This archived content originally appeared at, the predecessor site to, and does not carry the sponsorship of the Cato Institute.

What We're Up Against

A couple weeks ago I experienced an embarrassing bout of "premature e-publication," having unknowingly made public a mere fragment of a post-in-progress, consisting of a quotation that I thought I had merely saved for future editing. That involuntary emission elicited some puzzled inquiries and speculation concerning just who the quote was from, and what its point was, for which, my humble apologies.

Here is the passage again:

Unlike the income tax, prominent lawmakers from both parties recognized the need to overhaul the laissez-faire, crazy-quilt way that money was created and interest rates determined. Private "national" banks were still in charge of issuing currency and loaning it out, in blithe disregard of the panics that resulted every few years–the latest in 1907–from such unpredictability. Everyone familiar with the problem favored some kind of regulated coordination among banks.

The words are, in fact, not Paul Krugman's (as one reader speculated). Nor are they from any economist. They are from Michael Kazin's book, A Godly Hero: The Life of William Jennings Bryan, which I'd decided to read in order to gain a better understanding of the man who played an important (if overlooked) part in shaping the modern U.S. currency system.

To be honest, even a few initial dips into Kazin's book where enough to persuade me that his was not a work that I was likely to gallop my way through with bells on. For one thing, in discussing the Scopes trial Kazin dismisses Mencken as an anti-semite, which is, to employ a Menckenesque term (and no matter what Charles Fecher says), a calumny, and a threadbare one at that. For another, he considers the fact that Bryan anticipated much of FDR's New Deal a reason for us to revise our opinion of the man upward.

So Kazin is no economist–or at least isn't enough of one to seriously reckon with the predictable consequences, for an economy faced with mass unemployment, of policies aimed at boosting prices by curtailing output. But he is a professional historian, with a teaching post a Georgetown U., who as such might be expected to do a little homework before committing to print a statement as misleading as the one I've quoted above–not to mention one brandishing such a doozy of a misplaced modifier.

Kazin, it seems, believes that panics were somehow caused by private bankers issuing currency, as if the problem had been a surfeit of that nasty private paper. In contrast every economist or economic historian worth his weight in leftover Chautauqua tickets, whether he be current or of the late 19th century, knows or knew that the problem back then was one of currency shortages, where the shortages, far from having been the bankers' fault, were a result of government regulations dating from the Civil War. Those regulations tied the stock of national bank notes to that of outstanding U.S. government bonds, the supply of which steadily declined as the century wore on, while making it it unprofitable for state banks to issue any notes at all. In Canada currency also consisted of the notes of private banks. But because the Canadian government imposed no comparable limits on its banks' ability to issue notes, Canada was spared both currency shortages and associated panics.

U.S. reformers naturally tried at first to get rid of the regulations that were the true cause (or at least one of them) of U.S. financial crises. So it's something of a kicker to realize that no man did more to oppose such reforms, "in blithe disregard of the panics that resulted every few years," than Mr. Kazin's godly hero.

  • Wradf

    Government regulation of creates a stable supply of money. Without government intervention there is no real control over the money supply which could ultimately affect inflation and economic growth.

    • George Selgin

      Well, Wadf, that you assert the conventional wisdom here suggests that you are new to this site, or else you would be familiar with our efforts to show just how unfounded it is, and that you haven't read carefully either this or my previous post (to which I here supply a link) specifically referring to the Civil War era regulations that destabilized the pre-Fed U.S. currency system. Do you really believe that those regulations were stabilizing? And, if so, how can you account for the fact that Canada, where currency was not subject to those (or other) government regulations had far fewer crises than the U.S.?

  • eileeenchien

    I definitely agree with the fact that the currency shortages affected the United States financial crises. It doesn't make sense that just having private bankers issuing currency is not enough to create an economic problem. It is important to recognize the true cause of these financial crises and fix government regulations that led to these crises. Once these issues to the financial system are known, there needs to be change to the system in order to prevent more damage to the economy or society.

  • MichaelM

    The first question is: How do you correct Mr. Kazin in a way that he'll listen to and adjust his understanding based on?

    The second, better question is: How do you tell everyone else so the general historical understanding of the period changes and people like Mr. Kazin don't have to be corrected anymore?

  • fgazipura

    The solution to this problem is not merely having private bankers issue currency. Shortages are one of the reason that the US has financial problems. The government needs to have a stable system in which the inflow and outflow of currency is stable and secure. This will help rear inflation/ money shortage.

    • George Selgin

      Of course anyone can make such an assertions, fgazinpura; and I don't doubt that in so doing you are being sincere. But what evidence have you to offer in its defense? I have given you Canada as an instance in which private currency was in fact sufficient to prevent shortages. I might have given you a century of Scottish currency stability. And I have pointed to the specific ways in which regulations hampered private efforts to avoid shortages.

      So what counter-evidence or argument have you to offer against mine?