Murray N. Rothbard, A History of Money and Banking in the United States Before the Twentieth Century

Republished in 2002 as Part 1 of a collection, this historical report chapter traces American money and banking from colonial commodity currencies through the political realignment of 1896. Rothbard organizes the narrative around successive monetary regimes: colonial paper issues, revolutionary finance, the two Banks of the United States, Jacksonian reforms, decentralized banking, Civil War finance, and the national banking system. His governing argument is that monetary instability arose principally from government privilege and fractional-reserve credit expansion, rather than from deficiencies of market-generated money. The chapter combines institutional history, monetary statistics, and an explicitly libertarian reinterpretation of American politics.

Rothbard begins by separating money’s commercial origins from governmental control over its denomination and circulation. Tobacco warehouse receipts, imported coins, and other commodity currencies illustrate exchange developing without a national monetary monopoly.

In the sparsely settled American colonies, money, as it always does, arose in the market as a useful and scarce commodity and began to serve as a general medium of exchange.

Government intervention disrupts this process through fixed bimetallic ratios and compulsory acceptance rules. Rothbard’s interpretation of Gresham’s Law makes legal overvaluation, not unrestricted competition, responsible for the displacement of sound money. Colonial complaints about specie scarcity therefore reverse cause and effect: paper issues and compulsory parity drove metallic currency away. Massachusetts’s military expenditures initiated a recurring pattern in which promises of limited issuance and eventual redemption gave way to depreciation, coercive enforcement, and further emissions.

War supplies the chapter’s principal engine of institutional change. Revolutionary Continentals financed expenditures by transferring purchasing power rather than by openly collecting taxes. Their collapse was followed by efforts to redeem depreciated public debt at par, benefiting speculators and strengthening demands for federal taxation. Robert Morris’s Bank of North America and Hamilton’s First Bank linked privileged banking to government borrowing. Rothbard repeatedly challenges the assumption that wealthy creditors naturally supported hard money while poor agricultural debtors demanded inflation: indebted merchants, land speculators, industrialists, and railroad promoters frequently led inflationary campaigns.

The War of 1812 established an especially consequential precedent when governments allowed banks to suspend redemption while continuing business. For Rothbard, this exemption from ordinary contractual obligations encouraged future overexpansion. His definition of banking freedom consequently concerns enforceable liabilities, not merely the absence of a central bank.

“Free” banking can only refer to a system in which banks are treated as any other business, and that therefore failure to obey contractual obligations—in this case, prompt redemption of notes and deposits in specie—must incur immediate insolvency and liquidation.

The Second Bank’s initial expansion and subsequent contraction exemplify his account of the business cycle: credit generates speculation and unsound investment before reserve pressures force liquidation. The panic of 1819 thus becomes the formative experience of Jacksonian hard-money politics. Rothbard presents the Jacksonians as opponents of government-conferred business privilege, seeking to abolish central banking, separate Treasury finances from banks, and ultimately replace fractional reserves with fully backed money. Drawing on revisionist scholarship, he attributes the expansion of 1833–1837 chiefly to specie inflows rather than to banks suddenly liberated by Jackson. He also distinguishes falling prices from falling production, using the recovery of the early 1840s to argue that monetary contraction need not entail prolonged economic collapse.

Antebellum banking nevertheless remained compromised by suspension privileges, restrictions on branching, and requirements connecting note issuance to state debt. Against these arrangements, Rothbard places the Suffolk Bank’s New England clearing system. Regular redemption, membership discipline, and conservative overdraft policies made private profit-seeking a mechanism of monetary restraint.

While it lasted, though, the Suffolk banking system showed that it is possible in a free-market system to have private banks competing to establish themselves as efficient, safe, and inexpensive clearinghouses limiting overissue of paper money.

The Civil War reversed the Jacksonian separation of government and banking. Greenbacks established compulsory irredeemable currency, while the National Banking Acts tied note issuance to federal bonds and concentrated reserves through correspondent banks, especially in New York.

The Civil War, in short, ended the separation of the federal government from banking, and brought the two institutions together in an increasingly close and permanent symbiosis.

Jay Cooke’s bond-underwriting interests give this transformation a concrete political-economic agent. Rothbard explains how centralized reserves enabled successive layers of credit expansion, making the national system a precursor to the Federal Reserve. Gold redemption in 1879 ended greenback inconvertibility but preserved that structure. His account of subsequent decades juxtaposes rising output, real wages, and capital formation with falling prices, disputing narratives that identify deflation itself with depression. Silver-purchase legislation, meanwhile, weakened confidence in continued gold redemption and contributed to the crisis of 1893.

The concluding discussion extends beyond monetary mechanisms to electoral culture. Drawing on the “new political history,” Rothbard explains partisan commitments through conflicts between evangelical reformers and liturgical communities over prohibition, schooling, and personal liberty. Bryan’s capture of the Democrats in 1896, alongside Republican moderation and acceptance of gold, dissolved the party alignment that had sustained laissez-faire politics. The chapter’s distinctive contribution is this conjunction of monetary institutions, organized beneficiaries, and moral-political culture. Its categorical judgments and reliance on reconstructed monetary aggregates should be read as elements of a strongly argued interpretation: banking crises become evidence against privileged credit creation, while monetary freedom requires commodity money and uncompromised contractual discipline.