What Has Government Done to Our Money? and The Case for a 100 Percent Gold Dollar
By Murray N. Rothbard
Ludwig von Mises Institute 2005
Murray Rothbard was the distinguished professor of economics at the University of Nevada, and dean of the Austrian School. He authored 17 books, including the one under review here – What Has Government Done to Our Money? Essentially, the book explains what money is and describes how money has changed. Money changed because governments and banks abandoned the gold standard. Fiat currency emerged, and with it a whole bunch of problems.
What Has Government Done to Our Money? is a remarkable book. For it takes a complicated subject, boils it down, and dispenses the vital ingredients in a crystal clear manner. The text is smooth as cashmere, not herky-jerky like most highbrow books where you have no idea what you just read and really don’t care either. Rothbard’s book hooks you immediately and then reels you in with a deft touch.
The book is has two primary parts. The first part relates the history of money and what government has done to it. This part includes ‘Money in a Free Society,’ ‘Government Meddling With Money,” and ‘The Monetary Breakdown of the West.” In the second part, Rothbard presents his case for a 100 Percent Gold Dollar.
According to Rothbard, money became problematic way back in 1913, which was when America adopted the Federal Reserve System – a Central Bank. As Rothbard points out, “A Central Bank attains its commanding position from its governmentally granted monopoly of the note issue.” From that point on the definition of money began to change.
The first ‘money’ issued by the Fed in 1914 stated:
This Note Is Receivable By All National and Member Banks and Federal Reserve Banks and for all Taxes, Customs, and Other Public Dues. It Is Redeemable in Gold on Demand At the Treasurey Department of the United States in the City of Washington, District of Columbia or in Gold or Lawful Money At Andy Federal Reserve Bank.
By 1950 this was revised to
This Note Is Legal Tender for All Debts, Public and Private, and Is Redeemable in Lawful Money At the United States Treasury, or At Any Federal Reserve Bank.
The Constitution, remember, demands that “lawful money” be made only of silver or gold. So although the 1950 revision was vague, it still met the legal definition imposed by the Constitution. The Fed’s paper could be redeemed for gold or silver on demand.
Then in 1963, the wording was changed again. This time it read:
This Note Is Legal Tender for All Debts, Public and Private.
This statement meant the money could not be exchanged for gold or silver or – for that matter – anything else. In effect, this money was money only because the Fed said it was.
Fiat currency became the new star of the show. To Rothbard, the Fed is nothing more than a massive counterfeiting operation that forces Americans to pay ever-growing interest on money that continues to be worth less and less. In Rothbard’s opinion, the only way to stop this vicious cycle is “by the return to a free market commodity money such as gold, and by removing government totally from the monetary scene.”
Rothbard sums up by stating “that gold, that scarce and valuable market-produced metal, has always been, and will continue to be, by far the best money for human society.” Having said it, he turns his attention to the 100 Percent Gold Dollar.
Rothbard does not advocate a return to the pre-1933 gold standard. Why? Because “it seems clear to me that the gold standard of the 1920s was so vitiated as to be ready to collapse. A return to such a gold standard … would only pave the way for another collapse.” Instead, Rothbard advocates a 100 Percent Gold standard. Such a system, he argues, would end “fractional-reserve” banking, which is “simply fraud.” In addition, it would bring inflation to a screeching halt and force governments to balance their budgets.
One of the big objections to 100 percent gold is that the money supply would be insufficient. In short, there wouldn’t be enough money to go around. Rothbard counters this objection by directing attention to the “great monetary lesson of classical economics: that the supply of money essentially does not matter.” In other words, Rothbard is saying that money is a medium of exchange. Which means the purchasing power of the available money supply will adjust accordingly. Each monetary unit will be worth more.
Rothbard goes on to state bluntly “this is the only system compatible with the fullest preservation of the rights of property. It is the only system that assures the end of inflation and, with it, of the business cycle. He admits that his recommendation is “radical,” especially in today’s world. Yet he insists that such a measure is in keeping with the great traditions of Jefferson and Jackson, both of who “were fully devoted to capitalism and the free market.”
Adopting a 100 percent gold dollar would be painful, concedes Rothbard. He perceives two ways to go about it. “Force a deflation of the supply of dollars down to the currently valued gold stock” or “raise the price of gold.” Whichever route is selected, Rothbard believes it must be done. Not to do so is “to abandon human reason.”
This is a powerful book. Its message is powerfully argued. Much historical and logical evidence is presented. Yet one has to wonder if anyone is listening.