank was forced to contract suddenly in order to save itself. The Panic of 1819 confirmed Thomas Jefferson's hostility to fractional reserve banking, and we have seen how he and his friend and old opponent, John Adams, both declared their Their Enthusiasm for Distute de Tracis, Ultra-Hard Money Treatise on Economics.

7:33Jefferson was moved by the panic to draw up a remedial Plan for Reducing the Circulating Medium, which he asked his friend, William Cabell Reeves, to introduce into the Virginia legislature without disclosing his authorship. The goal of the plan was bluntly stated as the eternal suppression of bank paper. The method was to reduce the circulating medium to the level of specie proportionately over a five-year period, until paper money was withdrawn completely and totally redeemed in specie. After that, the money in circulation would consist solely of specie. John Adams agreed wholeheartedly.

8:20In a letter to his old opponent, the great libertarian Jeffersonian anti-bank and anti-tariff theoretician John Taylor of Caroline, Adams blamed the banks for the 1819-1820 depression. He attacked any issue of paper money beyond specie in the bank as theft, a position he had elaborated years earlier. Every dollar of a bank bill that is issued beyond the quantity of gold and silver in the vaults represents nothing and is therefore a cheat upon somebody. Jefferson's close friend and son-in-law, Governor Thomas Randolph of Virginia, summed up in his inaugural address of December 1820 the predominant Virginia attitude toward banks.

9:12Randolph pointed out that specie, in universal demand, had a relatively stable value, whereas banks caused great fluctuations in the supply and value of paper money, with attendant distress. Randolph endorsed not only the collection of all taxes in specie, which later, on the Federal level, became the independent treasury plan, but also envisioned a currency backed 100% in specie. But the most important impact of the panic of 1819 on American thought was not simply to reconfirm the hard money advocates of the older generation. It was to generate and stimulate a new, mighty, ultra-hard money movement, which would later become the Jacksonian movement of the 1830s and 1840s.

10:07The goal of the Great Jacksonian Movement was a monetary system consisting wholly of gold, or of 100% gold-backed notes or deposits. Its first goal, achieved after great struggle in the 1830s, was to eliminate the Second Bank of the United States. Its second, largely achieved a decade later, was to separate the Federal Government totally from the banking system by confining its receipts and monetary transactions solely to specie, the independent treasury. Its final goal, only partially achieved, was to outlaw fractional reserve banking altogether, a goal that might well have succeeded if the democratic party had not been fatally sundered by the slavery issue.

10:59A remarkably large number of future Jacksonian leaders learned their anti-bank, hard-money views from experiencing the Panic of 1819. General Andrew Jackson, 1767-1845, himself a wealthy Nashville, Tennessee cotton planter, adopted his lifelong anti-bank views as a result of the panic. Indeed, he quickly became the fervent leader of the opposition to inconvertible state paper in Tennessee, as well as to laws for relief of debtors. Top Jacksonian Senator Thomas Hart Benton, 1782 to 1858, of Missouri, affectionately termed Old Bullion for his devotion to gold and hard money, and who was slated to be Martin Van Buren's Jacksonian successor in the presidency was converted from his previous inflationist views by the Panic of 1819.

12:03And young future Jacksonian and eventual President James K. Polk, 1795-1849, a wealthy cotton planter, began his political career in the Tennessee Legislature in 1820 by advocating A Speedy Return to Specie Payments Historians have had great difficulty interpreting the essential nature of the Jacksonian movement, or for that matter the economic views of Thomas Jefferson and the Jeffersonians. Jefferson, for example, has been generally perceived as a devoted agrarian opposed to commerce and manufacturing, and Jeffersonian John Taylor of Caroline has been labeled in the same In reality it is hard to see how any agrarian can be opposed to a commerce essential to exporting farm products as well as importing manufactured and other goods to the farmers.

13:04It is true that Jefferson, Taylor and others were devoted farmers and personally disliked cities, but they were not opposed to either commerce or industry. What they were opposed to was governmental subsidy and artificial force-feeding of industrial or urban growth. The Jeffersonians favored laissez-faire, private property rights and the free market, and were therefore opposed to governmental subsidies, protective tariffs and cheap inflationary bank credit. The Jacksonians, too, had strict laissez-faire views, except that there were naturally proportionately more who lived in cities or worked in industry.

13:50Jacksonians have been variously and even chaotically interpreted by historians as being a. wild-eyed agrarian hillbillies opposed to commerce and capitalism, historians at the turn of the 20th century B. Pre-New Dealers Interested in Forging a Worker-Farmer Uprising Against National Republican Whig Capitalism, Arthur Schlesinger Jr. C. Spokesmen for Rising Entrepreneurs and Private State Chartered Banks, Trying to Throw Off Central Bank Shackles Upon State Bank Inflation, Bray Hammond The wild inconsistencies of these interpretations stem from most historians conflating the free market and state capitalism.

14:42The Jeffersonians and Jacksonians were not anti-capitalist but ardently in favor, but to them, in contrast to their enemies, the Federalists and Whigs, genuine capitalism Capitalism occurs only when commerce and manufacturing are free, free of both subsidies and constricting controls. Whereas Federalists and Whigs were mercantilists who favored state capitalism, cheap credit, protective tariff, a national debt and big government, the Jeffersonians and Jacksonians Those were free market or laissez-faire capitalists who wanted capitalism and economic growth to develop only under freedom and free markets, that is, under a system of free trade, free enterprise, ultra-minimal government and ultra-hard money.

15:38Neither was Jefferson or Jacksonian leadership in any way ignorant or hillbilly. and himself, as well as most of the other leaders, was thoroughly familiar with the literature of the bullionist controversy, as well as the economic classics, and most of the younger generation of bright economic thinkers and writers were in the Jacksonian camp. Thus Amos Kendall, influential editor of the Frankfurt, Kentucky, Argus, and later to be one of the leading brain-trusters in President Jackson's kitchen cabinet, and his main advisor in the bank war, became a bitter opponent of the banking system as a result of the Panic of 1819, the very thought of banks he now found disgusting.

16:27The best method of rendering them harmless, he concluded, was simply to prohibit them by constitutional amendment. If this were not feasible, then the banks should be required to post security with the courts, enabling them to redeem all their paper. One of America's first economists, Condé Ragé, 1784-1842, found his economic outlook totally transformed by the panic of 1819. A Philadelphia merchant and attorney of French descent, Ragé had published in 1815 an inflationist and protectionist tract, an inquiry into the causes of the present state of the circulating medium.

17:13But in the midst of the panic, Ragé, as State Senator from Philadelphia, headed a committee in 1820 and 1821 that looked closely into the causes of and possible remedies for the unprecedented economic depression. Raguet concluded that the Depression had been caused by bank credit expansion in the boom, followed by a subsequent contraction when the boom caused specie to drain out of the bank vaults. As a result, Raguet emerged from the Depression a dedicated opponent of fractional reserve banking and a convinced partisan of free trade. He was impressed that out of the leading citizens and legislators of nineteen counties to whom the Raguez committee sent a questionnaire, sixteen counties replied flatly that the advantages of the banking system did not outweigh its evils.

18:13From then on, Ragé favored 100% reserve banking to Specie, and while not a Jacksonian politically, staunchly supported the Jacksonian independent treasury plan that divorced the treasury from banks or bank paper. Raguet later expanded his views in his Of the Principles of Banking, 1830, A Treatise on Currency and Banking, 1839 and 1840, Principles of Free Trade, 1835, and in a series of journals which he launched in the late 1830s which included a documentary history of the current and Commercial Crisis, as well as reprints of Ricardo and other monetary theorists and of the Bullion Report.

19:05Raguet explained in his Treatise on Money and Banking how expansion of bank credit brought about a boom, higher prices, a demand to export specie and a consequent call upon the banks for specie contraction and crisis. Remarkably he also anticipated James Wilson of The Economist by almost a decade in demonstrating in a pre-Austrian treatment of the business cycle how the boom brought about over-investment in fixed capital goods. Thus, Raguet wrote, At the winding up of the catastrophe it is discovered that during the whole of this operation Consumption has been increasing faster than production, that the community is poorer in the end than when it began, that instead of food and clothing it has railroads and canals adequate for the transportation of double the quantity of produce and merchandise than there is to be transported, and that the whole of the appearance of prosperity which was was exhibited while the currency was gradually increasing in quantity, was like the appearance of wealth and affluence which the spendthrift exhibits while running through his estate,

20:26and like it, destined to be followed by a period of distress and inactivity. The difference is that the more celebrated Wilson, a leader of the so-called Banking School of Britain never realized that the over-investment was caused by monetary and credit expansion. In short, he never caught up with Ragé and the Jacksonians in the United States. The Panic of 1819 also inspired the publication of the first systematic treatise on political Political Economy in the United States, Thoughts on Political Economy, 1820, by the Baltimore lawyer Daniel Raymond, 1786-1849.

21:15Raymond was born into a conservative Connecticut Federalist family, and his book was a peon to protective tariffs and to the nationalist Alexander Hamilton, whom Raymond considered the only truly sound political economist. But even Hamilton nodded, according to Raymond, on the bank question, and Raymond, too, came out in opposition to bank credit expansion and in favor of 100 percent specie banking. Criticizing Hamilton's and Adam Smith's assertion that banknotes add to the national capital by economizing on specie, Raymond cited David Hume's statement that, in proportion as money If money is increased in quantity, it must be depreciated in value.

22:05Bank credit also promotes extravagant speculation, raises prices of domestic goods in export markets, and brings about a deficit in the balance of trade. To Raymond, the issuing of any banknotes beyond specie was, quite simply, a stupendous fraud. Ideally, he believed that the federal government should eliminate bank paper entirely and supply the country with a national paper backed 100% by specie. As can be seen from the case of Raymond, it was not only the Jacksonians who came to staunch anti-fractional reserve bank position during the 1819 to 1821 depression.

22:52Young Frontier State Representative from Western Tennessee, Davy Crockett, 1786-1836, future Whig leader and enemy of the Jacksonians, stated that he considered the whole banking system a species of swindling on a large scale. Protectionist and future Whig president, General William Henry Harrison, 1773-1841, ran successfully for the Ohio State Senate in the autumn of 1819. When attacked at a local pre-election citizens meeting for being a director of a local branch of the Bank of the United States, Harrison, in a lengthy reply, insisted that he was a sworn enemy of all banks and especially of the Bank of the United States, and that he was unalterably opposed to its establishment and continuation.

23:49And finally, at least at this time, Secretary of State and future President John Quincy Adams fully shared his father's hostility to all fractional reserve banking. To a Frenchman who had sent him a plan for federal government paper money, Adams commended the famous Bank of Amsterdam, where paper was always a representative and nothing more of Specie in its Vaults 5. Monetary and Banking Thought on the Continent Monetary thought on the European continent often paralleled the richer and more developed controversy in Great Britain. In Sweden, notably enough, a bullionist controversy developed a half-century before the more famous one in Great Britain. Since few Britons were versed Based in the Swedish language, the controversy and its significance went unremarked outside Sweden.

24:51In the mid-18th century, Sweden experienced four decades, specifically 1739 through 1772, of roughly democratic government, with political power in the hands of the parliament or riksdag, and with representatives chosen from four estates, nobility, clergy, middle class and peasants. Two political parties battling for power in this era in the nomenclature reminiscent of Gulliver's travels were the Hats and the Caps. The Hats, who were in power from the beginning of the grandiloquently named Age of Freedom until 1765 were mercantilists who believed in using inflation for economic development.

25:40Export subsidies, direct subsidies, cheap loans and high protective tariffs were all used to build internal improvements and to foster favored industries, especially textile manufacturing. A favorite motto of the hats was, Swedish men in Swedish clothing. The choice method of financing these lavish expenditures was inflationary credit expansion by the Central Bank of Sweden. The convenient proto-Keynesian hat theory was that an increased money supply would all go into increased development and output rather than higher prices. As for the nagging thought that deficits might ensue in the balance of payments, there was There's no need to worry, since imports would be held down by direct government controls, while increased national income would, in some odd way, promote increased exports.

26:40After several years of inflationary bank credit expansion, the Swedish government went off the silver standard in 1745, and from then on was free to inflate ad libitum. Thus, total in-convertible banknotes in circulation in 1745 were $6.9 million, doubling until 1754 when total circulation was $13.7 million. Monetary inflation accelerated after that, more than doubling in the next four years, reaching $33.1 million in 1758. Finally, the supply of banknotes reached a peak in 1762 at $44.5 million, a 545% increase over 1745, or an average of 32.1% per year.

27:41In response to the monetary expansion, prices remained stable for a few years and then rose from 1749 to 1756, the general price index rising 23% in the seven years. After that, as usually happens, the price rise accelerated, doubling in the next eight years and reaching a peak in 1764. The biggest concern was the foreign exchange rate, which rose even more Thus, after remaining only 5 or 6% above par from 1752 to 1755, the rate of Homburg Mark Bankos in terms of dollars rose to 247% above par in 1765.

28:35The fall in the foreign exchange value of the dollar led the Hatt government to attempt Direct Control of Foreign Exchange Rates A foreign exchange office was established in 1747 to try to push rates down, using massive French government subsidies to prop up dollars in the foreign exchange market. The exchange office succeeded for a few years, bringing the price of Hamburg-Markbankos down, for example, from 24% above par in 1748 to 5 or 6% above par from 1752 to 1755. But an artificially falling foreign exchange rate combined with rising domestic prices amounted to an enormous subsidy of imports into Sweden.

29:28The resulting huge deficit in the balance of payments raised the increasing problem It is interesting to see how the Hap Theoreticians, led by one Edward Runneberg, explained the mounting crisis. Like the anti-bullionists and the later banking school theorists in Britain, they, even more starkly, reversed the causal chain. The problem, the hats declared, originated in the deficit in the balance of payments.

30:16Where the deficit came from was far more murky. Presumably it was a willful act of greedy consumers and importers. The deficit then caused the price of foreign exchange to rise, which in turn raised the prices of domestic goods in export markets, which in turn pulled up all the prices of domestic goods. Hence, the entire domestic inflation was really due to the mysterious deficit in the balance of payments. The policy conclusion was clear to the hats, restrict imports by coercion. At once did the Hatt theoreticians admit that there could be a causal chain running from increased banknote issue to prices and exchange rates.

31:06On the contrary, the Hatt's advocated further issues in bank money to raise domestic production, which would in turn somehow increase exports and thereby increase foreign exchange earnings and, along with the coerced restriction of imports, cure the deficit. In addition to massive private credits, the inflation of money and credit by the Bank of Sweden financed government deficits, many of which were used for heavy Swedish military expenses to fight in the multinational Seven Years' War, 1756-1763. As the inflation began to accelerate in 1756, CAP political strength grew steadily in reaction not only to the inflationary spiral but also to participation in a widely unpopular war.

32:06The CAPs, who found their constituency among small merchants and civil servants injured by inflation, were in favor of free trade and laissez-faire and opposed to mercantilism and Government Controls. As the inflation proceeded, the caps were able to show how the government-engineered inflation aided privileged manufacturers with cheap bank loans. They also demonstrated how hat privileges and subsidies aided certain privileged commercial capitalists, especially iron exporters. Smaller industrialists, merchants and importers opposed to special privilege were the back Backbone of the Cap Party.

32:51Worried by rising cap power, the Hats finally stopped the monetary inflation in 1762, but prices and exchange rates continued to rise as expectations of further inflation still held sway. Finally, the Caps toppled the Hats in 1765 and promptly ended the inflation by a heroic Policy of Monetary Deflation, Lowering the Total Supply of Banknotes to $33.5 million in 1768, or a 25% drop in seven years, most of it since 1765. The result was, of course, a sharp deflation in prices and foreign exchange, the Mark Banco Output and unemployment declined sharply as well.

33:57Throughout this boom-bust cycle, the caps firmly took what would later be called the bullionist position. The excess issue of banknotes, especially with an inconvertible currency, brought about rises in price and in foreign exchange rates. As we have indicated, the caps were wisely not content with simply pointing out the economic flaws in the Hatt's reasoning. They also attacked the special privileges enjoyed by the Hatt's, and showed how the Hatt constituency benefited by Inflation and Mercantilism. The deflationary course taken by the caps in power may be economically justified by pointing out that drastic measures were necessary to reverse inflationary expectations.

34:48But the caps stressed another attractive political argument, retribution. Why shouldn't the wealthy hat merchants and industrialist profiteers from inflation pay pay the major price for a return to the silver standard and sound money. In this way, deflation would reward those who had suffered from inflation, and the profiteers from the previous inflation would, in a sense, pay reparations to compensate the previous victims of inflation. This was far from an absurd program, and so the cap set out, quite frankly, to deflate prices and exchange rates down to the pre-1745 hat inflation and to the old silver par with the dollar.

35:37Economically, too, the caps had an important argument. Since banknotes received their true value from their silver reserves, the dollar should always designate the same quantity or weight of specie. Two of the leading cap economists, however, argued against the deflation and instead suggested going back to silver at the existing rate of twice the old par. One was the Reverend Anders Czajdinius, 1729-1803, a Lutheran pastor from a small city on the of the Western Coast of Finland Coming from a coastal city in a Finland colonized by Sweden, the Kingdom of Sweden and Finland, and whose trade suffered from state privileges to Stockholm and other Swedish interests, Chidenius early spoke and wrote numerous pamphlets against mercantilism and in favor of free trade.

36:39He also propounded a philosophy of natural law and natural rights of every individual. In 1766, as a representative of the Finnish clergy in the Riksdag, Chidenius was censured and removed from Parliament for the flagrant crime in the Age of Freedom of writing a tract, the succor of the realm by a natural finance system, attacking the policy of deflation to the old par after he had voted for it. Apparently changing one's mind after a vote was not permissible. In the pamphlet, Chidenius, without benefit of having read or heard of Adam Smith, worked out some real bills notions of permissible banking in a convertible monetary system.

37:30The other cap opponent of deflation was a teacher of economics at the University of of Uppsala, Per-Niklas Kristiernan. Kristiernan began at Uppsala as an adjunct in law and economics in 1761, then rose to professor in the same field, then held a chair in philosophy and finally ended as Chancellor of the University. In contrast to the poorly read Chidinius, Christianen was steeped in such foreign economic literature as Cantillon, Hume, Eusty, Locke and Malin. In a pamphlet published in 1761, Summary of Lectures on the High Price of Foreign Exchange in Sweden, Christianen presented a theory of flexible exchange rates as an equilibrating mechanism in inconvertible currency that anticipated the bullionists and was superior to anything

38:58from the Bank's More Liberal Lending Policy, which lowered the rate of interest sharply by the mid-1750s, and also increased inflation by creating money to redeem all extant government bonds. Kristiernan, however, was far from a hard-core hard-money man. He defended banknotes as useful, increasing activity and employment, and opposed deflation Christian, because, he pointed out, prices and wages were sticky downward. It is doubtful, however, that downward stickiness could last for long in the 18th century. But Christian's main objection to deflation was that his ideal was not sound metallic money, but a pre-Freedmanite desire to stabilize the value of the dollar and make the price level constant.

39:53In pursuit of that goal, he urged open market operations by the central bank. Furthermore, again in anticipation of the monetarists, he admittedly preferred inflation to deflation, if that was the choice. Unfortunately the heroic deflationary measures led to temporary cap reverses. The hats came came back to power in 1769, but although they promptly re-inflated, they began to prepare seriously for restoration of the silver standard. When the caps returned in 1772, however, the powerful merchant capitalists of the Hat Party collaborated with the Crown and the nobility to seize power in a coup d'etat, overthrowing King Gustav III as absolute monarch. King Gustav returned Sweden to the silver standard in 1777 at the existing market price.

40:57Later, British bullionist views spread to more intellectually accessible parts of the continent. Thus in 1816, Johann Georg Busch, 1728-1800, a mathematics teacher at the Hamburg Gymnasium, economist and founder of the Academy of Commerce at Hamburg, denounced inflationary banking propelled by government. Busch noted that as a result, the customary abuse has been that too many paper symbols have been produced measured against the needs of the citizens. As a consequence, there are too many who want to change back their paper money into the commodity which is and can be the true symbol of value.

41:46Since the bank cannot produce this commodity, gold or silver, out of nature, like the paper with letters and figures on it, and since she must then confess that she cannot fulfill In order to fulfill her promise to convert to specie, the deceived citizen must become reluctant to take one, the paper for the other, specie money. Bush identified the financing of war as the main reason for the emergency of governmental bank credit inflation since the beginning of the 18th century. Meanwhile, in Russia, the Baltic-German professor of political economy, the Smithian Heinrich Friedrich Freiherr von Storch, denounced government instigation of bank credit and paper money in a lengthy monetary appendix to the 1823 edition of his Cours d'économie politique.

42:41Storch, like Busch, zeroed in on war as the main reason for continuing inflation. The principal motive for introducing this calamitous invention of paper money in nearly all states of Europe have been the financial disorders caused by wars, which have been sometimes just and necessary but mostly useless. How many wars could have been prevented without this unhappy expedient? How many tears and how much blood could have been saved? The best remedy for this evil, declared Storch, would be a return to a pure 100% gold or silver standard in all nations.

43:28Failing that, however, Storch was willing to settle for free private competing banks, which he was perhaps the first to point out would be much less inflationary than governmentally privileged banking. As Storch put it, private banks are those presenting most advantages and least dangers. Great Britain is the only country in Europe where private banks exist. In all other states, banking business is concentrated in one institution, If not founded, then at least approved and privileged by government. Nevertheless, public banks are much more prone to degenerate than our private banks. As long as banking companies exist in isolation, their operations seem to be insignificant.

44:18As soon as they form one sole and great institution, they excite the attention of the government, are profits being more considerable, and because of this, the special protection they enjoy, or the privileges which they solicit, have to be bought by favors which change their nature and subtly undermine their credit.