Murray N. Rothbard’s review essay, originally published in 1992 and reprinted in 2011, uses Richard H. Timberlake’s Gold, Greenbacks, and the Constitution to challenge the monetary foundations of contemporary free banking. Its central contention is that abolishing central-bank control does not establish monetary freedom unless banks’ liabilities have a definite standard of redemption. The opening situates this dispute within renewed interest in competitive banking:
In recent years, disillusionment with the record of central banking has led a number of economists to return to the nineteenth-century concept of “free banking”: that is, free and unregulated banking without a central bank.
Rothbard distinguishes his conception of free banking from proposals permitting fractional reserves. He treats demand deposits and banknotes as claims to property held in custody, rather than loans to banks; issuing claims beyond available reserves therefore constitutes fraud in his account. Genuine lending must instead draw on bank equity or funds explicitly committed for a period. Private ownership alone does not establish legitimacy: contractual arrangements must respect property rights.
This legal argument accompanies a monetary one. Rothbard maintains that increasing the money supply redistributes purchasing power rather than creating a general social benefit, while bank-credit expansion generates the Austrian boom-bust cycle. He denies that this mechanism depends on a central bank:
And it is not true, on Misesian theory, that central banking is necessary in order to generate this cyclical process.
Competitive issuance without centralized monetary management would not, therefore, satisfy Rothbard’s requirements. Nevertheless, the review shifts from reserve ratios to the underlying question of what banks promise to deliver when their liabilities are redeemed.
Timberlake’s monetary history supplies the testing ground. Rothbard welcomes his challenge to the constitutionality of fiat money but argues that opposition to compulsory legal tender in private contracts leaves government acceptance of paper insufficiently examined. He also objects to using the relatively brief history of gold monometallism to diminish the much longer monetary role of gold and silver. Against Timberlake’s favorable treatment of bimetallism, Rothbard presents legally fixed gold-silver ratios as price controls that displace the undervalued metal.
The historical criticism extends from constitutional doctrine to political economy. Rothbard emphasizes Salmon P. Chase’s relationship with Jay Cooke and the privileged market for government bonds created by national banking. He connects inflationist policy to iron and steel producers seeking protection from imports and indebted railroads seeking relief from creditors. Railroad affiliations among Supreme Court justices likewise inform his account of legal-tender decisions. These criticisms express a methodological demand: monetary institutions must be explained through organized economic interests as well as judicial reasoning.
Rothbard presents the historical disagreements as preparation for his principal theoretical objection:
And yet there are curious distortions and overtones, which build to a climax in the concluding chapters when Timberlake reveals his own positive monetary proposals.
His target is Timberlake’s adoption of Greenfield and Yeager’s separation of the unit of account from the medium of exchange. Defining a dollar through a commodity-price index, Rothbard argues, leaves unresolved both what circulates and what redemption means. Government selection of the index would invite political manipulation, while an indeterminate redemption mechanism would fail to discipline issuers. Likewise, privatizing the Federal Reserve would preserve the monetary institution he wants abolished.
Behind this objection stands Rothbard’s appeal to Mises’s regression theorem. He argues that money originates as a marketable commodity with prior nonmonetary value, not as an invented accounting convention. His reading of Luigi Einaudi’s medieval evidence similarly grounds separate accounting units in historically circulating precious metals. Gold thus matters as a historical and institutional anchor linking monetary calculation to a commodity outside discretionary issue.
The conclusion turns this argument into a transition proposal. Rothbard would redefine the dollar as a weight of gold sufficient to redeem Federal Reserve liabilities completely, distribute the gold to noteholders and banks holding deposits at the Fed, and extinguish Federal Reserve notes and deposits. Commercial banks could then issue warehouse receipts against gold. The review’s organizing question is whether competitive issuance alone constitutes monetary freedom, or whether freedom also requires enforceable property claims and a definite commodity standard of redemption.
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