Ep. 518 The Airing of Grievances: Murphy Extends His Critique of Three Economists
Bob does a nerdy follow-up to prior interactions with George Selgin, Bryan Caplan, and Brad DeLong.
Mentioned in the Episode and Other Links of Interest:
- The BMS analyzing the SoHo Forum debate on FRB, Bob’s recent interview of Bryan Caplan, and Brad DeLong’s congressional testimony. Bob’s blog post responding to DeLong.
- Bob’s much earlier post on Hoover’s memoirs.
- Help support the Bob Murphy Show.
About the author, Robert
Christian and economist, Chief Economist at infineo, and Senior Fellow with the Mises Institute.
Bob’s remarks about the Scottish restriction of payments are unsatisfactory in several respects. First, unlike the Bank of England the Scottish banks remained _legally_ obliged to redeem their notes in specie (gold ot silver) throughout the restriction period. Their suspension of specie payments followed meetings at which they sought and secured general public support for their decision to suspend before doing so.
Second, the suspension didn’t make Scottish bank liabilities irredeemableI: instead of being claims to specie, they temporarily became claims to the Bank of England’s paper pounds. So the Scottish banks continued to be constrained by their access to a scarce “outside” redemption medium.
Furthermore, that the suspension did not cause the Scottish public to loose confidence in either the Scottish banks or fractional reserves is evident ftom the fact that the very low (1-2%) specie reserve figure I cite in the debate was from _immediately after_ the Bank restriction period. Surely if Bob’s understanding of the significance of the restriction were correct, if there was ever an occasion when the Scots might have been expected to insust upon higher, if not 100%, reserve backing of their bank deposits, this was it! Yet nothing of the kind happened. (And it would be ludicrous to suppose that the banks could have dupped their customers then into thinking they had renounced fractional reserves.)
Not long after our debate I elaborated upon some of these points in an essay series that Bob claims to have read. I regret that those essays still haven’t altered his understanding.
Yes I forgot the nuance of the government not openly relieving the Scottish banks. I actually think that hurts your case, George, but regardless of that, yes I was sloppy in how I worded that. I’ll offer a correction the next episode I record (some are already in the queue).
For onlookers, here is a piece by George talking about this history:
https://www.cato.org/blog/scottish-banks-bank-restriction-1797-1821-part-1
You mean, the banks secured the support of key members of the public, who happened to have sufficient influence to lean on everyone else, until compliance could be achieved. From Rothbard’s point of view, if anyone, even a single property owner, decided not to go along with it, they have a perfect right to demand delivery of the Gold and Silver he or she is entitled to. Property rights are not a democracy.
From a practical point of view … we all know it never works the way the good Rothbard intended. You can imagine that if the holder of a bank note attempts to litigate, and the Judge for that case happens to also be a major holder of bank shares, it might be a touch difficult for said Judge to destroy the value of his own shares by issuing a ruling which crashes the bank. With a bit of prompting, I got Google to give a nice summary of this.
The Rothbardian Dilemma: “It’s Fraud and Cartelisation”
To a Rothbardian (or Austrian school purist), a banknote is a property title. If a bank issues more notes than it has gold in the vault, it has committed fraud. Therefore: The “Crime”: When the Scottish banks suspended specie payments, they defaulted on their legal contracts. The “Corruption”: The network of landlords, judges, and merchants didn’t create a “market solution” — they created an oligopoly or a cartel. The Coercion: Because the judges controlled the courts and landlords controlled the leases, the “agreement” wasn’t truly voluntary for the average citizen. It was an exercise of elite power to protect elite wealth, which Rothbardians would argue is the very definition of systemic corruption.
The Selginite Defense: “It’s Evolution and Spontaneous Order”
George Selgin and modern free-bankers view money not as a rigid moral contract, but as an evolving tool to facilitate trade. Contractual Flexibility: They argue that the public meetings proved the community preferred an orderly, temporary suspension over a catastrophic banking collapse. Spontaneous Order: Rather than a state-enforced monopoly (like the Bank of England), this was civil society organizing itself to solve a liquidity crisis. No State Bailout: Because the British state didn’t legally absolve the Scottish banks, the banks still had to maintain their long-term reputation. They couldn’t just print infinite money because they knew they would eventually have to face the music and resume gold payments (which they did in 1821).
For “dupped” read “duped”!