- Rothbard, Murray.
What Has Government Done to Our Money?
Auburn, AL: Ludwig von Mises Institute, [1963, 1985, 1990, 2010] 2015.
ISBN 978-1-61016-645-4.
-
This slim book (just 119 pages of main text in this edition)
was originally published in 1963 when the almighty
gold-backed United States dollar was beginning to crack
up under the pressure of relentless deficit spending and
money printing by the Federal Reserve. Two years later,
as the crumbling of the edifice accelerated, amidst
a miasma of bafflegab about fantasies such as a
“silver shortage” by Keynesian economists and other
charlatans, the
Coinage
Act of 1965 would eliminate sliver from most U.S. coins,
replacing them with counterfeit slugs craftily designed to
fool vending machines into accepting them. (The little-used
half dollar had its silver content reduced from 90% to 40%,
and would be silverless after 1970.) In 1968, the U.S. Treasury
would default upon its obligation to redeem paper
silver
certificates in silver coin or bullion, breaking the link
between the U.S. currency and precious metal entirely.
All of this was precisely foreseen in this clear-as-light
exposition of monetary theory and forty centuries of
government folly by libertarian thinker and
Austrian School
economist Murray Rothbard. He explains the origin of
money as societies progress from barter to indirect
exchange, why most (but not all) cultures have settled
on precious metals such as gold and silver as
a medium of intermediate exchange (they do not deteriorate
over time, can be subdivided into arbitrarily small
units, and are relatively easy to check for
authenticity). He then describes the sorry progression
by which those in authority seize control over this
free money and use it to fleece their subjects. First,
they establish a monopoly over the ability to coin money,
banning private mints and the use of any money other than
their own coins (usually adorned with a graven image of
some tyrant or another). They give this coin and its
subdivisions a name, such as “dollar”, “franc”,
“mark” or some such, which is originally defined as
a unit of mass of some precious metal (for example, the U.S.
dollar, prior to its debasement, was defined as 23.2 grains
[1.5033 grams, or about 1/20 troy ounce] of pure gold).
(Rothbard, as an economist rather than a physicist, and one
working in English customary units, confuses mass with weight
throughout the book. They aren't the same thing, and the
quantity of gold in a coin doesn't vary depending on whether
you weigh it at the
North Pole
or the summit of
Chimborazo.)
Next, the rulers separate the concept of the unit of money
from the mass of precious metal which it originally defined.
A key tool in this are
legal tender
laws which require all debts to be settled in the state-defined
monetary unit. This opens the door to
debasement of
the currency: replacing coins bearing the same unit of money with
replacements containing less precious metal. In ancient Rome, the
denarius
originally contained around 4.5 grams of pure silver.
By the third century A.D., its silver
content had been reduced to about 2%, and was intrinsically
almost worthless. Of course, people aren't stupid, and when the
new debased coins show up, they will save the old, more valuable
ones, and spend the new phoney money. This phenomenon is called
“Gresham's
law”, by which bad money chases out good. But this is
entirely the result of a coercive government requiring its
subjects to honour a monetary unit which it has arbitrarily
reduced in intrinsic value.
This racket has been going on since antiquity, but as the
centuries have passed, it has become ever more sophisticated
and effective. Rothbard explains the origin of paper money,
first as what were essentially warehouse receipts for real money
(precious metal coins or bullion stored by its issuer and
payable on demand), then increasingly abstract assets “backed”
by only a fraction of the total value in circulation, and
finally, with the advent of central banking, a fiction totally
under the control of those who print the paper and their
political masters. The whole grand racket of fractional reserve
banking and the government inflationary engine it enables is
explained in detail.
In the 1985 expanded edition, Rothbard adds a final twenty page
chapter chronicling “The Monetary Breakdown of the
West”, a tragedy in nine acts beginning with the classical
gold standard of 1815–1914 and ending with the total
severing of world currencies from any anchor to gold in March,
1973, ushering in the monetary chaos of endlessly fluctuating
exchange rates, predatory currency manipulation, and a towering
(and tottering) pyramid of completely unproductive financial
speculation. He then explores the monetary utopia envisioned by
the economic slavers: a world paper currency managed by a World
Central Bank. There would no longer be any constraint upon the
ability of those in power to pick the pockets of their subjects
by depreciating the unit of account of the only financial assets
they were permitted to own. Of course, this would lead to a
slow-motion catastrophe, destroying enterprise, innovation, and
investment, pauperising the population, and leading inevitably
to civil unrest and demagogic political movements. Rothbard
saw all of this coming, and those of us who understood his
message knew exactly what was going to happen when they rolled
out the Euro and a European Central Bank in 1991, which is just
a regional version of the same Big Con.
This book remains, if I dare say, the gold standard when it comes
to a short, lucid, and timeless explanation of monetary theory,
history, the folly of governments, and its sad consequences.
Is there any hope of restoring sanity in this age of universal
funny money? Perhaps—the same technology which permits
the establishment of cryptocurrencies such as Bitcoin radically
reduces the transaction costs of using any number of competing
currencies in a free market. While Gresham's Law holds that
in a coercive un-free market bad money will drive out good, in a
totally free market, where participants are able to use any
store of value, unit of account, and medium of exchange they
wish (free of government coercion through legal tender laws or
taxation of currency exchanges), the best money will drive out
its inferior competitors, and the quality of a given money will
be evaluated based upon the transparency of its issuer
and its performance for those who use it.
This book may be purchased from Amazon in either a
print or Kindle
edition, and is also
available
for free from the publisher, the Ludwig von Mises Institute,
in HTML, PDF, and EPUB formats or as an audio book. The PDF
edition is available in the English, Spanish, Danish, and
Hungarian languages. The book is published under the Creative
Commons Attribution License 3.0 and may be redistributed
pursuant to the terms of that license.
July 2019 