I came across this on the Mises forum, in my search for any other examples of Rothbard’s tendency (noted by several people) to manipulate facts to support his objectives.

I’ve noted some of them before. His treatment of Ayn Rand seems to be the strongest example and the best documented. The others I can’t judge yet, but they include

misrepresentation of Adam Smith (which provoked a rebuttal by David Gordon, which was then answered by David Friedman)

misrepresentation of Milton Friedman’s work (addressed by David Friedman)

and a couple of examples from banking history I’ve noted elsewhere.

Here is another example from Civil War history. Again, there could be other explanations for it (oversight, confusing data etc.), but it’s one more question mark. I have no wish to exaggerate his failings (as he did others), but it’s at the least very curious and troubling.

Here’s the comment as it appears on the forum (I’ll add links later):

I’m starting to research into the Panic of 1873 for a college project I have. Among other economic literature, I reviewed Rothbard’s “A History of Money and Banking in the United States”. Upon scrutinizing his money supply statistics, I’ve noticed either a vague (i.e, not explicitly distinguished) or downright false money aggregate of his.

At the beginning of his talk about the Civil War, Rothbard mentions that “over the entire war, the money supply rose from $745.4 [sic] million to$1.773 billion, an increase of 137.9 percent, or 27.9 percent per annum.” (p.130).

However, on page 153, Rothbard writes that “Total state and national bank notes and deposits rose from $835 million in 1865 to $1.964 billion in 1873, an increase of 135.2 percent or an increase of 16.9 percent per year.” (p.153)

So what happened here? At first I suspected that Rothbard was being ambiguous by referring to the later statistic as “bank money”, but later Rothbard seems to use it as his total statistic of “money supply”. Even if this wasn’t the true money supply, then that means Rothbard was lobbing off roughly $1billion (and more as currency increased) in all of his subsequent monetary calculations.

Did the total money supply drop by a “cataclysmic” 50% from 1865 to 1867, was Rothbard wrong on his money supply statistic for the Civil war or his later money supply statistic, or am I missing something here?

Note that if we treat $1.964 as the money supply as he seems to do, then using his earlier estimate (1.773) the expansion over nearly ten (8) years increased by a paltry10.77%, or 1.34% per year. In a similar statistic (though with different money aggregates), Friedman states that the money stock from 1867 to 1873 increased by 1.3% per year. Although this is inflationary, one wonders how such a small increase in the money supply could have caused a very serious banking panic/business cycle in 1873 (say what you will about the subsequent recession, the actual panic was very supposedly severe).

Although still optimistic there’s a way to make sense of this, I’m a little disgruntled by this mistake/ambiguity made by Rothbard. Either he just wanted to calculate a “total money supply only for the Civil War” and then proceeded to concentrate solely on bank deposits, or there is a large error in his statistics. I know he gets his money sources from the historical statistics, which I plan on consulting, but that doesn’t seem to answer his ambiguity/incorrectness.

Any thoughts on these money supply statistics? Any help is appreciated.

Well I got the book, 1957 and all. I felt an air of history as I pulled it off the shelf and sifted through its yellow and fading pages.

From what I can tell, there is good news and bad news.

The good news is that Rothbard’s money supply statistics add up, at least according to this book. All of his Civil War totals are obtained by adding total bank deposits, state bank notes, gold coins, silver  subsidiaries, fractional currencies, other U.S currency, greenbacks,  and national bank notes.

The bank news is that judging by this book, some of the statistics are questionable, and Rothbard should be severely criticized for his misleading interpretations. The most obvious is his 1865-1873, state and bank deposits and notes increased about 16.9% per annum. From the book, this is correct, but using highly suspect statistics. It is true that state and national bank notes and deposits increased from 1865 (roughly $869) to $1.964 in 1873, an increase of 16.9% per annum. However careful inspection reveals that according to the statistics, the number of deposits did not increase really increase 16.9% per annum, but rather 50% between last two reported years (1872-1332 and 1873-1964)! My guess is that the bank money (and to a greater extent total money supply) did not explode in one year, but rather the amount of banks voluntarily reported their deposits to the state banking authority. It even says in the forward to the particular section Rothbard used that “Prior to 1896, figures shown here include all national banks and all State banks that voluntarily reported to State banking departments in the United States..”. My guess is that with the Panic in 1873 and more banks under distress, they contacted the state authorities more so than before.

Taking out 1873, and just taking the totals from 1865 to 1872 (for whatever they are worth, considering that they are probably low due to faulty reports), the annual percentage increase was much lower, roughly 4% per year! For Rothbard to report these statistics that bank money increased 17% per annum when it reality it seems to have come only from 1)the last year 2)more likely bad statistics is downright sloppy and poor research.

Regardless of the factual accuracy of the Historical Statistics (I’m extremely hesitant to see bank totals increasing by 50% in one year), even with the statistics he is using they clearly did not increase 17% per year, as Rothbard is claiming.

The problem is he isn’t really stating that the annual expansion in bank deposits wasn’t 16.9%. It’d be one thing if the yearly averages were 10, 20, 12, 15, etc etc, which averaged out to 16.9%. But in the last year when you have a 50% increase lifting an otherwise 7-8 year statistical average of 4%, and then claiming that there was an average of 17% bank credit expansion,it  is very misleading and  resembles an outlier. In addition, it seems likely that the overall expansion wasn’t that great and there were less banks reporting in the late 1860s/early 1870s their financial conditions, which means the bank deposit figures for that time period (1860s) was abnormally low, giving the illusion of great bank credit growth than what actually occurred. Either the statistics are 1) Entirely truthful,which would give great doubt as to why no one has written about one of the U.S’ greatest yearly MS expansions 2)Not accurate, and Rothbard was misleading to use these aggregates and conducted poor research. Even if he wanted to use these numbers, he should have at least written in a footnote that the totals weren’t accurate, especially the 16.9% figure he was using.

EDIT: “The problem is he isn’t really stating that the annual expansion in bank deposits wasn’t 16.9%. It’d be one thing if the yearly averages were 10, 20, 12, 15, etc etc, which averaged out to 16.9%. But in the last year when you have a 50% increase lifting an otherwise 7-8 year statistical average of 4%, and then claiming that there was an average of 17% bank credit expansion,it  is very misleading and  resembles an outlier. In addition, it seems likely that the overall expansion wasn’t that great and there were less banks reporting in the late 1860s/early 1870s their financial conditions, which means the bank deposit figures for that time period (1860s) was abnormally low, giving the illusion of great bank credit growth than what actually occurred. Either the statistics are 1) Entirely truthful,which would give great doubt as to why no one has written about one of the U.S’ greatest yearly MS expansions 2)Not accurate, and Rothbard was misleading to use these aggregates and conducted poor research. Even if he wanted to use these numbers, he should have at least written in a footnote that the totals weren’t accurate, especially the 16.9% figure he was using.”

Beneath this comment is a response from someone who lays out various possible explanations and seems to think Rothbard wouldn’t have manipulated the data intentionally.

There could be many reasons for this error.  I don’t think he was lying.

He states clearly that this is the result of pyramiding of state bank deposits on top of national bank deposits and it doesn’t explicitly say that this happened in one year.  It says “…after 1870…” not in 1872.  Also, he says, “From then on [May 1871] paper money would be held consonant with the U.S. Constitution.” (p. 153)  Although, his stating it as ‘percent per year’ could be considered dubious and was very generous to his argument.

If we are to assume that the statistics prior to May 1871 (the under-reporting) would not have counted all of the paper money as some states had made it illegal. (p. 152).  And my guess is that the unreported money that was being counted after 1871 was so because the state banks had a new Federal law forcing them to redeem all of the paper they had and were using. (Kind of an argument that if the Federal government would have stayed out of it there would never have been the statistical explosion that Rothbard is exploiting, which ironically Rothbard would have wanted.)  To me this could be an explanation as to the dramatic rise that Rothbard was seeing in total money supply.  Again, he could also have been following, or interpreting, again in a possibly conspicuous manner, along with the Federal law.  But lying, I don’t think.