What Has Government Done to Our Money is a 107-page book by Murray Rothbard. It was originally written in 1963 but has since been updated.
Rothbard begins the book by pointing out that monetary policy is often driven by day-to-day concerns rather than by adherence to principle, and he ends with a historical overview of the last 150 years he titles “The Monetary Breakdown of the West.” The day-to-day planning of politicians and bureaucrats is thus exposed as the vehicle which drove us to the current circus of fiat currency and competitive devaluation. This loudly echoes Austrian Business Cycle theory, where business cycles are shown to repeat because of repetitive bailouts and money printing (quantitative easing) rather than letting the economy reset. This is, obviously, partly because of the nature of electoral cycles in most of the developed world. Politicians, hoping for reelection, kick the can down the road on monetary issues.
With the beginning and then end in mind, we will now look
at some of the memorable parts in between.
The value of this book is that it serves as a primer on Austrian monetary theory. As such, Rothbard traces the logical development of money from barter to indirect exchange to the complicated fiat system now in place. The two problems with a barter economy are the indivisibility of certain goods and the lack of coincidence of wants. For example, a Farmer, looking for food for the day, cannot trade his tractor for a pair of shoes because he is unable to divide his tractor into small increments to sell one at a time without losing the value of the tractor. This is the problem of indivisibility. The second problem with barter is that the two people making the exchange must have a coincidence of wants. If the shoemaker doesn’t want what the farmer brings to exchange, the transaction reaches a stalemate. To remedy this problem, indirect exchange develops. Indirect exchange is when a person trades for one good, and then trades that good for what they really wanted all along. The middle good used to exchange for the end good is chosen because of marketability, which essentially means that it will be easy to exchange with most people. Over time, the most marketable good becomes the money in a given geographical area. In some places this good has been coffee, cigarettes, or sugar, but the overwhelming choice in most of human history has been a dual system of gold and silver.
Following the discussion of how gold and silver come to be recognized as commodity money, the conversation turns to state intervention. In typical Rothbardian fashion, the State is seen as a great enemy of the people, and he is particularly vicious when discussing the monetary sphere. The most illuminating portion of this section lays inflation naked for all to see as a tool of the government and a hidden tax on the people. Rothbard repeats that printing money, or even mining commodity money, does not incur a social benefit to mankind by raising the money supply. In fact, this is shown to hurt the economy by distorting price signals and by effecting people unequally. When the money supply is inflated, the first recipients of the new money purchase goods at the existing price level – they receive the most benefit. On the flipside, prices are bid up as the new money circulates through the economy, and some people buy goods at the higher price before the changes affect their wages. The is especially hurtful to people on fixed incomes like Social Security, teachers, and ministers.
Governments, which are usually in debt, find inflation a convenient way to pay off their creditors without raising taxes on the people, which is a politically unsavory solution. This has been the case since before Romans governors shaved coins and will be so as long as governments have control over the creation and distribution of money. On that note, Rothbard shows that as inflation causes business cycles, government action is floated as the only solution. Chief among these solutions is the Central Bank, that dastardly and ungodly marriage of banks and the power of the state. In collusion, the bankers profit and the State inflates at alarming rates to pay for its agenda, usually a war. This is a cycle that has repeated many times since the inception of the Bank of England, the world’s first Central Bank.
Lastly, Rothbard quite presciently anticipates the Euro and concludes that the ultimate goal of the bankers and the State is a world currency and a world central bank. This world fiat currency would not be tied to gold, and as such, the only hindrance on perpetual inflation would be the specter of hyper-inflation which would cause a worldwide crisis.
Rothbard offers the solution of ending government involvement with money altogether. This would result in stable currencies – probably precious metals, that would be able to be freely exchanged, even over international borders. Although this solution seems unlikely to occur, I am grateful to Rothbard for his book and for the depth of understanding it offers on the past, present, and future monetary order of the world.