Book Review - Murray Rothbard's What Has Government Done to Our Money?

”The abandonment of the gold standard made it possible for the welfare statists to use the banking system as a means to an unlimited expansion of credit. In the absence of the gold standard, there is no way to protect savings from confiscation through inflation. There is no safe store of value. Deficit spending is simply a scheme for the hidden confiscation of wealth. Gold stands in the way of this insidious process. It stands as a protector of property rights. If one grasps this, one has no difficulty in understanding the statists’ antagonism toward the gold standard.”

It is not often that a book about economics is both brilliant and easy to understand by the lay economist. Professor Rothbard’s book is such a book. He clearly laid out monetary theory and the history of the state’s destruction of it. Originally written in 1963, his analysis of money is timeless. This book is a must read for anyone at all concerned about the future of our country.

He began by explaining how money evolved out of previous barter economies. Several problems existed with barter. In some instances there was the problem of indivisibility into smaller units. For example, it was hard to trade a cow for a goat if a whole goat did not equal the value of a whole cow. Another problem was with the lack of coincidence of wants. Suppose the cow owner wanted ten chickens instead, but a chicken owner wanted an ostrich the cow owner did not possess. You see the problems. The solution according to Rothbard was a medium of exchange that would be divisible, acceptable to a large number of people, and transportable (no more carrying chickens on your back, although I have seen this done in Africa where villages still operate primarily on a barter system).

The important point here is that money, represented at the time by gold, was/is a commodity. It was/is traded directly for other goods and services and was/is valued. Money is the same as the cow in our previous example, but better because it is divisible, and versatile. Rothbard believed that learning this lesson is one of the world’s most important tasks because like other commodities by indiscriminately increasing the supply of money you lesson the value of it.

And Rothbard believed that that is the goal of all governments – to inflate their currencies to pay for the promises made by their agents (e.g., politicians). Once gold backing was out of the way, governments could “print money out of thin air” to pay for all of its whims. He provided an excellent summation of the various phases of “the monetary breakdown of the West. It is a fascinating inquiry and one that left my blood boiling. Galling was how over time and in subtle ways, governments took control of the money in their countries. This was done first through government monopoly of the minting business. Then government issued a name (dollar, franc, etc…) for the minted currency. This was meant to disassociate it from any relationship to the metal it was backed by. Thirdly, legal tender laws were passed which gave the government power to declare what money was – either gold or silver backed currency or something else. Lastly, the ultimate usurpation of the power to control money was the creation of central banking. Once central banks existed, any “emergency” was used to gradually and completely remove currencies from gold backing. These emergencies included corporate wars (WW I and WW II), a central bank induced depression (1929-1940), and central bank inflation in the 1960s.

As the finale to his brilliant work he offered his argument for a return to a 100 percent gold standard. On page 126 is the example that caused my epiphany. Under a gold standard, if France inflated the supply of its currency, then the increased supply of francs and incomes in France would drive up the price of French goods. This would make them less competitive against foreign goods pushing up French imports and pushing down French exports. With gold flowing out of France, because foreigners would not accept a depreciated franc for payment, the French government would have no choice but to contract the supply of the franc to avoid national bankruptcy. This in turn would cause French domestic product prices to fall and a reversal of gold outflows. According to Rothbard, the gold standard would not perfectly prevent boom-bust cycles caused by inflation, but it would keep them more closely checked.

What Has Government Done to Our Money? is a must read for all. Liberals should read it to understand how welfare state programs are negated by inflation caused by those same programs. Conservatives should read it to understand how far they have strayed from a system that they once called their own. Others should read it to get angry at what the government has done and is currently doing to our money and then use that anger to affect real change at the ballot box.

Returning to our opening quote, it was not from the book. It was Alan Greenspan’s from an essay he wrote in 1966 favoring a gold monetary standard. Everyone has heard the quote, “there is something rotten in Denmark”. The rottenness in Denmark cannot compare to the rottenness of the Federal Reserve.

Kenn Jacobine teaches English and history for the American International School of Lusaka, Zambia