What Has Government Done To Our Money
By: Murray Rothbard
Murray Rothbard’s What Has Government Done to Our Money is a critique of government interference in monetary systems. The book explains how money originated, how governments have manipulated it, and why ending a gold standard has caused economic instability.
“Many people believe that the free market, despite some admitted advantages, is a picture of disorder and chaos. Nothing is "planned," everything is haphazard.
Government dictation, on the other hand, seems simple and orderly; decrees are handed down and they are obeyed. In no area of the economy is this myth more prevalent than in the field of money. Seemingly, money, at least, must come under stringent government control.
But money is the lifeblood of the economy; it is the medium for all transactions. If the government dictates over money, it has already captured a vital command post for control over the economy, and has secured a stepping-stone for full socialism. We have seen that a free market in money, contrary to common assumption, would not be chaotic; that, in fact, it would be a model of order and efficiency.”~ Murray Rothbard, What Has Government Done To Our Money
The book is written in 3 sections:
- Money In A Free Society
- Government Meddling with Money
- The Monetary Breakdown of the West
Here’s a short bullet-pointed summary of what Rothbard covers in each section of this book:
Money In A Free Society
- Money evolved naturally from barter systems as societies grew beyond simple exchanges
- Money is fundamentally a commodity that emerged through voluntary market processes, not government decree
- Gold and silver became preferred monetary commodities due to their durability, divisibility, and recognizability
- The development of money allowed for price comparisons and economic calculation
- Unlike other goods, increasing the money supply doesn't benefit society - it simply dilutes the value of existing money
- In a free market, money's value (purchasing power) would be determined by supply and demand
- Money made possible a complex structure of production and cooperation between different economic sectors
“Inflation (an increase in money substitutes not covered by an increase in the metal stock) is never socially useful, but merely benefits one set of people at the expense of another. Inflation, being a fraudulent invasion of property, could not take place on the free market.”~ Murray Rothbard, What Has Government Done To Our Money
Government Meddling With Money
- Governments first seized control by monopolizing coin minting, supposedly to ensure quality
- This monopoly allowed governments to profit by reducing the precious metal content of coins
- Inflation acts as a hidden tax that redistributes wealth from citizens to governments
- Those who receive new money first (government-connected industries) benefit at the expense of those who receive it last
- Central banks were established as "banker's banks" with government-granted monopolies on issuing currency
- The fractional reserve banking system, supported by governments, allows banks to create money out of thin air
- Government intervention distorts market signals, causing poor investment decisions and economic downturns
- Inflation harms savers, fixed-income earners, and creditors while benefiting borrowers and the politically connected
“Now we see why governments are inherently inflationary: because inflation is a powerful and subtle means for government acquisition of the public’s resources, a painless and all the more dangerous form of taxation”~ Murray Rothbard, What Has Government Done To Our Money
The Monetary Breakdown of the West
- The 20th century saw a series of accelerating monetary crises
- Each government "solution" to monetary problems created new problems, requiring further interventions
- The Bretton Woods system established after WWII was inherently unstable and eventually collapsed
- President Nixon's 1971 closure of the gold window ended the last connection between the dollar and gold
- The Smithsonian Agreement of 1971, hailed as a solution, collapsed within a year
- Central banks systematically removed gold from circulation, replacing it with paper currencies
- Government officials portrayed gold as outdated to build trust in central bank notes
- Modern monetary systems allow unlimited currency creation ("counterfeiting") without public awareness
“If the classical gold standard worked so well, why did it break down? It broke down because governments were entrusted with the task of keeping their monetary promises, of seeing to it that pounds, dollars, francs, etc., were always redeemable in gold as they and their controlled banking system had pledged. It was not gold that failed; it was the folly of trusting government to keep its promises. To wage the catastrophic war of World War I, each government had to inflate its own supply of paper and bank currency. So severe was this inflation that it was impossible for the warring governments to keep their pledges, and so they went "off the gold standard," i.e., declared their own bankruptcy, shortly after entering the war. All except the United States, which entered the war late, and did not inflate the supply of dollars enough to endanger redeemability.”~ Murray Rothbard, What Has Government Done To Our Money
My Thoughts
This book falls into the Austrian School of Economics in such a perfect way. Rothbard's main message is simple: money works best when the government leaves it alone. He believes that returning to gold-backed money would prevent governments from creating inflation and would lead to a more stable economy where people's savings keep their value over time.
If you’ve made it this far, I’d recommend checking out some other books on Austrian Economics that I’ve summarized and reviewed:
Economic Policy by Ludwig Von Mises
Economics In One Lesson by Henry Hazlitt
